No disallowance of input tax credit can be done on the ground that the purchases made by petitioners are from non-existing suppliers
There was a remarkable observation by the Calcutta High Court in WPA No. 23512 of 2019 in M/s LGW INDUSTRIES LIMITED & ORS. Vs UNION OF INDIA & ORS.
The Calcutta High Court in the said case has held that no disallowance of input tax credit can be done on the ground that the purchases made by petitioners are from non-existing suppliers. The court held that no disallowance is permissible for the reason that the bank accounts opened by those suppliers are on the basis of fake documents and that the petitioners have not verified the genuineness and identity of the suppliers before entering into a transaction with those suppliers.
Further grounds of denying the input tax credit benefit to the petitioners are that the registration of suppliers in question have been cancelled with retrospective effect covering the transactions period in question.
Aggrieved assessees filed these petitions on all above grounds.
The court asked the respondents Department to consider afresh the cases of the petitioners on the issue of their entitlement of benefit of input tax credit by considering the documents the petitioners want to rely in support of their claim of genuineness of the transactions and shall also consider as to whether payments on purchases in question along with GST were actually paid or not to the suppliers and also as to whether the transactions and purchases were made before or after the cancellation of registration of the suppliers and also consider as to compliance of statutory obligation by the petitioners in verification of identity of the suppliers.
If it is found that all the purchases and transactions in question are genuine and supported by valid documents and transactions in question were made before the cancellation of registration of those suppliers, the petitioners shall be given the benefit of input tax credit.
With above observation, the writ petition is allowed by remand.
In short, the court concluded that
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No denial of ITC if the transactions are genuine
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If supplier registration is cancelled, after the transactions
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No failure on part of the purchasers to be casted upon
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No obligation on the part of purchasers to check genuineness of the suppliers in question
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Department needs to have concrete material to prove collusion between purchaser and supplier.