Petition filed against denial of ITC to buyers for the default of suppliers


A Petition has been filed in the Calcutta High Court challenging the  constitutional validity of Section 16(2)(c) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as CGST Act) and Section 16(2)(c) of the West Bengal Goods and Services Tax Act, 2017 (hereinafter referred to as WBGST Act) which seeks to deny Input Tax Credit (hereinafter referred to as ITC) to a buyer of goods or services if the tax charged in respect of supply of goods or services has not been actually paid to the Government by the supplier of goods or services.

The Petition has been filed by LGW Industries Ltd having its principal place of business at Salt Lake City, Kolkata. It also challenges the demand of reversal of ITC along with interest only on the basis of allegation that registration under the CGST Act/WBGST Act has been obtained by some of the supplier of goods on the basis of fake identity proofs and that none of the supplier is found in their Principal Place of business.

Further, the petition also stated that a taxable person who pays the price of goods or services including the amount of applicable tax to a supplier of goods or services has no means to verify the fact whether the supplier of goods or services has deposited the GST collected from it and therefore denying ITC to the buyer of goods or services for default of the supplier of goods or services would be arbitrary, irrational and unduly harsh. Moreover, the same would tantamount to shifting the incidence of tax from the supplier to the buyer which is unconstitutional and against the scheme of the CGST Act/WBGST Act. A buyer of  goods or services would have to pay GST twice on the same transaction: once at the time of purchase of the goods by paying GST to the supplier and second on disallowance of the ITC. The objective of the CGST Act/WBGST Act is to charge tax only on ‘value additions’ and to avoid a cascading effect of taxes.

The petition also reads that, in the absence of any finding of petitioners mala fide intention, connivance or wrongful association with the suppliers, no liability can be imposed on it on the principle of vicarious liability on account of fraudulent conduct of the suppliers, who have obtained registration on the basis of fictitious documents.




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