Calcutta High Court clarifies limits on ITC reversal where supplier fails to pay tax

The Calcutta High Court in Pushpa Devi Jain Vs State of West Bengal & Ors. has delivered an important ruling on whether the revenue can compel a purchaser to reverse Input Tax Credit (ITC) merely because the supplier has not deposited the GST collected on supplies. The judgment interprets the scope of proceedings under Section 73(9) read with Rule 142(5) of the WBGST Act, 2017, and lays down specific circumstances in which recovery can lawfully be made from a purchasing assessee.

Since the text is a judicial order, what follows is a structured summary of the key facts, arguments, reasoning, and directions issued by the Court.

Background of the dispute

Proceedings initiated under Section 73

  • The impugned order was passed by the Assistant Commissioner, SGST, Siliguri Charge under Section 73(9) read with Rule 142(5) of the WBGST Act, 2017.
  • The authority concluded that excess ITC of CGST and SGST of Rs. 73,099.55 each had been availed by the petitioner, Pushpa Devi Jain, in relation to purchases made from a particular supplier.
  • On this basis, the department sought:
    • Recovery of the alleged excess CGST and SGST;
    • Interest; and
    • Penalty.
  • The principal tax amount was already realised from the petitioner; however, interest and penalty remained unpaid, and the demand on these components was under challenge.

Case made out by the petitioner

The petitioner, a purchasing assessee, challenged the demand on the following broad grounds:

  1. Payment of tax component to supplier established

    • The petitioner produced tax invoices and bank statements to show that the consideration, inclusive of the GST component, had been paid in full to the supplier.
    • According to the petitioner, once this payment was made, the statutory obligation to discharge tax in relation to that supply was fulfilled on her part.

  2. Right to ITC upon payment to supplier

    • The petitioner argued that after paying the tax component to the supplier against valid tax invoices, she lawfully availed Input Tax Credit (ITC).
    • If subsequently the supplier chose not to remit that tax to the Government, the consequence and liability should fall on the supplier, not on a bona fide purchaser.

  3. Challenge to proceeding under Section 73

    • It was contended that proceedings under Section 73 are not meant for cases where an assessee has fraudulently or wilfully availed ITC.
    • The petitioner stressed that there was no allegation of collusion with the supplier, and the entire transaction was carried out in good faith on the strength of proper documentation and banking channels.

  4. Arbitrariness in shifting burden to purchaser

    • The petitioner’s counsel, Mr. Lakhotia, argued that since the department was unable to trace the supplier and could not recover tax from it, the authority arbitrarily attempted to recover the same amount from the petitioner by seeking reversal of ITC along with interest and penalty.
    • This, it was submitted, is contrary to the governing principles of ITC entitlement for a bona fide purchaser under the GST regime.

Findings recorded by the tax authority

From the impugned order and record, the following facts were noted: