ITC Denial Quashed: Supplier Had Paid Tax with Interest
Issue
Whether an assessment order raising a demand for Input Tax Credit (ITC) under Section 74 is sustainable when the denial is based on the alleged non-payment of tax by the supplier, despite evidence showing the supplier eventually complied.
Facts
Period: February – March 2020.
The Demand: The Department issued an order under Section 74 (invoking fraud/suppression) against the petitioner-assessee. The core allegation was that the petitioner claimed ITC for supplies where the supplier had failed to pay the tax to the Government.
Court Proceedings: In response to the writ petition, the Departmental Authorities checked their records and informed the High Court that the supplier had indeed filed the due returns and paid the tax along with applicable interest.
Admission: The Revenue admitted that, given this payment by the supplier, the ITC was rightfully available to the recipient/assessee.
Decision
Correction of Error: Since the foundation of the demand (non-payment by supplier) was proven false by the Department’s own admission, the impugned order could not stand.
Order Set Aside: The High Court set aside the adjudication order.
Remand: The matter was remanded to the Assistant Commissioner with a direction to re-open and re-adjudicate the issue, taking into account the confirmation that the supplier had paid the taxes.
Key Takeaways
Supplier Compliance is Key: Under Section 16(2)(c), ITC is contingent on the supplier paying the tax. However, if the supplier pays late (with interest), the recipient’s right to ITC is restored/protected.
Section 74 Misuse: Invoking Section 74 (Fraud) for what often amounts to a supplier’s delay or a data mismatch is frequently challenged by Courts. If the tax is eventually paid, the element of “fraud” by the recipient often disappears.
Verification: Before accepting a demand for “supplier non-compliance,” always verify if the supplier has filed returns belatedly (GSTR-3B).