The petitioners, Sanchita Kundu & Another, approached the Calcutta High Court by filing writ petitions challenging the action of the GST authorities whereby the benefit of Input Tax Credit (ITC) was denied through an order dated 27 December 2021. The denial was premised on the ground that the GST registrations of the suppliers from whom the petitioners had purchased goods were cancelled retrospectively, covering the relevant transaction period. Consequential proceedings under Section 79(1)(c) of the West Bengal GST Act, initiated through orders dated 29 March 2022 and 30 March 2022, were also challenged.

The petitioners contended that the transactions in question were genuine and duly supported by statutory documents. It was asserted that, at the time of entering into the transactions, the suppliers were reflected as valid registered taxable persons on the GST portal. The petitioners submitted that they had exercised due diligence to the extent reasonably possible under the law and that payments towards the purchase consideration and applicable GST were made through banking channels. All purchase invoices were duly reflected in GSTR-2A, forming part of official records.

It was further argued that the petitioners could not be penalised merely because, subsequent to the transactions, the department concluded that the suppliers were fake or bogus, unless the authorities were able to establish, with cogent material, any collusion between the petitioners and the suppliers. Reliance was placed on the earlier decision of the Calcutta High Court in M/s LGW Industries Limited & Ors. v. Union of India & Ors.

Upon consideration of the facts and submissions, the High Court observed that, without proper verification, it could not be concluded that the petitioners had failed to comply with their statutory obligations. The Court held that denial of ITC without examining the genuineness of transactions, payment of tax, timing of cancellation of supplier registration, and compliance with due diligence requirements was unsustainable.

Accordingly, the impugned adjudication orders were set aside, and the matter was remanded to the concerned authorities for fresh consideration. The authorities were directed to examine the relevant documents, verify whether payments including GST were actually made, ascertain whether the transactions occurred prior to cancellation of the suppliers’ registrations, and consider applicable judicial precedents. The petitioners were to be afforded an effective opportunity of hearing, and a reasoned and speaking order was directed to be passed within eight weeks.

Consequently, the writ petitions were disposed of in terms of the above directions, and all consequential recovery proceedings were also quashed.


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