Calcutta High Court Dismisses State Appeals on Input Tax Credit Dispute; Matter Remanded Back to Revenue

The current appeals were brought by the State tax authorities against a common judgment and order issued by a learned Single Judge dated 13.12.2021. The writ petitioners had sought a wider relief, such as a declaration that Section 16(2)(c) of the CGST Act/WBGST Act was unconstitutional, and to set aside memos dated 28.08.2019 and 11.11.2019. The major reason for the denial of Input Tax Credit (ITC) by the tax department was the cancellation of the selling dealers’ registration with retrospective effect.

The State, being the appellant, had contended that even the writ petition itself was premature in nature, since the constitutional validity of Section 16(2)(c) was yet pending challenge in other writ petitions before a wise Single Judge. The writ petitioners, on their part, had made submissions that the other writ petitions were compartmentalised on account of their distinct fact situations.

Main Issue: Whether the directions of the learned Single Judge to the authorities to re-adjudicate the matter on merits were justified, despite the larger constitutional question of Section 16(2)(c) of the CGST Act not being addressed.

High Court’s Decision: Both the appeals were dismissed by the High Court, and the Single Judge’s directions were confirmed. The Court held that the instructions made by the erudite Single Judge were in the interests of both the revenue and the writ petitioners. It was noted that the Single Judge had not granted the larger relief of declaring Section 16(2)(c) unconstitutional, and the writ petitioners were not on appeal against that finding. The High Court emphasised that the actual adjudication of the dispute, which is required before an order is passed either accepting or denying the input tax credit, had not yet taken place.

Therefore, the Court saw no reason to interfere with the Single Judge’s direction to send the matter back to the tax authority. The appeals were dismissed, and the writ petitioners were directed to submit one more set of documents to the concerned authority within two weeks. The authority was instructed to provide an opportunity of a personal hearing, peruse the documents, and conclude the proceedings on the merits in accordance with the law, preferably within four weeks from the conclusion of the hearing. The Court clarified that neither the learned Single Judge nor the High Court had adjudicated the case on its merits and that it would be open to the writ petitioners to raise all factual and legal issues before the concerned authority.

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