Validity of denial of ITC for the reason that the supplier is not genuine and a 

Validity of denial of ITC for the reason that the supplier is not genuine and a 

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Validity of denial of ITC for the reason that the supplier is not genuine and a 

There are numerous instances wherein the GST authorities are issuing notices for reversal of input tax credit on the basis of allegation that the suppliers from whom the buyers are claiming to have purchased the goods in question are all fake and non-existing and the bank accounts opened by those suppliers are on the basis of fake documents and assessee’s claim of benefit of input tax credit are not supported by the relevant documents.
It is further alleged that the buyer has not verified the genuineness and identity of the suppliers before entering into any transaction with those suppliers.
Further grounds of denying the input tax credit benefit is that the registration of suppliers has been canceled with retrospective effect.
Recently, the Hon’ble Calcutta High Court in the case of M/s LGW Industries Limited & Ors. v. Union of India & Ors., (WPA No.23512 of 2019) vide its judgment dated 13th December 2021 has remanded the matter back to the GST authorities to consider afresh the cases of the petitioners on the issue of their entitlement of benefit of input tax credit by considering the documents which the petitioners want to rely in support of their claim of genuineness of the transactions by considering whether payments for purchases with GST has been actually paid or not to the suppliers and by also considering whether the transactions and purchases were made before or after the cancellation of registration of the suppliers and the compliance of statutory obligation by the petitioners in verification of identity of the suppliers.
It was directed by the Hon’ble High Court that if it is found upon considering the relevant documents that all the purchases and transactions in question are genuine and supported by valid documents and transactions were made before the cancellation of registration of those suppliers then the benefit of input tax credit shall be given.
This verdict of the Hon’ble Calcutta High Court will provide welcome relief to those business entities which have entered into genuine business transactions with their suppliers and have not colluded with them to defraud the revenue.
This matter was represented by Adv Vinay Shraff,  Advocate Himangshu Kumar Ray, Advocate Ankit Kanoria & Advocate Priya Sarah Paul.
13-12-2021
Item No.1-8
Subrata
IN THE HIGH COURT AT CALCUTTA
Constitutional Writ Jurisdiction
Appellate Side
WPA No.23512 of 2019
M/s LGW Industries Limited & Ors.
–vs-
Union of India & Ors.
with
WPA No.10776 of 2021
Anmol Industries Ltd. & Anr.
-vs-
Union of India & Ors.
with
WPA No.12964 of 2019
Surya Alloy Industries Ltd. & Anr.
-vs-
Union of India & Ors.
with
CAN No.1 of 2021
with
WPA No.6768 of 2020
Raj Metal Industries & Anr.
-vs-
Union of India & Ors.
with
WPA No.6771 of 2020
Raj Metal Industries & Anr.
-vs-
Union of India & Ors.
with
CAN No.1 of 2020
(Old CAN No.5711 of 2020)
with
WPA No.7285 of 2020
M/s. LGW Industries Ltd. & Ors.
-vs-
Union of India & Ors.
with
CAN No.1 of 2020
with
WPA No.8195 of 2020
Victoria Global & Anr.
-vs-
Union of India & Ors.
and
WPA No.8289 of 2021
Raj Metal Industries & Anr.
-vs-
Joint Commissioner, Sales Tax & Ors.
Mr. Vinay  Kumar  Shraff
Mr. Himangshu Kumar Ray
Ms.  Priya  Sarah  Paul
…for the petitioners
(in all writ petitions, except WPA 12964/2019)
Mr. Jaydip Kar, sr. adv.
Mr. Arijit Chakraborty
Mr. Debsoumya Basak
Mr. Pranit Bag
Mr. Nilotpal Chowdhury
Mr. Prabir Bera
Mr. Subhas Chandra Jana
Mr. V. Neogi
Mr. D. Saha                                     …for the petitioners
(in WPA 12964/2019)
Mr Y.J. Dastoor, Additional Solicitor-General
Mr. S. Bhattacharya
Mr. V. Kundalia
Mr. S. Lahiri
Mr. Tapan Bhanja
          Mr. Sujit Mitra
…for the Union of India
Mr. K.K. Maiti
Mr. Amitabha Roy
Mr. Bhaskar Prasad Banerjee
Mr. Somnath Ganguli
Ms. Sabnam Basu
Ms. Manasi Mukherjee
                Mr. Sukalpa Seal
    …for Customs
Mr. S.N. Mookherjee, Advocate-General
Mr. A. Ray, Government Pleader
Md. T.M. Siddiqui
Mr. S. Mukherjee
Mr. D. Ghosh
        Mr. N. Chatterjee
    …for the State
In view of similarity in facts and questions of law involved in the writ petitions in item nos. 1, 4, 6 and 8
– WPA No.23512 of 2019, WPA No.6768 of 2020, WPA No.7285 of 2020 with CAN No.1 of 2020 and WPA No.8289 of 2021, these are heard together and disposed of by  a common order.
The petitioners in those writ petitions are aggrieved by the impugned notices issued by the respondents concerned for not allowing the petitioners, who are the purchasers of the goods in question and refusing to grant the benefit of input tax credit (ITC) on purchase from the suppliers and also asking the petitioners to pay penalty and interest under relevant provisions of GST Act.
Petitioners have also challenged the constitutional validity of section 16(2)(c) of the CGST/WBGST Act, which, according to me, does not require consideration in these cases, since it appears on perusal of relevant record that the refusal to grant benefit of input tax credit (ITC) to the petitioners are not on the grounds of non-deposit of tax in the Government account by the suppliers which have been collected from the petitioners, under Section 16 (2) (c) of the CGST/WBGST Act.
In these cases, it is the case of the respondents-GST authorities that on inquiry, they came to know that the suppliers from whom the petitioners/buyers are claiming to have purchased the goods in question are all fake and non- existing and the bank  accounts  opened  by  those  suppliers are on the basis of fake documents and petitioners’ claim of benefit of input tax credit are not supported by the relevant documents, and the case of the respondents is also that the petitioners have not verified the genuineness and identity of the aforesaid suppliers who are registered taxable persons (RTP) before entering into any transaction with those suppliers.
Further grounds of denying the  input  tax  credit benefit to the petitioners by the respondents are that the registration of suppliers in question has already  been cancelled with retrospective effect covering the transactions period in question.
The main contention of the petitioners in these writ petitions are that the transactions in question are genuine and valid by relying upon all the supporting relevant documents required under law and contend that petitioners with their due diligence have verified the genuineness and identity of the suppliers in question and more particularly the names of those suppliers as registered taxable person were available at the Government portal showing their registrations as valid and existing at the time of transactions in question and petitioners submit that they have limitation on their part in ascertaining the validity and genuineness of the suppliers in question and they  have done whatever possible in this regard and more so, when the names of the suppliers as a registered taxable person were already available with the Government record and in Government portal at the relevant period of transaction petitioners could not be faulted if they appeared to be fake later on. Petitioners further submit that they have paid the amount of purchases in question as well as tax on the same not in cash and all transactions were through banks and petitioners are helpless if at some point of time after the transactions were over, if the respondents concerned finds on enquiries that the aforesaid suppliers (RTP) were fake and bogus and on this basis petitioners could not be penalised unless the department/respondents establish with concrete materials that the transactions in question were the outcome of any collusion between the petitioners/purchasers and the suppliers in question. Petitioners further submit that all the purchases in question invoices-wise were available on the GST portal in form GSTR-2A which are matters of record.
Considering the facts as recorded subject to further verification it cannot be said that that there was any failure on the part of the petitioners in compliance of any obligation required under the statute before entering the transactions in question or for verification of the genuineness of the suppliers in question.
The petitioners in support of their contention and proposition of law as discussed above rely on the following decisions:–
  1. Commissioner of C. Ex. East Singhbhum v. Tata Motors Ltd. reported in 2013 (294) ELT 394 (Jhar).
  2. S. Infra-Transmission Ltd. v. State of Rajasthan through its Secretary, Ministry of Finance in Civil Writ Petition No.12445/2016 passed by the High Court of Rajasthan Bench at Jaipur.
  3. Commissioner of Trade & Taxes, Delhi & 66 Ors. v. Arise India Limited & reported in TS-2 SC-2018-VAT.
  4. On Quest Merchandising India Pvt. Ltd. v. Government on NCT of Delhi, reported in TS314-HC 2017 (Del)-VAT; 2018 (10) 182 (Del);
  5. M/s. Tarapore & Company, Jamshedspur v. The State of Jharkhand in P.(T) No. 773 of 2018 passed by Jharkhand High Court;
  6. Gheru Lal Bal chand State of Haryana reported in (2011) 45 VST 195 (P&H);
  7. Y. Beathel enterprises v. State Tax Officer (Data Cell) Tiruneveli reported in (2021) 127 Taxman. Com 80 (Madras);
  8. Taparia Overseas (P) Ltd. v. Union of India reported in 2003 (161) L.T. 47 (Bom);
  9. Prayagaj Dying & Printing Mills Pvt. Ltd. v. Union of India reported in 2013 (290) ELT 61 (Guj);
  10. Star Plastic Industries Additional Commissioner of Sales Tax (Appeal) & Ors. reported 2021 SC OnLine Ori 1618; and
  11. State of Maharashta Suresh Trading Company reported in (1998) 109 STC 439 (SC).
The    respondents    have    relied    on    the    following decisions in support of their contention:–
  1. R. Mani Electronics v. Union of India reported in 2020 TIOL-1198 HC Mad GST;
  2. ALD Automotive Pvt. Ltd. v. The Commercial Tax Officer, reported in 2019 (13) SCC 225;
  3. Jayram & v. Assistant Commissioner & Ors. reported in 2016 (15) SCC 125;
  4. Godrej & Boycentg & Pvt. Ltd. v. GST reported in 1992 (3) SCC 624;
  5. TVS Motors State of Tamil Nadu reported in 2019 (13) SCC 403;
  6. Collector of Ex Commissioner v. Douba Cooperative Sugar Mills Ltd. reported in 1988 (37) ELT-478; and
  7. D.Y. Bethal Enterprise v. The State Tax Officer (Data Cell) in W.P. (MD) No.2127 of 2021.
Considering the submission of the parties and on perusal of records available,  these  writ  petitions are disposed of by remanding these cases to the respondents concerned to consider afresh the cases  of the petitioners on the issue of their entitlement of benefit of input tax credit in question by considering  the  documents  which  the petitioners want to rely in support of their claim of genuineness of the transactions in question and shall also consider as to whether payments on purchases in question along with GST were actually paid or not to the  suppliers (RTP) and also to consider 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 (RTP).
If it is found  upon  considering  the  relevant documents 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  and  after taking into consideration the  judgments  of  the  Supreme Court and various High Courts which have been referred in this order and in that  event  the  petitioners  shall  be  given the benefit of input tax credit in question.
These cases of the petitioners shall be disposed of by the respondents concerned in accordance with law and in the light of observation made above and by passing a reasoned and speaking order after giving effective opportunity of hearing to the petitioners and by dealing with the judgments petitioners want to rely at the time of hearing of the cases, within eight weeks from the date of communication of this order.
These Writ Petitions being WPA No.23512 of  2019, WPA No.6768 of 2020, WPA No.7285 of 2020 with CAN No.1
of 2020 and WPA No.8289 of 2021 are disposed  of  in  the light of observation and directions as made above.
Further, let these Writ Petitions being  WPA  No. 10776 of 2021, WPA No. 12964 of 2019, WPA No. 6771 of
2020 with CAN No. 1 of 2020 (Old CAN No. 5711 of 2020)
and WPA No. 8195 of 2020 be listed for hearing two weeks after the Christmas Vacation.
[Md. Nizamuddin, J]

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