Retrospective cancellation of supplier’s registration no ground to deny ITC benefit to recipient, says Kolkata HC

In an important ruling, Kolkata High Court has held that a buyer can claim input tax credit, even if registration of the supplier has been cancelled retrospectively. However, the buyer will have to probe the genuineness of the transaction. Experts feel this ruling will help lot of buyers who face problems because of suppliers.

“This Court finds that without proper verification, it cannot be said that there was any failure on the part of the petitioner in compliance of any obligation required under the statute before entering into the transactions in question. The respondent authorities, only taking into consideration of the cancellation of registration of the supplier with retrospective effect, have rejected the claim of the petitioner without considering the documents relied by the petitioner,” a single judge bench of Justice Krishna Rao said in a ruling dated June 12.

Accordingly, it directed State Commercial Tax Department to consider the grievance of the petitioner afresh by taking into consideration of the documents which the petitioner intends to rely in support of his claim.

Further, the department will dispose of the claim of the petitioner by passing a reasoned and speaking order after giving an opportunity of hearing to the petitioner within a period of eight weeks from the date of receipt of copy of this order.

The matter reached the court, after petitioner’s claim for ITC was rejected by the department. Taxmen’s submission was that supplier from whom the petitioner claimed to have purchased the goods in question are all fake and non-existing and the bank accounts open by the supplier is on the basis of fake document and the claim of the petitioner of input tax credit are not supported by any relevant document.

It is the further case of the respondent that the petitioner has not verified the genuineness and identity of the supplier whether is a registered taxable person (RTP) before entering into any transaction with the supplier.

More vigilant buyers

However, petitioner submitted the transactions were genuine and valid. Also, relying upon all the supporting relevant documents, he, with due diligence verified the genuineness and identity of the supplier.

Name of the supplier as registered taxable person was available at the government portal showing its registration as valid and existing at the time of transaction, he said while adding that he paid the amount of purchased articles as well as tax on the same through bank and not in cash.

According to Vivek Jalan, partner with Tax Connect, advisory the High Court held that in case the buyer can prove with documents like invoice, bank advise for payment to supplier, E-Waybill, consignment note of transporters as well as GSTR-3B and GSTR-1 filing status of supplier that the purchases were genuine and suppliers are identified, then there could not be any disallowance of ITC of the buyer.

“This judgement comes as a relief to bona-fide buyers but with a responsibility that they should do their vendor due diligence with care going forward and also keep a tab on GST compliances so as to get the full benefit of GST-ITC,” he said.

COMMENT NOW