High Court Remands Case for Fresh Adjudication on GST Input Tax Credit Denial

The petitioners approached the High Court by filing a writ petition, being aggrieved by actions taken by GST authorities. They were denied the Input Tax Credit (ITC) facility on goods purchased from suppliers and were requested to pay interest and penalties in terms of the provisions of the concerned GST. The rejection was on the basis that the registration of the suppliers had been revoked with retrospective effect, including the duration of the transactions in question. The petitioners also objected to the follow-up orders of 29th and 30th March 2022 made under Section 79(1)(c) of the WBGST Act. The main argument put forward by the petitioners was that the transactions were valid and genuine, supported by all the necessary documents.

They argued that they had practised due diligence by checking the identity of the suppliers and ensuring that their names were listed in the government portal as valid and registered taxable individuals at the time of transactions. The petitioners presented that they could not be blamed if the suppliers turned out to be bogus and added that all payments for the purchases and taxes were made through the banking system, and not in cash. They argued that they should not be penalised unless the department could establish a concrete case of collusion. All the purchases were also available on the GST portal in the form GSTR-2A.

Issue Raised: Whether the GST authorities were justified in denying Input Tax Credit and imposing a penalty and interest solely on the ground of the suppliers’ retrospective registration cancellation, given the petitioners’ claim that the transactions were genuine at the time they occurred.

High Court Held: The High Court overturned the orders under challenge and referred the case back. The Court, after considering the submissions and records, observed that unless further ascertained, it could not be said that the petitioners had defaulted in their statutory obligation. The Court dismissed the writ petitions by quashing the challenged orders and directing the cases to be remitted to the respondent officer for fresh consideration.

The Court instructed the GST authorities to review the petitioners’ eligibility for the benefit of ITC by investigating the documents presented by them for the sake of establishing the genuineness of the transactions. The officer must also check whether payments had been made, whether the transactions had taken place prior to or subsequent to the cancellation of suppliers’ registration and whether the petitioners had performed their statutory duty in checking the identity of the suppliers. In case the transactions were true and comparable to other judgments, the petitioners must be accorded the benefit of ITC. A “reasoned and speaking order” must be passed after providing an effective opportunity for a hearing to the petitioners , within eight weeks from the date of the order’s communication. The impugned orders under Section 79(1)(c) were also set aside.

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