Whether ITC can be claimed for non existent Supplier ?

Let’s understand the same through analysis of Landmarking Judgement.

LGW INDUSTRIES LTD. vs. UNION OF INDIA  (CALCUTTA HIGH COURT)

Entitlement of ITC to be considered afresh where ITC was denied on the ground that suppliers were non-existent but the transactions were found to be genuine.

1. Background:

• Notices were issued to the assessee denying the benefit of ITC as the vendors were non-existent.
• Against the said notices, a writ petition was filed by the assessee before the Hon’ble Calcutta High Court.

2. Point of dispute:

• Whether the denial of ITC on the ground that suppliers were non-existent was correct?

3. Submissions by the Assessee:

• The assessee with its due diligence verified the genuineness and identity of the suppliers in question and the Revenue’s portal was showing that their registrations were valid and existing at the time of transactions.

• When the names of the suppliers as a registered taxable person were already available on the Revenue’s portal at the relevant period of transaction, the assessee could not be faulted if they were found to be fake subsequently, unless the department/respondents establish, with concrete materials that the transactions in question were the outcome of any collusion between the petitioners/purchasers and the suppliers in question.

• The assessee paid the amount for the purchases in question as well as GST on the same and such payments were made through banking channels.
• The assessee further submitted that all the purchases in question invoices-wise, were available on the GST portal in Form GSTR-2A which are on record.
• All transactions were entered into before the cancellation of the registrations of defaulting suppliers and therefore, impugned transactions were valid.
• The assessee also challenged the Constitutional validity of section 16(2)(C).

4. Submissions by the Revenue:

• Genuineness of the suppliers was not verified by the assessee before entering into the transactions. GST authorities on an inquiry, came to know that the suppliers from whom the assessee had claimed to have purchased the goods in question were fake and non-existing and the bank accounts opened by those suppliers are on the basis of fake documents and assessee’s claim of benefit of ITC are not supported by the relevant documents.

5. Legal Principles and Scope of Decision:

• The High Court observed that when the names of the suppliers as a registered taxable person were already available with the Government records and in Government portal at the relevant period of transaction, Then assessee could not be faulted if they appeared to be fake later on. Therefore, it cannot be said that there was any failure on the part of the assessee in compliance of any obligation required under the statute before entering the transactions in question or for verification of the genuineness of the suppliers in question.
• The benefit of ITC to be granted if the purchases were genuine and supported by valid documents.

6. Conclusion:

• Revenue was directed to verify whether payment along with tax was actually made to the suppliers by the assessee and whether the transactions in question were made before cancellation of registration of the defaulting suppliers.
• The matter was remanded to the respondents for re-considering the matter of the assessee on the issue of its entitlement of the benefit of ITC in question in a fresh manner.