Punjab and Haryana High Court rules on GST tax credit and audit procedures

The Punjab and Haryana High Court has issued rulings regarding Goods and Services Tax (GST) compliance and the rights of purchasers when suppliers default on tax payments. In the case of Shaurya Alloys Private Limited v. State of Punjab, the court addressed disputes where the tax department sought to reverse input tax credits (ITC) because suppliers failed to deposit taxes or had registrations cancelled retrospectively.

The Division Bench upheld the validity of Section 16(2)(c) of the CGST Act but cautioned against the mechanical application of the law. The court noted that while purchasers may pay the full invoice value including GST, they often cannot compel suppliers to deposit the tax or independently verify such payments. The judgment emphasizes that supplier defaults should not automatically justify recovery from purchasers without proper inquiry and adjudication.

In a separate matter involving M/s GIL-TPL (JV), the High Court addressed procedural fairness in tax audits. The court set aside show cause notices after finding that the petitioner was not given a proper opportunity to respond to discrepancies identified in an audit report. The court directed authorities to consider the taxpayer's explanations and prepare a fresh audit report.