Calcutta High Court Quashes Mechanical GST Demand: Supplier Default Cannot Automatically Deny ITC to Bona Fide Assessee
The intersection of supplier compliance and a recipient's right to Input Tax Credit (ITC) remains one of the most heavily litigated areas under the Goods and Services Tax (GST) regime. In a significant judicial pronouncement, the Calcutta High Court in the matter of Cart Infralog Ltd. & Anr. Vs Additional Commissioner (Calcutta High Court) has delivered a comprehensive ruling protecting the rights of a bona fide assessee. The Court firmly established that the revenue department cannot mechanically invoke extended periods of limitation under Section 74 of the Central Goods & Services Tax Act, 2017, nor can it automatically deny ITC solely due to the default of a supplier, without first exhausting recovery mechanisms against the defaulting party.
This article provides a detailed summary and legal analysis of the High Court's judgment, examining the factual matrix, the arguments presented by both sides, and the critical legal principles upheld by the judiciary regarding ITC eligibility, the invocation of fraud provisions, and the maintainability of writ petitions in the face of alternative statutory remedies.
Factual Matrix of the Dispute
The legal controversy commenced when the GST department issued a Show Cause Notice (SCN) dated 11.06.2025 to the assessee under Section 74 of the CGST Act, 2017. The notice pertained to the Financial Years 2018-19, 2019-20, and 2023-24.
The departmental notice was predicated on two primary allegations against the assessee:
- The availment and utilization of ineligible Input Tax Credit amounting to Rs. 88,57,040/-.
- The availment of irregular excess Input Tax Credit amounting to Rs. 1,48,84,011/- in the Form GSTR-3B when compared to the ITC reflected in Form GSTR-2A for the disputed periods.
Cumulatively, the department raised a total principal tax demand of Rs. 2,37,41,051/-. When coupled with the applicable interest and mandatory penalties, the aggregate demand escalated to Rs. 6.3 Crores.
The genesis of this demand was a departmental enquiry which revealed that the assessee was a recipient of supplies from certain entities that had failed to file their GSTR-3B returns. A specific focus was placed on one supplier, M/s. Aster Trading Company, which had only filed returns for January 2018 and February 2018, subsequently defaulting on its filing obligations for the Financial Year 2019-20.
In response to the departmental communications, the assessee consistently provided supporting documentation to prove the genuineness of the transactions. The assessee formally requested the department to recover the inadmissible credit, along with interest and penalties, directly from the defaulting suppliers rather than penalizing the recipient. Despite filing a detailed reply on 10.11.2025 with voluminous documentary evidence, the adjudicating authority proceeded to pass an Order in Original on 09.12.2025, confirming the massive demand while the assessee's writ petition was already pending before the High Court. Subsequently, a consequential recovery notice dated 12.06.2026 was also issued.
Submissions by the Assessee
The legal counsel representing the assessee mounted a multi-pronged defense against the impugned SCN and the subsequent Order in Original: