Calcutta HC: GST Credit Can’t Refused Due to GSTR-2A and 3B Mismatch Without Investigation

The Calcutta High Court in a landmark judgment stated that ITC under GST could not get refused over the mismatch in GSTR-2A and GSTR-3B without any investigation into the supplier. The decision offers significant relief to businesses that have received demand letters because a supplier failed to disclose or pay taxes.

If the seller doesn’t pay their taxes, the buyer’s input tax credit won’t be automatically reversed. In a ruling dated August 2, 2023, the Calcutta High Court stated that if the sale fails to pay tax, recovery must be taken on the seller.

A two-judge Bench that consists of Calcutta HC Chief Justice T S Sivagnanam and Justice Hiranmay Bhattacharyya delivered the judgment.

However, the court stated that the revenue authorities would also have the ability to reverse the GST input tax credit from the buyer to cope with “exceptional situations like missing dealer, supplier business closure, supplier not having adequate assets, etc.”

A ‘Suncraft Energy Private Ltd and Another Vs The Assistant Commissioner, State Tax, Ballygunge Charge, and Others’ case the court heard.

For the same case, Suncraft Energy for its purchases from a supplier claimed a GST ITC. The revenue council reversed the ITC later because of the non-payment of the taxes via the supplier since some of the invoices of the stated supplier were not shown in the GSTR 2A form of Suncraft Energy for the financial year 2017-18.

The Calcutta High Court set aside orders of the Assistant Commissioner, State Tax, Ballygaunge in its latest judgment placing reliance on the earlier judgment of the Supreme Court in the case of Bharti Airtel as well as Arise India Ltd.

The Calcutta High Court has provided significant relief to businesses that have been served demand letters because a supplier has failed to record or pay taxes, even if the purchasing businesses have already paid the supplier the price of the products plus the tax.

Read also: GST Cir No. 183/15/2022: Mismatch in Claimed ITC in GSTR-3B & 2A

He continued by saying that the high court had ruled that demand notices could not be sent to purchasing firms that had complied with the law without doing the proper inquiries at the supplier’s end or trying to recover the unpaid taxes from the supplier.

The sectors affected by this will feel a great deal of comfort because they have been getting demand notices from several states due to tax credit mismatches even though their businesses have already paid their suppliers’ taxes.

A taxpayer’s request for ITC was refused last month due to a supplier default, according to a Punjab AAR advance judgment. Although the taxpayer claimed that he had no means of ensuring the previous supplier’s compliance, the authority went ahead and denied the ITC by rigidly reading Section 16(2)(c) of the CGST Act.

The principles established in this ruling, particularly the beginning of recovery actions against insolvent suppliers as legitimate beneficiaries, are very much appreciated. If the aforementioned approach is ultimately accepted, it would contribute to reducing the number of lawsuits since investigations would only be made against the delinquent providers relative to the numerous beneficiaries.