In an important decision, the Calcutta High Court (‘HC’) in the case of Gargo Traders vs Joint Commissioner of State Tax (WPA 1009 of 2022), held that GST authorities should allow Input Tax Credit (‘ITC’) in case of a genuine transaction where supplier GSTIN is cancelled retrospectively.
Facts of the case
- The Petitioner procured certain supplies from a supplier and ITC in respect of such supplies was availed.
- Subsequently, the registration of the supplier was cancelled by the GST authorities with retrospective effect covering the transaction period with the Petitioner.
- The GST authorities disallowed Petitioner’s ITC on the ground that the supplier was fake and not in existence at the time when the transaction took place.
- The Petitioner, however, submitted tax invoice, e-waybill, transportation bill and bank transaction. It was, thus, contended that the authorities have not considered such documents and denied merely on the ground that the supplier was fake.
HC Decision
The Court observed the followings points:
- Admittedly at the time of transaction, the name of the supplier as registered taxable person was already available with the Government record.
- The petitioner has paid the amount of purchased articles as well as tax on the same through bank and not in cash.
- It is not the case of the respondents that there is a collusion between the petitioner and supplier regarding the transaction.
- In the absence of 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 the transactions in question.
Our Remarks
The decision is an important one for taxpayers in general. Recently, many taxpayers are issued notice proposing to disallow the ITC because their supplier is fake, or their registration is cancelled retrospectively. Important to note that maintenance of proper documents and records becomes imperative to prove the genuineness of the transaction. In case of bonafide transactions, the recipient can claim ITC even if vendor GST registration is cancelled retrospectively.
