RETROSPECTIVE CANCELLATION CANNOT BE A GROUND FOR ITC DENIAL

M/s. Gargo Traders Vs JC, Commercial Taxes, by The High Court of Calcutta

UNDERLYING ISSUE

  • The petitioner made purchase in November 2018 when suppliers registration was active subsequently authority has cancelled his retrospectively from October 2018.
  • Authority has denied the claim of ITC made by petitioner.

DEPARTMENT ALLEGATION

  • The supplier from whom the petitioner claimed to have purchased the goods is all fake and non-existent, and the bank accounts opened by the supplier are on the basis of fake documents.
  • The petitioner has not verified the genuineness and identity of the supplier, whether he is a registered taxable person or not, before entering into any transaction with the supplier.
  • Judgement made in case of (M/s. LGW Industries Limited & Ors. –vs- Union of India & Ors. WPA 23512 of 2019 is distinguishable from the present case as in the present case, the cancellation of the supplier has been given retrospective effect.

KEY RULINGS BY THE COURT

SUPPLIER WAS REGISTERED AT THE TIME OF TRANSACTION

  • At the time of transaction, the name of the supplier as registered taxable person was already available with the Government record and the petitioner has paid the amount of purchased articles as well as tax on the same through bank and not in cash

NO COLLUSION BETWEEN SUPPLIER AND BUYER

  • It is not the case of the respondents that there is a collusion between the petitioner and supplier with regard to the transaction.

VERIFICATION OF COMPLIANCE SHOULD BE DONE

  • 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.

DEPARTMENT DIDN’T CONSIDER THE DOCUMENTS

  • 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.

WAY FORWARD

ITC cannot be denied where suppliers registration is cancelled retrospectively however the buying dealer required to maintain the required documents.

Requirement of maintaining the documents is upheld by the hon. Supreme Court in case of M/s State of Karnataka Vs Ecom Gil Coffee Trading Pvt Ltd (2023-TIOL-18-SC-VAT) dated 13/03/2023, it was held that-

“The purchasing dealer is required to maintain the details such as name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc. and the actual physical movement of the goods by producing the cogent materials.”

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