clerl.tax

Category: court

  • Litigation Management under 🇮🇳 GST—Part 10

    When navigating the labyrinthine process of GST appeals, it’s crucial to understand the various levels and their respective protocols. For any individual or entity aggrieved by a decision rendered by an adjudicating authority, there exists a structured pathway to seek redress. The appeal process begins with the Appellate Authority, moving up through successive levels if necessary. Each step in this journey is guided by specific provisions under the GST law, ensuring a comprehensive framework for resolving disputes.

    Initiating the Appeal Process

    The right to appeal is reserved for the person aggrieved by an adjudicating authority’s decision or order. This appeal must directly challenge an appealable order issued under the GST Act. The initial step involves approaching the Appellate Authority, where one can contest decisions made by the adjudicating authority. For higher appeals, the matter can be escalated to the Appellate Tribunal, specifically the Goods and Services Tax Appellate Tribunal (GSTAT). Here, any person dissatisfied with the Appellate Authority’s decision or a revisional order can seek further redress.

    Formation and Functioning of GST Appellate Tribunals

    The constitution of GST Appellate Tribunals is underway, with recommendations from the GST Council. The number and location of these tribunal benches have been delineated nationwide, and the eligibility criteria for the appointment of the President and Members of the GSTAT have been established. It is anticipated that these tribunals will commence operations shortly, providing an additional layer of adjudication.

    Escalating Appeals to Higher Courts

    If either the department or the assessee is dissatisfied with a tribunal’s decision, they may escalate the matter to the High Court. The High Court will admit such appeals if they involve substantial legal questions. It’s noteworthy that the tribunal serves as the final authority on matters of fact. Appeals to the Supreme Court from the High Court are permissible when the High Court certifies a case as fit for appeal based on an aggrieved party’s request.

    Scope of Appeal

    An appeal under GST is a statutory right, providing taxpayers (aggrieved persons) a remedy under the law. Other remedies include revision under Section 108 and rectification under Section 161. While the term “appeal” is not explicitly defined in GST law, it generally implies an application to a higher authority for reversing or modifying an impugned order. Not all orders are appealable, as stipulated in Section 121. The objective of an appeal is to resolve tax disputes, either by confirming, modifying, or quashing the impugned order.

    Stages of Appeals under GST

    First Level—

    An aggrieved person must first file an appeal with the First Appellate Authority against an order passed by the adjudicating authority under Section 107 of the CGST Act, 2017. The relevant adjudicating authority may be a Commissioner (Appeals) if the original decision was made by an Additional or Joint Commissioner, or an Additional Commissioner (Appeals) if made by a Deputy or Assistant Commissioner or Superintendent.

    Second Level—

    Appeals from the First Appellate Authority go to the Appellate Tribunal, covered under Sections 111-113.

    Third Level—

    From the Appellate Tribunal, appeals can be taken to the High Court as per Section 117, provided there is a substantial question of law involved.

    Fourth Level—

    Finally, decisions of the High Court can be appealed to the Supreme Court under Section 118, subject to certification by the High Court.

    Key Considerations for Filing Appeal to the Appellate Authority

    • Eligibility: Any aggrieved person or the department on the Commissioner’s direction can file an appeal.
    • Order Appealed Against: Decisions or orders passed by an adjudicating authority under the Act.
    • Time Limit: Appeals must be filed within three months from the order’s communication date, with a possible one-month extension. Departmental appeals have a six-month limit.
    • Pre-Deposit: A 10% pre-deposit of the disputed amount is required.
    • Adjournments: Up to three adjournments may be granted, with reasons recorded in writing.
    • Decision Timeline: Appeals should ideally be resolved within one year of filing.
    • Remand: Remand to the adjudicating authority is not permitted.

    Appeal to the Appellate Tribunal

    • Eligibility: Aggrieved individuals or authorized departmental officers on the Commissioner’s direction.
    • Order Appealed Against: Orders issued by the appellate authority.
    • Time Limit: Appeals must be filed within three months, extendable by three more months for sufficient cause; departmental appeals have a six-month limit.
    • Pre-Deposit: A 20% pre-deposit of the disputed amount is required.
    • Adjournments: Up to three adjournments may be granted.
    • Decision Timeline: Appeals should ideally be resolved within one year of filing.

    Appeals to Higher Courts:

    • Eligibility: Any aggrieved person.
    • Order Appealed Against: Appellate tribunal orders involving substantial legal questions.
    • Time Limit: Appeals must be filed within 180 days of the order’s communication, with provisions for delayed filings if justified.

    Supreme Court

    • Eligibility: As per the Supreme Court Rules and Code of Civil Procedure.
    • Order Appealed Against: High Court orders or national/regional tribunal bench orders involving inter-state or state-centre disputes regarding the nature or place of supply.
    • Time Limit: As per the Supreme Court Rules and Code of Civil Procedure.

    Understanding and navigating these intricate processes is pivotal for any aggrieved party seeking justice under the GST framework. Each stage offers a systematic approach to resolving disputes, ensuring that the principles of fairness and legal propriety are upheld throughout the appeal process.

  • Groundbreaking Verdict—GAAR’s First Blow to Bonus-Stripping Tax Schemes

    In an unprecedented legal precedent, the Telangana High Court has rendered its first judgment concerning the General Anti-Avoidance Rules (GAAR), a seminal provision within the Indian Income Tax Act, 1961, that was activated from the financial year 2017-18. GAAR bestows extensive powers upon the Indian Revenue Authorities (IRA), enabling them to recharacterize transactions, disregard components of a series of transactions, and disallow incurred expenses if the principal motive is identified as tax benefit acquisition. Historically, the IRA’s aggressive scrutiny has induced considerable apprehension within the industry about the potential widespread invocation of GAAR provisions. However, to the taxpayers’ relief, such instances have been scarce until now.

    The Landmark Case

    Seven years post-GAAR’s induction, the Telangana High Court addressed its inaugural case implicating GAAR provisions. The Court adjudged that the taxpayer’s transactional scheme amounted to impermissible tax avoidance arrangements. The IRA charged the taxpayer with engaging in “bonus stripping,” wherein shares were allocated as bonus shares in a 5:1 ratio before their transfer to another entity, purportedly to claim tax losses.

    Detailed Examination

    The case’s intricacies reveal that the taxpayer and its sister concern, XYZ, were allotted shares of ABC at INR 115 per share. Subsequently, the taxpayer acquired the remaining shares from XYZ, followed by ABC declaring a bonus in a 5:1 ratio, reducing the share value to INR 19.20. Within ten days, the taxpayer sold these shares to another entity, PQR, claiming a short-term capital loss of INR 4,620 million. Given that XYZ financed PQR’s purchase consideration, the Court identified this as round-tripping, where the funds initially paid to XYZ were rerouted to the taxpayer via PQR.

    The taxpayer argued that GAAR should not be invoked if the transaction fell under Specific Anti-Avoidance Rules (SAAR) within the IT Act. They contended that Section 94(8) of the IT Act, which prohibits claiming losses from bonus stripping, applies solely to mutual funds and not to shares. Therefore, the taxpayer asserted that the legislature’s deliberate exclusion of shares from SAAR’s ambit precluded the IRA from invoking GAAR to negate the losses from bonus stripping. They referenced the Shome Committee’s recommendations, which advised against invoking GAAR where SAAR was applicable.

    Judicial Decision

    The Court, however, dismissed the taxpayer’s arguments, emphasizing that GAAR provisions, beginning with a non-obstante clause, supersede other provisions. It clarified that Section 94(8) of the IT Act, while relevant to bonus share issuance with genuine commercial substance, did not apply here due to the scheme’s primary design to evade tax obligations. The Court also cited the Finance Minister’s clarifications during GAAR’s introduction, which stated that GAAR or SAAR applicability would be determined case by case.

    Further, the Court invoked the established judicial principle of “substance over form,” predating GAAR, aimed at unveiling deceptive structures lacking real commercial substance. Citing the Supreme Court’s Vodafone International Holdings B.V. decision, the Court underscored that business intent could substantiate whether a transaction was artificial or deceptive. It concluded that tax planning cannot encompass colorable devices, affirming that the taxpayer’s actions constituted impermissible tax avoidance.

    Key Insights

    With tax authorities poised for heightened scrutiny, taxpayers must meticulously document the business exigencies underpinning their transactions. Concurrently, it is anticipated that the IRA will not indiscriminately apply this case’s rationale to legitimate mergers and acquisitions. Courts are increasingly adopting a holistic view of transactions, eschewing decisions based purely on technicalities. Given the advanced tools and knowledge now available to tax administrators, taxpayers must diligently record the commercial rationale behind transactions, especially those yielding tax advantages, to preclude challenges under GAAR principles.

    This landmark judgment sets a pivotal precedent, underscoring the judiciary’s commitment to uphold the integrity of the tax system and dissuade impermissible tax avoidance practices.

  • High Court Confirms: Dual Show Cause Notices Are Legal and Binding!

    In a landmark ruling, the High Court clarified the nuances of jurisdiction concerning the issuance of multiple show cause notices to an individual and their business entities. Imagine you’re an entrepreneur with multiple ventures, and one day, you receive not one, but two show cause notices. The bewilderment and concern are palpable. Can they really do this? You wonder.

    In this case, the petitioner argued vehemently against the issuance of a second notice by a different Commissionerate for their proprietorship concern, especially when an individual notice had already been served. It’s like receiving two speeding tickets from two different cops for the same drive. Fair or foul?

    The Court, however, dissected the situation with precision. They delved into the heart of the matter: jurisdiction. Picture this: your proprietorship is nestled in a specific Commissionerate’s domain, while you, as an individual, are subject to another’s oversight. The petitioner felt cornered, akin to being judged twice for the same act by different judges.

    The ruling was clear. The Court held that the jurisdiction of the Commissionerate where the proprietorship was situated was indeed valid. The previous individual notice did not invalidate the notice to the firm. This decision underscores a pivotal principle: the actions of a firm and an individual, though interconnected, can be independently scrutinized by the appropriate authorities.

    This revelation might seem daunting. You might ask, “Does this mean I’m perpetually under dual scrutiny?” Not exactly. The Court advised the petitioner to address the show cause notice issued to the firm, emphasizing that due process and proper jurisdiction must be respected.

    Think about it as navigating a maze with checkpoints. Each checkpoint (or Commissionerate) has its rules and domain. While it feels like double trouble, it’s more about ensuring every aspect of business operations adheres to regulatory frameworks.

    The High Court’s stance was firm—no grounds for interference were found, and the appeal was dismissed. This case serves as a crucial reminder: understanding the scope of jurisdiction and the separation of individual and business entity responsibilities is vital.

    Reflect on this scenario: running a business is like managing a multi-layered chessboard. Each piece, whether an individual or a firm, moves under specific rules and oversight. Navigating these rules with clarity can prevent the stress and confusion that often accompany regulatory compliance.

    In conclusion, this ruling sheds light on the intricate dance of jurisdiction in business operations. It urges entrepreneurs to stay informed and proactive, ensuring they address each notice with the due diligence it warrants. So, next time you’re entangled in legal intricacies, remember this case. It might just be the compass you need to navigate through the regulatory maze.

  • Kerala High Court: ITC Conditions and Retrospective Benefits under Section 16(4)

    In a significant legal battle, M/S M. Trade Links brought forth a challenge against specific provisions of the Central Goods and Services Tax Act (CGST) and the State Goods and Services Tax Act (SGST) in the Kerala High Court. The core of the dispute centers on Sections 16(2)(c) and 16(4) of the CGST and SGST Acts, which stipulate the prerequisites for claiming Input Tax Credit (ITC).

    M/S M. Trade Links argues that the current conditions under Section 16(2)(c) unfairly restrict the ability to avail ITC, creating undue hardships for businesses. Additionally, they contend that the retrospective application of Section 16(4) presents further complications and financial burdens. By challenging these provisions, they seek a more favorable interpretation that aligns with the broader goals of tax reform and business facilitation.

    The Kerala High Court’s decision on this matter could have far-reaching implications, potentially reshaping the ITC landscape and providing much-needed clarity for businesses operating under the CGST and SGST frameworks. This case highlights the ongoing tension between tax authorities and businesses striving for a fair and equitable tax regime.

    India introduced the GST regime to simplify indirect taxes, lessen cascading tax impacts, and unify the national market. The GST Council’s efforts, along with various amendments, have shaped the present tax structure. While the regime offers significant advantages, some provisions, notably those concerning Input Tax Credit (ITC), remain controversial.

    Key Provisions in Question

    Section 16(2)(c) of the Central GST Act, 2017, is crucial for taxpayers to understand. It mandates that a registered person can claim Input Tax Credit (ITC) only if the tax charged on the supply has been actually paid to the government by the supplier. This ensures that ITC claims are valid and that the tax cycle is complete and accurate. On the other hand, Section 16(4) sets a strict deadline for claiming ITC. It states that the ITC must be claimed by the earlier of two dates: the due date for filing the return for September of the following financial year or the date of filing the annual return. This provision ensures that ITC claims are timely and within the financial year’s purview.

    Issue

    The core of the issue was the petitioner’s challenge to the provisions of Sections 16(2)(c) and 16(4) of the Central GST Act, 2017. The petitioner contended that denying ITC based on the suppliers’ non-payment of GST was unfair and restrictive. This case underscored the ongoing debate over the balance between enforcing compliance and protecting taxpayer rights within the GST regime. The court’s ruling had significant implications for how ITC claims are managed and how taxpayers navigate compliance requirements.

    Argument or Ground of Appeal by the Petitioner

    The petitioner has put forward a compelling argument that denying Input Tax Credit (ITC) based on the suppliers’ failure to remit GST is fundamentally unfair, especially when the petitioner possesses valid tax invoices and has made the required payments. They assert that it is impractical for recipients to ensure their suppliers’ compliance with tax remittance.

    01. Unfair Burden on Recipients

    The core of the petitioners’ argument is the unfair burden placed on recipients. They argue that it is unjust to deny ITC to those who have fulfilled their tax obligations by paying their suppliers, simply because the suppliers did not remit the tax to the government. This policy forces recipients to monitor and enforce their suppliers’ compliance, which is unreasonable and impractical.

    02. Violation of Constitutional Rights

    Denying ITC due to supplier default is more than just unfair; it is also a violation of constitutional rights. Specifically, it infringes on Article 19(1)(g), which guarantees the right to practice any profession, trade, or business, and Article 14, which ensures the right to equality. This denial adversely affects business operations and undermines the right to property as protected under Article 300A of the Constitution of India.

    03. Doctrine of Impossibility

    The petitioner invokes the doctrine of impossibility, encapsulated in the maxim “lex non cogit ad impossibilia” (the law does not compel a person to do what is impossible). It is unreasonable to expect recipients to ensure their suppliers’ tax compliance, a task beyond their control and capability.

    04. GSTR-2A and ITC Eligibility

    Finally, the petitioners highlight issues with the GSTR-2A form, an auto-populated document that should not be the sole criterion for ITC eligibility. They argue that technical glitches or delays in updating this form should not affect the entitlement to ITC, emphasizing that reliance on a dynamic and sometimes flawed document is unjust.

    Respondent’s Perspective on ITC Claims

    The respondent asserted that claims for Input Tax Credit (ITC) should be valid only if the suppliers have actually paid the taxes to the government. This standpoint hinges on the principle that the law mandates recipients to ensure their suppliers’ compliance with tax payments. The argument emphasizes the responsibility of recipients to verify that their suppliers have fulfilled their tax obligations before claiming ITC.

    Precedent Analysis

    The petitioners brought forward Circular No.183/15/2022-GST along with a CBIC press release to emphasize that any discrepancies between GSTR-2A and GSTR-3B should not affect the entitlement to Input Tax Credit (ITC).

    To bolster their argument, the petitioners cited several key cases:

    1. Godrej & Boyce Manufacturing Company Pvt. Ltd. v. Commissioner of Sales Tax [(1992) 3 SCC 624]: This case examined tax credits as concessions, highlighting that these benefits are conditional.
    2. Union of India v. VKC Footsteps (India) Pvt. Ltd. [(2022) 2 SCC 603]: This case tackled the issue of refunds for unutilized ITC, underlining the restrictive conditions imposed by GST laws.
    3. Willowood Chemicals v. Union of India [2018 58 GSTR 310 (Guj)]: This judgment stressed that claims for tax credits must adhere to prescribed time limits to ensure no disruption to revenue.

    By leveraging these precedents, the petitioners aimed to strengthen their position that discrepancies between GSTR-2A and GSTR-3B should not hinder ITC entitlement.

    Court Judgment: A Landmark Ruling by the Kerala High Court

    The Kerala High Court has delivered a significant ruling, emphasizing fairness in the GST regime. The court stated that it is unjust to deny Input Tax Credit (ITC) to genuine recipients simply because their suppliers did not comply with tax regulations. Instead, the court insisted that actions should target the defaulting suppliers, not the innocent recipients.

    ITC as a Right

    The court firmly recognized that ITC is a right for registered persons under GST, as long as they adhere to the Act’s conditions. This right should be upheld without unfairly shifting the compliance burden onto recipients.

    Compliance Burden

    The ruling highlighted that the compliance burden should not fall on the recipients who have already met their obligations by paying the necessary taxes to their suppliers. Penalizing these compliant recipients for the suppliers’ faults is inequitable.

    Need for Equitable Measures

    The judgment called for measures that ensure compliance without punishing bona fide recipients. It urged tax authorities to take stringent action against defaulting suppliers rather than denying ITC to those who have complied with their tax responsibilities.

    The Kerala High Court’s decision addresses critical issues raised by the petitioners, emphasizing a fair and just tax system. The court underscored the importance of a balanced approach in implementing GST provisions, ensuring that genuine taxpayers are not unduly burdened by others’ defaults. This ruling aims to protect the constitutional rights of taxpayers while upholding the integrity of the GST framework.

  • Supreme Court Upholds Integrity of Resolution Plans

    In the realm of insolvency and bankruptcy law, the approval of a resolution plan by the National Company Law Tribunal (NCLT) or the National Company Law Appellate Tribunal (NCLAT) imposes stringent obligations on the Successful Resolution Applicant (SRA). The SRA must adhere strictly to the conditions of the approved plan, with no room for deviations or adjustments. This principle is enshrined in Sections 30 and 31 of the Insolvency and Bankruptcy Code (IBC), 2016.

    Section 30 details the submission process for resolution plans. A resolution applicant submits a plan along with an affidavit affirming eligibility under Section 29A, based on the information memorandum. The resolution professional must examine each plan to ensure it meets several criteria. These include prioritizing the payment of insolvency resolution process costs, satisfying debts owed to operational creditors, and ensuring financial creditors are paid at least as much as they would receive in a liquidation scenario under Section 53.

    The plan must also outline the management and oversight of the corporate debtor’s affairs post-approval. Upon confirmation of these conditions, the resolution professional presents the plan to the committee of creditors, which can approve it with a 66% majority vote, considering its feasibility and proposed distribution method. The resolution applicant can attend these meetings but lacks voting rights unless they are also a financial creditor.

    Once the committee of creditors approves a resolution plan, it is submitted to the Adjudicating Authority. Section 31 mandates that the Authority must approve the plan if it meets the requirements of Section 30. This approval binds the corporate debtor, its employees, creditors, and relevant government authorities to the plan’s terms. If the plan fails to meet these standards, the Authority may reject it.

    In a notable case, State Bank of India and others versus JC Flowers Asset Reconstruction Pvt. Ltd. and Punjab National Bank versus The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch, the Supreme Court addressed the issue of adherence to the conditions precedent in a resolution plan. The SRA, having been approved by the committee of creditors and the NCLT, was required to infuse funds in tranches and meet specific conditions to recommence operations as an aviation company. However, the SRA sought to adjust the final tranche of payment against a Performance Bank Guarantee (PBG), which the NCLAT permitted.

    The Supreme Court, however, held that such an adjustment was impermissible. The SRA was obligated to deposit the final tranche of Rs 150 crores as initially agreed, emphasizing that compliance with the resolution plan’s terms is non-negotiable. The Court directed the SRA to deposit the amount by a specified deadline and maintained the PBG until the NCLAT’s final decision.

    The Court underscored that the conditions precedent must be fulfilled as stipulated, without adjustments. The lenders’ argument that the SRA failed to meet these conditions was acknowledged, and the Court provided clear directions to ensure compliance.

    The decision reaffirms the sanctity of the resolution plan process, emphasizing that any deviation undermines the integrity of the insolvency resolution framework. The SRA’s conduct and adherence to the stipulated terms are crucial in maintaining creditor confidence and ensuring the effective resolution of corporate insolvency.

    This landmark ruling underscores the binding nature of approved resolution plans and the stringent compliance required from SRAs. It serves as a critical reminder of the procedural rigor and accountability embedded within the IBC framework, ensuring that the resolution process remains transparent, fair, and effective.

  • Calcutta High Court’s Landmark Decision on GST Credit Denial Due to Supplier Tax Non-Payment

    In a groundbreaking ruling, the Calcutta High Court emphasized that the denial of input tax credit (ITC) under GST cannot occur automatically solely due to discrepancies between GSTR-2A and GSTR-3B. This verdict underscores the necessity for an investigation into the supplier’s tax situation before rejecting ITC. This judgment brings substantial relief to companies grappling with demand notices stemming from the supplier’s failure to report or pay taxes.

    The Calcutta High Court stated firmly in a verdict dated August 2, 2023, “There shall not be any automatic reversal of input tax credit from the buyer on non-payment of tax by the seller… In case of a default in payment of tax by the seller, recovery shall be made from the seller.” This declaration was made by a two-judge Bench composed of Chief Justice T S Sivagnanam and Justice Hiranmay Bhattacharyya.

    Nevertheless, the court also outlined that the revenue authorities retain the option to reverse GST input tax credit from the buyer in specific instances such as a missing dealer, supplier business closure, or inadequate supplier assets.

    The court’s deliberation was prompted by the ‘Suncraft Energy Private Ltd and Another Vs The Assistant Commissioner, State Tax, Ballygunge Charge, and Others’ case. This case revolved around GST input tax credit obtained by Suncraft Energy for purchases from a supplier. The revenue authority later overturned the ITC due to the supplier’s tax non-payment, citing some invoices not being reflected in Suncraft Energy’s GSTR-2A for the 2017-18 financial year.

    In this recent judgment, the Calcutta High Court drew on the precedents set by the Supreme Court in cases like Bharti Airtel and Arise India Ltd, leading to the reversal of orders by the Assistant Commissioner, State Tax, Ballygunge.

    Niraj Bagri, a partner at Dhruva Advisors, expressed, “The Calcutta High Court’s decision comes as a huge relief to companies besieged by demand notices resulting from supplier tax non-payment. These notices were served despite the purchasing companies fully compensating the supplier for goods and taxes.”

    Bagri added that the court firmly held that demand notices cannot be issued to compliant purchasing companies without proper investigations at the supplier’s end or attempts to recover the tax dues from the supplier.

    “This ruling will notably alleviate the plight of industries facing demand notices across various states due to tax credit mismatches, despite companies duly paying taxes to the supplier,” Bagri remarked.

    Notably, last month, Punjab AAR’s advance ruling denied ITC to a taxpayer due to its supplier’s default. Despite the taxpayer’s assertion that they lacked mechanisms to ensure the supplier’s compliance, the authority interpreted Section 16(2)(c) of the CGST Act strictly, resulting in ITC denial.

    Abhishek Jain, partner and national head (indirect tax) at KPMG, highlighted, “The upheld principles in this ruling are warmly welcomed, particularly the initiation of recovery proceedings against defaulting suppliers concerning legitimate recipients. This principle’s overall affirmation will substantially reduce litigation, as investigations will be directed solely toward defaulting suppliers in relation to numerous recipients.”

  • Calcutta HC Declares Landmark GST Ruling, Denying Automatic ITC Denial for Supplier Tax Non-Payment

    Landmark Decision by Calcutta High Court: Buyers’ GST Credits Safe Even Amidst Supplier Tax Defaults

    In a significant legal ruling, the Calcutta High Court has taken a firm stance regarding GST input tax credit (ITC) under the Goods and Services Tax (GST) system. The court has decreed that the mere mismatch between GSTR-2A and GSTR-3B forms cannot lead to automatic denial of ITC, without a proper investigation into the supplier’s actions. This pronouncement is set to offer substantial relief to companies that have been grappling with demand notices triggered by discrepancies in tax reporting or non-payment by their suppliers.

    Expressing its verdict on August 2, 2023, the Calcutta High Court emphasized, “There shall not be any automatic reversal of input tax credit from the buyer on non-payment of tax by the seller. In case of a default in payment of tax by the seller, recovery shall be made from the seller.” This unequivocal judgment was rendered by a two-judge Bench, presided over by Chief Justice T S Sivagnanam and Justice Hiranmay Bhattacharyya.

    Nevertheless, the court acknowledged that the option to reverse GST input tax credit from the buyer will still remain at the disposal of revenue authorities, specifically in cases deemed “exceptional,” such as instances involving missing dealers, business closures by suppliers, or insufficient assets held by the supplier.

    This landmark verdict emerged from the case titled ‘Suncraft Energy Private Ltd and Another Vs The Assistant Commissioner, State Tax, Ballygunge Charge and Others’. Here, Suncraft Energy had availed GST input tax credit for its procurement from a supplier. However, this credit was subsequently revoked by the revenue authority due to the supplier’s failure to fulfill tax obligations. Notably, certain invoices from the supplier were not reflected in Suncraft Energy’s GSTR 2A for the fiscal year 2017-18.

    Relying on prior judgments by the Supreme Court in the Bharti Airtel and Arise India Ltd cases, the Calcutta High Court overturned the decisions of the Assistant Commissioner, State Tax, Ballygunge. This judgment reiterates that the imposition of demand notices on purchasing companies, despite these companies having fulfilled their payment obligations, is unjustified without a comprehensive inquiry into the suppliers’ conduct and without pursuing tax recovery measures against the suppliers themselves.

    Niraj Bagri, a partner at Dhruva Advisors, applauded the ruling, stating, “The Calcutta High Court has provided substantial relief to companies facing unwarranted demand notices due to the suppliers’ non-compliance. This judgment asserts that purchasing companies cannot be held accountable without a thorough investigation into the suppliers’ actions or without recovering the tax dues directly from the suppliers.”

    This verdict is expected to alleviate the woes of various industries that have been inundated with demand notices across different states, stemming from discrepancies in tax credit, even though the purchasing companies have fulfilled their tax obligations to the suppliers.

    A previous ruling by the Punjab Authority for Advance Ruling (AAR) had rejected input tax credit for a taxpayer due to the default of its supplier. Despite the taxpayer’s argument that they lacked a mechanism to ensure compliance by their suppliers, the AAR invoked Section 16(2)(c) of the CGST Act to deny ITC. In light of the Calcutta High Court’s recent ruling, this kind of approach is now set to be reassessed, potentially reducing legal disputes and shifting the focus of inquiries to the defaulting suppliers rather than the genuine recipients.

    Abhishek Jain, partner and national head (indirect tax) at KPMG, welcomed the principles upheld in this ruling, emphasizing the importance of pursuing recovery proceedings against defaulting suppliers rather than burdening bona fide recipients with unnecessary litigations. This approach, he noted, has the potential to streamline numerous cases and ensure that investigations are primarily directed at suppliers who fail to fulfill their tax obligations.