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Hon'ble Patna HC has held ITC can not be allowed unless Supplier has paid GST to the Government

In an issue which is considered as contentious, Hon'ble Patna HC in the case of M/s Aastha Enterprises (CWP Case No.10395 of 2023) has held that ITC can not be allowed to the purchaser unless due tax (GST) has not been paid by the Supplier to the Government even if Purchaser may have paid the tax along with value of supply to its Supplier (copy of order is attached in the last).

Basis of Decision/Arguments (Based on our interpretation):

It has been held that Input Tax Credit is in the nature of a benefit/concession and not a right extended to the dealer under the statutory scheme, which benefit can accrue to the assessee only as per the scheme of the statute. Rule making authority can provide restrictions in extending the concession.

HC has held having invoices, payment to the Supplier by the Purchasing dealer and evidences of actual transportation of Goods does not absolve the assessee from the rigor provided under sub-clause (c) of Section 16(2) of the BGST Act, which requires the credit of tax, collected from the purchasing dealer; either in cash or through utilization of admissible Input Tax Credit, being available in the context of the supplier having actually paid tax to the Government. This in effect is a burden of proof cast on the purchasing dealer who claims Input Tax Credit, which is a right created under statute; sustained only under the specific terms of the statute.

For Reference, Section 16(2)(c) is reproduced here: (c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply;

Input Tax Credit by the very nomenclature contemplates a credit being available for the purchasing dealer in its credit ledger by way of payment of tax by the supplier to the Government.

It is true that Input Tax Credit is a concept introduced in the tax regime, all over the country for the purpose of avoiding the cascading effect of taxes. The benefit of such credit being availed by a purchasing dealer who sells or manufactures goods, using raw materials on which tax has been paid is a benefit or concession conferred under the statute as has been held in ALD. Automobile Private Limited. Necessarily, the conditions for such availment of credit has to be scrupulously followed failing which there can be no benefit conferred on the assessee. The benefit is one conferred by the statute and if the conditions prescribed in the statute are not complied; no benefit flows to the claimant.

On Question of Double Taxation (as Government may recover GST from Supplier also)

The Government definitely could use its machinery to recover the amounts from the selling dealer and if such amounts are recovered at a later point of time, the purchasing dealer who paid the tax to its supplier could possibly seek for refund. However, as long as the tax paid by the purchaser to the supplier, is not paid up to the Government by the supplier; the purchaser cannot raise a claim of Input Tax Credit under the statute.

Accordingly, Hon'ble HC has held that:

The claim of Input Tax Credit raised by the petitioner cannot be sustained when the Supplying/selling dealer has not paid up the amounts to the Government; despite collection of tax from the purchasing dealer.

Our Opinion (purely for Academic purpose)

With due respect to Hon'ble HC, Hon'ble Calcutta HC has recently held in case Suncraft Energy Private Limited and Another that Department need to first act against Supplier and only in special circumstances as mentioned in subject judgement like collusion between Supplier and Purchasing Dealer etc. , ITC can not be denied to Purchasing Dealer.

In our opinion, this issue will attained finality once decision comes from Hon'ble Supreme Court as it involves interpretation of multiple question of equity, double taxation, natural justice and provisions of law etc.

Copy of the Order

Hon'ble Patna HC_Aastha
Download PDF • 161KB

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Disclaimer: We have taken due care while analysing/interpreting decision of Hon’ble High Court for academic purpose, however Fab Gyan will not be responsible for any mistake .

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