Tax Insights

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Tax Insights

4 August 2023

Revenue to initiate first course of action against supplier and not recipient in case of mismatch in Forms GSTR 2A-3B – Calcutta High Court

In brief

The Calcutta High Court¹ has held that in case of mismatch between Forms GSTR-2A and GSTR-3B, the Revenue ought to have initiated action against the selling dealer and not the recipient unless there were any exceptional circumstances such as collusion, missing dealer, etc. The High Court has also noted that the recipient had availed input tax credit (ITC) as a bone fide taxpayer by satisfying all the conditions of section 16 of the Central Goods and Services Tax Act, 2017 (CGST Act) and that authorities had also ignored the tax invoices and bank statements submitted by the recipient to substantiate its claim.

In detail

Facts

• The appellant (recipient) had received certain installation and commissioning services and availed credit for the year 2017–18 on the basis of invoices issued by the supplier. The recipient had made payment of the value of supply along with tax to the supplier at the time of effecting the purchases.

• Some of the invoices of the said supplier were not reflecting in Form GSTR-2A.

• Upon scrutiny of the returns, the tax authorities issued notices for the recovery of the ITC availed by the recipient, which was subsequently confirmed by way of issuance of an order.

• On f iling of a writ petition before the High Court, the petition was disposed of by directing the recipient to pref er a statutory appeal before the appellate authority, and the appellate authority was also directed to dispose of the appeal without rejecting the same on the ground of limitation.

• Against the aforesaid order, the recipient filed the present appeal on the basis that despite having fulfilled all the conditions enumerated under section 16(2) of the CGST Act, the Revenue erred in reversing the credit and directing recovery of the same.

1 MAT 1218 of 2023 (Calcutta)

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High Court’s decision

The High Court set aside the order seeking reversal of ITC and recovery and directed the Revenue to first proceed against the selling dealer and held that only under exceptional circumstances (as clarified in the Central Board of Indirect Taxes and Customs [CBIC] press release) can proceedings be initiated against the recipient. The detailed observations of the High Court are summarised below.

Effect and purport of Form GSTR-2A

• The CBIC’s press release² clarified that furnishing of outward details in Form GSTR-1 by the corresponding supplier and the facility to view the same in Form GSTR-2A by the recipient are in the nature of taxpayer f acilitation, and it does not impact the ability of taxpayers to avail ITC on self -assessment basis in

accordance with section 16 of the CGST Act. It has also been clarified that the apprehension that ITC can be availed only on the basis of such reconciliation is unfounded and that such an exercise can be done thereaf ter as well.

• Another press release dated 4 May 2018³ clarified that there will not be any automatic reversal of ITC f rom the buyer on non-payment of tax by the seller.

• In the case of Bharti Airtel Limited⁴, the Supreme Court has held that Form GSTR-2A is only a facilitator f or self -assessment, and non-performance or non-operability of Form GSTR-2A will be of no avail since the dispensation stipulated at the relevant time obliged the registered persons to submit return on the basis of such self-assessment in Form GSTR-3B manually on an electronic platform.

• In the case of Arise India⁵, a similar question arose for consideration in the context of Delhi Value Added Tax (DVAT), as to whether the purchasing dealer can be made to bear the consequences of denying ITC f or the default committed by the selling dealer, and whether the provisions of DVAT were violative of Article 14 of the Constitution. In this case, the Delhi High Court held that the said provision of DVAT had to be read down in a manner that the department is precluded from denying ITC to the purchasing dealer who had entered a bona fide purchase transaction with the registered selling dealer who had issued a t ax invoice ref lecting the TIN number.

• It was noted that although the above decision arose under the provisions of DVAT, the scheme of availment of ITC continues to remain the same even under the GST regime, although certain procedural modification and statutory forms have been made mandatory.

No denial of receipt of goods and services

• It was also observed that the show cause notice did not allege that the recipient was not in possession of a tax invoice by the supplier, and there was no denial of the fact that the recipient had received the goods or services or both.

• The reason f or denying the ITC was on the ground that the details of the supplier were not reflecting in the supplier’s Form GSTR-1.

• In addition to a valid tax invoice, the recipient has also substantiated the payment details by producing the bank statements.

No enquiry conducted against the selling dealer

• The High Court observed that the Revenue had not conducted any enquiry on the supplier more particularly when the CBIC clarif ied that the facility to view Form GSTR-2A was in the nature of a taxpayer facilitation and did not impact the ability of the taxpayers to avail ITC on self-assessment basis.

• The Revenue, without resorting to any action against the selling dealer, had ignored the t ax invoices as well as the bank statements submitted to substantiate the claim; thus, the action of the Revenue was held to be arbitrary.

2 Press release dated 18 October 2018

3 Press release on 27^th GST Council meeting dated 4 May 2018

4 Union of India v. Bharati Airtel Limited [Civil Appeal No. 6520 of 2021 (SC)]

5 Arise India v. Commissioner of Trade and taxes [W.P No. 6093/2017 (Delhi)]

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• Bef ore directing the recipient to reverse ITC and remit the same, the Revenue ought to have taken action against the selling dealer and unless they were able to bring out exceptional circumstances such as collusion, closure of business by selling dealer, etc. proceeding against the recipient was not justified.

The takeaways

This is a welcome decision reiterating the effect and purport of Form GSTR-2A as more in the nature of a taxpayer facilitation measure on the basis of judicial pronouncements and CBIC clarifications on the issue. The High Court has also noted and emphasised that the recipient had substantiated its claim on the basis of invoices, bank statements and fulfilment of all other conditions of section 16 of the CGST Act, which was entirely ignored by the officers. This decision can be relied upon by taxpayers for contesting demands against ITC reversal up to the period when the law was amended to include reconciliation with Form GSTR-2A as a condition. On the other hand, it is imperative for taxpayers to note that they should be able to substantiate their ITC claim with sufficient valid invoices and supporting documents as highlighted in the case of Bharti Airtel Limited⁴.

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In this document, “PwC” refers to PricewaterhouseCoopers Private Limited (a limited liability company in India having Corpora te Identity Number or CIN : U74140WB1983PTC036093), which is a member firm of PricewaterhouseCoopers International Limited (PwCIL), each member firm of which is a separate legal entity.

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