Background

• Appellant: Suncraft Energy Private Limited
• Respondents: Assistant Commissioner, State Tax, Ballygunge Charge & Others
• Financial Year: 2017-18
• Issue: Reversal of Input Tax Credit (ITC) under West Bengal GST Act, 2017

Transaction Details

• Supplier: 4th Respondent supplied goods and services to the appellant
• Payment: Appellant paid tax to the supplier along with the value of supply
• Problem: Some invoices from the supplier were not reflected in GSTR-2A of the appellant
• Discrepancy: Mismatch between GSTR-2A and GSTR-3B forms

Procedural History

• 03.08.2022: Notice issued stating discrepancies were noticed during scrutiny under Section 61
• 24.08.2022: Appellant submitted reply
• 06.12.2022: Show-cause notice proposing demand for excess ITC claimed
• 06.01.2023 & 11.01.2023: Appellant filed detailed replies denying allegations
• 20.02.2023: Order demanding payment of ₹6,50,511/- plus interest and penalty
• 21.06.2023: Single Bench disposed writ petition directing statutory appeal
• 02.08.2023: Division Bench allowed appeal and set aside the demand order

Primary Contentions by Appellant

• Compliance with ITC Conditions: Appellant possessed valid tax invoices and had made payments through banking channels
• Receipt of Goods/Services: Goods and services were actually received and used for business purposes
• Tax Payment Made: Tax was paid to the supplier at the time of purchase
• No Fraud or Collusion: Appellant was a genuine purchaser with no involvement in any fraudulent activities
• Lack of Due Diligence: Department failed to conduct proper inquiry against the supplier before reversing ITC
• Violation of Natural Justice: Order passed without adequate consideration of replies submitted
• Reliance on Precedents: Similar cases decided in favor of taxpayers by various High Courts

Legal Arguments Advanced

• Section 16 Compliance: All conditions under Section 16 of CGST/SGST Act were fulfilled by the appellant
• CBIC Clarifications: Press releases dated 04.05.2018 and 18.10.2018 support appellant's position
• Supreme Court Precedents: Bharti Airtel Ltd. case and other judgments support the legal position
• Supplier's Liability: Non-payment by supplier cannot automatically deny ITC to genuine purchaser

Judgment Summary

• Result: Appeal ALLOWED by Division Bench
• Single Bench Order: Set aside
• Demand Order: Quashed - Order dated 20.02.2023 set aside
• Direction: Authorities must first proceed against the supplier (4th respondent)
• Delivered By: Hon'ble Chief Justice T.S. Sivagnanam and Hon'ble Justice Hiranmay Bhattacharyya

Key Observations by the Court

• Genuine Transaction: Court recognized that the transaction was genuine and tax was paid
• Supplier's Default: Non-reflection in GSTR-2A does not automatically justify ITC reversal
• Primary Liability: If supplier has not paid tax to government, primary action should be against supplier
• Exceptional Circumstances Only: ITC can be denied to purchaser only in exceptional circumstances
• CBIC Guidelines: Court relied on CBIC press releases clarifying the position
• Due Process Required: Department must conduct proper inquiry before denying ITC

Court's Directions

• Primary Action: Appropriate authorities must first proceed against the supplier (4th respondent)
• Secondary Action: Only under exceptional circumstances as clarified by CBIC can proceedings be initiated against appellant
• Relief Granted: Demand of ₹6,50,511/- along with interest and penalty set aside

Supreme Court's Position

• SLP Filed: Department filed Special Leave Petition (C) No. 27827-27828/2023
• SLP Dismissed: Supreme Court dismissed SLP on 14.12.2023
• Reason: Demand being on the lower side, Supreme Court not inclined to interfere
• Effect: Calcutta High Court judgment stands affirmed

Primary Principles

• Genuine Purchaser Protection: A genuine purchaser who has complied with all conditions under Section 16 of CGST/SGST Act cannot be denied ITC merely because supplier has not paid tax to government
• Supplier-First Approach: Revenue authorities must first proceed against the supplier who has failed to deposit tax collected before targeting the genuine purchaser
• Exceptional Circumstances Test: ITC can be denied to purchaser only in exceptional circumstances such as:
  • Proven collusion between supplier and purchaser
  • Fraudulent transactions
  • Tax cannot be recovered from supplier even after exhausting all remedies
  • Supplier is missing or untraceable
• Section 16 Compliance Sufficient: If purchaser has:
  • Possession of valid tax invoice
  • Made payment through banking channels
  • Received goods/services
  • Used supplies for business purposes
  Then ITC cannot be arbitrarily denied

Procedural Principles

• Due Diligence Required: Tax authorities must conduct proper inquiry and investigation before denying ITC
• Natural Justice: Adequate opportunity must be given to taxpayer to respond to allegations
• GSTR-2A Limitation: Mismatch between GSTR-2A and GSTR-3B alone is not sufficient ground for ITC reversal
• Burden of Proof: Department must establish fraud or collusion, not merely technical discrepancies

Policy Considerations

• CBIC Clarifications Binding: Press releases and circulars issued by CBIC must be followed by field officers
• Ease of Doing Business: Genuine businesses should not suffer due to defaults by suppliers
• Systemic Reform: GST system should focus on catching actual evaders rather than penalizing compliant taxpayers
• Proportionality: Tax recovery measures must be proportionate and reasonable

Applicability and Precedent Value

• Binding Nature: Decision is binding precedent for similar cases in West Bengal
• Persuasive Value: Has persuasive value for other High Courts across India
• Alignment with Supreme Court: Consistent with Supreme Court rulings in Bharti Airtel and other cases
• CBIC Compliance: Authorities must follow CBIC guidelines in letter and spirit

Case Information Summary

Financial Year and Amount Details

Key Statutory Provisions

Timeline of Events

Comparative Analysis: Conditions for ITC Reversal