CGST | Dept Must First Proceed Against Supplier Before Issuing Show Cause To Recipient For ITC Mismatch: Kerala High Court

The Kerala High Court has held that the department cannot proceed against a recipient for ITC mismatch without first initiating proceedings against the supplier. Section 42(3) of the Central Goods and Services Tax (CGST) Act, 2017, deals with the communication of discrepancies in Input Tax Credit (ITC) claims between the recipient and the supplier. Justice Ziyad Rahman A.A. observed that no proceedings had been initiated against the suppliers before the issuance of notice under Section 73 of the CSGT Act. This amounts to the failure on the part of the department in following the statutory stipulations contained in Section 42 In this case, the assessee made certain purchases which are covered by invoices from the suppliers. According to the assessee, those are proper tax invoices in the relevant formats in the CGST Act, and the suppliers have collected tax from the assessee in respect of the same. The assessee submitted its returns and claimed input tax credit in respect of the invoices. However, the suppliers failed to furnish the details of supplies made to the assessee as per the relevant invoices and did not pay the tax covered thereby. The assessee argued that since the proceedings have been initiated against the assessee without initiating any other proceedings against the suppliers, as mandated under Section 42 of the CGST Act, the assessee cannot be held responsible. The bench stated that when coming to Sub Section (3) of Section 42, it can be seen that there is an obligation imposed upon the assessing authority to issue a notice communicating the discrepancy to both such persons, in case a short supply is found. Evidently, before issuing the show cause notice, no such proceedings have been followed, added the bench. The bench referred to the case of Suncraft Energy Pvt. Ltd v. Assistant Commissioner, State Tax, Ballygunge Charge [(2023) 9 Centax 48(Cal.)], where it was observed that the recovery proceedings can be initiated against the supplier, only if the proceedings initiated against the purchaser did not materialize…….. Such proceedings would be justified against the purchaser, only in a case where the Department is able to show that the purchasing dealer and the selling dealer acted in collusion…. The bench opined that the proceedings initiated against the assessee before issuing notice to the supplier are not sustainable. In view of the above, the bench allowed the petition. Case Title: M/s K.V. Joshy & C.K. Paul v. The Assistant Commissioner Case Number: WP(C) NO. 24617 OF 2024Citation: 2025 LiveLaw (Ker) 810 Counsel for Petitioner/Assessee: M.S. Sanjeev Kumar Counsel for Respondent/Department: R. Harishankar Click Here To Read/Download Order

CGST | Dept Must First Proceed Against Supplier Before Issuing Show Cause To Recipient For ITC Mismatch: Kerala High Court

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