GST update No 193 on denial of ITC for cancellation of supplier’s registration

GST Law was implemented with a concept of seamless flow of credit from one end of the transaction chain to the last recipient. However, with the advent of GST, the whole indirect tax regime went under a radical change wherein the departmental authorities have made the recipient as the culprit where there is any default by the supplier. On the contrary, under the erstwhile regime, there were numerous judicial pronouncements holding that recipient cannot be denied the legitimate credit for defaults in payment of tax by the supplier. Furthermore, compliance of provision of Section 16(2) of CGST Act, 2017 and Rule 36(4) are another burning issues. Recently, one such issue regarding admissibility of input tax credit has travelled before Calcutta High Court in the case of M/S SANCHITA KUNDU ANR. V/S ASSISTANT COMMISSIONER OF STATE TAX CALCUTTA wherein the input tax credit was denied on the grounds that the supplier’s registration was cancelled after the transaction. The decision imparted in this respect is subject matter of discussion of our present update. The petitioner filed a writ petition since the department denied the benefit of input tax credit on purchase of goods on the grounds that the registration of the supplier is already cancelled retrospectively covering the tax period in question. The petitioner contended that the transactions in question are genuine and valid based on the documents which are in possession of the petitioner. The petitioner further argued that proper due diligence was exercised while verifying the genuineness of the supplier. The names of the registered suppliers were available at the Government portal showcasing validity of registration. It was further contended that the petitioner has done everything possible to check the validity and genuineness of the transaction and therefore, could not be faulted if the supplier appeared to be fake afterwards. The petitioner further argued that he cannot be CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??6 penalised for the supplier’s action unless department establishes the fact that the transactions were an outcome of any collusion between the supplier and the purchaser. Furthermore, it was submitted that all the purchase invoices were available on the GST portal in GSTR-2A which are matter of records for the department. Reference was made to recent decision given in the case of M/S. LGW INDUSTRIES LIMITED & ORS. VS. UNION OF INDIA & ORS. in W.P.A No.23512 of 2019. The Court held that the petitioner possessed all the relevant documents regarding purchases made and concluded that the transactions in question were made before cancellation of registration. Reliance was placed on various judicial pronouncements of High Courts as well in this regard. It was directed to pass a speaking order and directed the revenue department after considering the submissions of the petitioner. The above decision is yet another favourable judgment on the concerned subject. The similar issue was a point of dispute in erstwhile indirect tax regime as well wherein the Apex court affirmed the view of Delhi High Court in the case of Arise India Limited wherein it was held that Article 14 of the Constitution shall be attracted in case of failure to distinguish between bona fide and malafide purchasers. The judiciary upheld the viewpoint that in case the purchasing dealer has taken all necessary steps to verify that selling dealer has a valid registration and issued tax invoice as per Law, he cannot be expected to keep a track record of selling dealer. Therefore, the bona fide and malafide purchasers are not treated at par. Although there are favourable decisions on the issue but the businesses have to exercise extra care and are required to be more cautious of acquiring goods from highly risky vendors to ensure that their interests are protected in case of any future demand from GST authorities.

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GST update No 193 on denial of ITC for cancellation of supplier’s registration

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