No Automatic reversal of ITC

ITC Can’t Be Denied Automatically For Non-Payment of Taxes by Supplier: Calcutta HC Ruling

In a landmark judgment, the Calcutta High Court has ruled that input tax credit (ITC) under GST cannot be denied over a mismatch in GSTR-2A and GSTR-3B without any investigation into the supplier. The ruling provides massive relief to companies facing demand notices on account of non-reporting or non-payment of taxes by the supplier.

“There shall not be any automatic reversal of input tax credit from buyer on non-payment of tax by seller… In case of a default in payment of tax by the seller, recovery shall be made from the seller,” the Calcutta High Court said in a judgment dated August 2, 2023.

The judgment was delivered by a two-judge Bench comprising Calcutta HC Chief Justice T S Sivagnanam and Justice Hiranmay Bhattacharyya.

The court, however, said the reversal of GST input tax credit from the buyer shall also be an option available with the revenue authorities to address the “exceptional situations like missing dealer, closure of business by supplier or supplier not having adequate assets, etc”.

The high court has held that without making appropriate enquiries at the supplier’s end or seeking to recover the tax dues from the supplier, demand notices cannot be issued to purchasing companies who have complied with the law.

Earlier, an advance ruling by Punjab AAR denied ITC to a taxpayer on account of default by its supplier. While the taxpayer had submitted that there is no mechanism available to him to ensure compliance by the preceding supplier, the authority proceeded to deny ITC by strictly interpreting Section 16(2)(c) of the CGST Act.