• Notification Date: 22-12-2023
• Notification No: N/A

SC Rejects GST Department's Plea against HC Order regarding Input Tax Credit

The Supreme Court has quashed a petition filed by the authorities against a Calcutta High Court ruling that said that input tax credit (ITC) to a buyer cannot be denied on the ground that a seller has not paid tax under the goods and services tax (GST) regime unless there was a proper investigation. 

Experts are divided on whether the verdict will set a precedent in similar cases as the Supreme Court decided not to intervene in the matter since the amount of tax disputed is small. 

"Having regard to the facts and circumstances of this case(s) and the extent of demand being on the lower side, we are not inclined to interfere in these matters...," said the Supreme Court. 

It dismissed the GST department’s petition against the High Court's verdict in a case related to Suncraft Energy Ltd. The amount of tax involved was Rs 650,511, along with interest and penalty. 

The case relates to the department's demand of reversing ITC claimed by the company, as the GST to be paid by its supplier did not reflect in the relevant form. There was a mismatch in the supplier's form and the company's form claiming ITC, said the department. 

The Calcutta High Court had held that the company cannot be denied ITC by citing the ground that the supplier has not remitted the tax unless there are situations where the GST department cannot collect tax from the supplier. Until there is a remote chance of recovering the tax from the supplier, the department will not deny ITC to the company. 

The High Court ruled that before directing the company to reverse ITC, GST authorities ought to have acted against the supplier. 

The GST department had filed a special leave petition in the Supreme Court, which dismissed it. 

Abhishek Rastogi, founder of Rastogi Chambers who is arguing similar petitions before different courts, said the Supreme Court held that the authorities must investigate the defaulting party and must not deny credit of the recipient of supply. The fate of petitions like the one filed by the GST department will now be decided based on facts and merits. 

However, Saurabh Agarwal, tax partner at EY, said the Supreme Court did not comment on the merits of the case. Instead, it dismissed the appeal due to the small amount of the disputed tax. "This limits the applicability of the judgement, granting ITC only to Suncraft Energy and not setting a broader precedent for other businesses facing similar issues," he said. 

Rajat Mohan, a senior partner at AMRG & Associates, said the Supreme Court's decision is a victory for honest taxpayers.