The Calcutta High Court has ruled that the onus of inquiry regarding non-remittance of Goods and Services Tax ( GST ) to the state treasury falls upon the seller, particularly in cases where the service recipient has already fulfilled their payment obligations unless in exceptional circumstances as clarified in the press release issued by Central Board of Indirect Taxes and Customs ( CBIC ). The bench of Chief Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyya observed that “the adjudicating authority without resorting to any action against the supplier who is the selling dealer, had ignored the tax invoices produced by the appellant as well as the certificates issue by the Chartered Accountants which is erroneous and wholly without jurisdiction.”

The High Court set aside the order and SCN with a direction to the authorities to first proceed against the supplier and only under exceptional circumstances as clarified in the press release issued by the CBIC and then only proceedings can be initiated against the appellant.  The appellant/assessee contested a show-cause notice issued by the WBGST authorities, arguing that it was issued without verifying the supplier’s end and wrongfully denying credit to the appellant.

The Writ Court resolved the writ petition by instructing the appellant to submit objections to the show-cause notice, with the authority directed to consider them along with the judgments cited by the appellant. The respondent authority issued a notice under Section 73(1) of the CGST Act, 2017/WBGST Act, 2017, dated August 22, 2023. The notice alleged that the appellant failed to provide evidence confirming that suppliers had remitted taxes to the government on disclosed supplies. Additionally, it accused the appellant of utilising Input Tax Credit ( ITC ) in violation of Section 16(2)(c) of the GST Act.

Consequently, the authority proposed to reverse ITC amounting to Rs. 4,52,739.42/- (IGST), along with interest as per Section 50 of the GST Acts. The appellant challenged this notice through a writ petition, which was subsequently disposed of by the impugned order. In its order dated December 28, 2023, the adjudicating authority confirmed the demand outlined in the show-cause notice. However, certain findings in the order, notably on the appellant’s purported receipt of manpower services, were deemed outside the scope of the original allegations.

These findings, highlighted on page 6 of the order, were not part of the initial notice. The court noted that despite the appellant providing certificates from Chartered Accountants attesting to tax discharge by suppliers, the authority dismissed them, citing inconsistencies with GST portal data. This unilateral action by the authority, without affording the appellant an opportunity to clarify, was deemed unjust. The case law precedent of Suncraft Energy Private Limited was referenced in this regard. The bench observed that the authority acknowledged the payment of tax by the appellant to the supplier, but noted that it hadn’t been remitted to the state exchequer. In such a scenario, the elementary principle dictates that the authority should conduct an inquiry with the supplier before penalising the appellant. Failing to do so would be arbitrary, illegal, and without jurisdiction.

The words of the Calcutta High Court reads as follows “It is interesting to note in the facts of the instant case that even in the show cause notice the authority has admitted that “it is true that the recipient has made payment the element of tax to the supplier against such transaction but the payment of such tax has not been reciprocated to the exchequer”. If the authority has admitted the fact that the recipient who is the appellant has made payment of the tax to the supplier against the transaction and if it is a case of the department that such tax has not been remitted to the State exchequer, the elementary principle to be adopted is to cause enquiry with the supplier and without doing so to penalise the appellant would be arbitrary, illegal and without jurisdiction.”

Accordingly, the appeal was allowed. The order passed in the writ petition was set aside and the writ petition was allowed. The order impugned in the writ petition dated 28.12.2023 was s set aside as well as the show-cause notice dated 22.08.2023 was set aside with a direction to the authorities to first proceed against the supplier and only under exceptional circumstances as clarified in the press release issued by the Central Board of Indirect Taxes and Customs ( CBIC ) and then only proceedings can be initiated against the appellant.  To Read the full text of the Order CLICK HERE