With the increasing litigation in GST, it is seen that a plethora of notices is being issued on the issue that ITC which is claimed in GSTR-3B but not appearing in GSTR-2A shall not be available to the purchaser and needs to be reversed. On the subject issue, recently the Hon’ble Supreme Court in the case of Suncraft Energy Private Limited ruled in favour of the assessee and allowed such ITC. This judgment might prove to be a big relief to the taxpayers having similar issue.

In this matter, M/s. Suncraft Energy Pvt. Ltd. (“the assessee”) availed Input Tax Credit on certain inward supplies basis the invoices received from the suppliers. However, such ITC was not reflecting in GSTR-2A for the FY 2017-18 since the suppliers failed to disclose these supplies in their Form GSTR-1. Demand was raised on the assessee to reverse such excess ITC availed on account of mis-match between GSTR-3B and GSTR-2A. The assessee made its submissions on following three major grounds:

1. Press release dated 04.05.2018 which clarified that there shall not be any automatic reversal of input tax credit from buyer on non-payment of tax by the seller. In case of default in payment of tax by the seller, recovery shall be made from the seller however, reversal of credit from buyer shall be an option available with the revenue authorities to address exceptional situations like missing dealer, closure of business by supplier or supplier not having adequate assets etc.

2. The Press Release dated 18.10.2018 which 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 is in the nature of taxpayer facilitation and does not impact the ability of the taxpayer to avail ITC on self-assessment basis in consonance with the provisions of Section 16 of the Act.

3. Judgements of the Hon’ble Supreme Court in the case of M/s Union of India vs Bharti Airtel Ltd. and Ors. and Commissioner of Trade and Taxes, Delhi and Ors. vs Arise India Limited and Ors. which held thatin the event that the selling dealer has failed to deposit the tax collected by him from the purchasing dealer, the remedy for the Department would be to proceed against the defaulting selling dealer to recover such tax and not deny the purchasing dealer the ITC.

The Hon’ble Calcutta High Court accepted the contentions of the assessee and ruled in favour of the assessee. It held that ITC claimed by the purchaser cannot be denied if the supplier has not remitted GST on it’s output supply unless there is an exceptional case where it becomes impossible for the department to collect such tax from the supplier and if there is even a little chance of recovering the tax from the supplier, demand needs to be raised to the supplier before demanding reversal of credit from the purchaser.

The Department filed a SLP against the judgement of the Hon’ble Calcutta High Court. On review of the matter, the Hon’ble Supreme Court dismissed the SLP filed by the Department and upheld the decision of the Hon’ble Calcutta High Court [SC Judgment dated 14-12-2023 in Special Leave to Appeal (C) No(s).27827-27828/2023].

This is a landmark judgement which can be applied in cases where the ITC is denied on account of mismatches between GSTR-3B and GSTR-2A. However, it might be interesting to note how this decision would apply in cases of dispute for period after the introduction of Rule 36(4) from October 9, 2019, and Section 16(2)(aa) from January 1, 2022.