The Supreme Court has dismissed a petition filed by the authorities challenging a Calcutta High Court verdict that stated that a buyer's input tax credit (ITC) cannot be disallowed because a supplier has not paid tax under the Goods and Services Tax (GST) system until a proper investigation is conducted. Experts are divided on whether the ruling will set a precedent in similar circumstances because the Supreme Court decided not to interfere in the case due to the tiny amount of tax challenged. "Having regard to the facts and circumstances of this case(s) and the extent of demand being on the lower side, we are not inclined to interfere in these matters...," the U.S. Supreme Court stated.
It denied the GST department's petition challenging the High Court's decision in a case involving Suncraft Energy Ltd. The tax involved was Rs 650,511, with interest and penalties.
The dispute involves the department's demand that the company reverse the ITC it claimed since the GST to be paid by its supplier did not appear on the relevant form. According to the department, there was a discrepancy between the supplier's form and the company's form for claiming ITC.
The Calcutta High Court ruled that the corporation cannot be denied ITC on the grounds that the supplier has not remitted the tax unless the GST department is unable to collect tax from the supplier. The department will not reject ITC to the corporation unless there is a remote probability of recovering the tax from the supplier.
Before ordering the corporation to reverse the ITC, the High Court stated that GST authorities should have taken action against the supplier The GST department had petitioned the Supreme Court for a special leave, which was denied.
According to Abhishek Rastogi, founder of Rastogi Chambers, who is litigating similar cases in several courts, the Supreme Court ruled that authorities must investigate the defaulting party and cannot deny credit to the recipient of supplies. Petitions like the one filed by the GST department will now be decided on the basis of facts and merits.
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However, according to Saurabh Agarwal, tax partner at EY, the Supreme Court did not comment on the case's merits. Instead, it dismissed the appeal because the challenged tax was so little. "This limits the applicability of the judgement, granting ITC only to Suncraft Energy and not setting a broader precedent for other businesses facing similar issues," the judge noted. The Supreme Court's ruling, according to Rajat Mohan, a senior partner at AMRG & Associates, is a victory for honest taxpayers.
