GST: Supreme Court Eases Burden On Taxpayers Facing Input Tax Credit Mismatch

Input tax credit cannot be denied to a taxpayer simply because the supplier of the goods or services has not discharged his liability towards the tax department, the Supreme Court has upheld.

The case pertains to a reversal of input tax credit by the tax department. Renewable energy solution company, Suncraft Energy Pvt., had availed certain goods and services from a supplier.

However, when Suncraft claimed tax credits on the basis of its purchases, the department issued a notice for recovery because of a mismatch between the supplier’s tax returns and the company’s tax returns.

It was the department’s case that the supplier had not paid the tax to the government and hence, Suncraft was not eligible to avail the credit of the input tax.

Therefore, the department’s notice reversed the input tax claimed by Suncraft and demanded tax to the tune of Rs 6.5 lakh, along with interest and penalty for wrongly availing the input tax credit.

This prompted Suncraft to file an appeal before the Calcutta High Court.

The high court held that there shall not be any automatic reversal of input tax credit from the buyer on non-payment of tax by seller.

The court said that if a seller fails to pay the tax, the government should recover it from the seller itself. However, under exceptional circumstances, like a missing dealer, a supplier going out of business, or not having enough assets, the buyer could also have their credit reversed.

Coming down heavily on the department, the court said that authorities were not right in reversing Suncraft’s availed credit before taking requisite actions against the supplier.

Aggrieved by the high court’s ruling, the department moved a plea before the Supreme Court.

While dismissing the department’s plea, the top court said that it is not inclined to interfere with the high court’s decision.

There are multiple show cause notices issued on similar matters and it is quite likely that courts may take the above ruling into account, while disposing of such notices, said Manish Mishra, partner at JSA.

However, Mishra said that the government may evaluate its options and consider the possibility of filing a review petition, considering that there are a large number of notices issued to assessees for the reasons of ITC mismatch.

While the ruling is beneficial, it does not resolve the gamut of controversy on the mismatch issue, Ritesh Kanodia, partner at Aurtus Consulting, told NDTV Profit.

The Supreme Court dismissal does not help a situation where the supplier is missing, the invoicing is fake, the supplier has closed its business, etc., and therefore, the recipient of goods or services continues to get penalised for no fault of his, more specifically for the past periods where the provisions were vague and the system of mismatch was not operative, he said.