The Madras High Court quashed assessment order for violation to take due process where Authority proposes to take adverse view in the matter of Reversal of Input Tax Credit (ITC).
The petitioner, Pinstar Automotive India Pvt Ltd, is an assessee on the file of the respondent for the purposes of Central Goods and Services Tax Act, 2017 (Act) in relation to the period of assessment July, 2017 to March, 2019. The petitioner had received pre-assessment notice dated 17.09.2021 in regard to the issue relating to invocation of Section 16(2)(c) of the Act. In the present case, the petitioner has chosen to seek rectification of the order.
Section 16 deals with the eligibility and conditions for taking Input Tax Credit (ITC). Sub-section (2) of Section 16 sets out certain mandatory contingencies for continuity of ITC to a registered person. Inter alia, one of the conditions is that the tax charged in respect of such supply has been actually paid to the Government in cash or through utilisation of ITC, admissible in respect of the said supply.
Undoubtedly, there is a mandate cast upon the petitioner/claimant to ITC to ensure compliance with the provisions as, in the alternative and as a natural consequence of Section 16(2)(c), he would be entitled to ITC.
An additional factor is that where the tax liability has been met by way of reversal of ITC and similarly recovery is effected from the supplier as well, this would amount to a double benefit to the revenue. Thus, while the Department may reverse credit in the hands of the purchaser, this has to be a protective move, to be reversed and credit restored if the liability is made good by the supplier. Thus, the substantive liability falls on the supplier and the protective liability upon the purchaser.
The Court of Dr Justice Anita Sumanth observed that “In this case, admittedly, there has been no opportunity granted to the petitioner prior to the passing of impugned order and this is a fatal flaw. Order dated 20.01.2023 is set aside.”
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