Patna High Court in its recent ruling in the case of M/s. Aastha Enterprises v. State of Bihar has held that ITC is in the nature of a benefit/concession and not a right extended to the assessee under the statutory scheme. The High Court held that claim of input tax credit 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
Issue on which ruling was sought
The issue before the High Court was as Whether a purchasing dealer can be denied the benefit of ITC in cases where the supplier has collected tax but not paid it to the government?
Ruling of Patna High Court
The Hon’ble Patna High Court after considering the provisions of Section 16(1) and 16(2) of the CGST Act, 2017 held as under:
- Noted that the conditions for enabling ITC benefit, are available in Clauses (a) (b) and (c) of Section 16(2) which are in seriatim; the existence of a tax invoice or debit note issued by the supplier, proof of receipt of goods or services or both and the tax charged in respect of such supply having been actually paid to the Government, either in cash or through utilization of Input Tax Credit admissible in respect of the said supply.
- Observed that the said conditions for availing ITC are to be satisfied together and not separately or in isolation, and these are the conditions and restrictions which would regulate the availment of Input Tax Credit. 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.
- Referred to judgment of Hon’ble Supreme Court in The State of Karnataka v. M/s Ecom Gill Coffee Trading Private Limited wherein it was held that the dealer who claims Input Tax Credit has to prove beyond doubt, the actual transaction by furnishing the name and address of the selling dealer, details of the vehicle delivering the goods, payment of freight charges, acknowledgment of taking delivery of goods, tax invoices and payment particulars etc. To sustain a claim of Input Tax Credit on purchases, the purchasing dealer would have to prove and establish the actual physical movement of the goods & genuineness of transactions, by furnishing the details referred to above and mere production of tax invoices would not be sufficient to claim ITC.
- Held that Burden of proof is cast on the purchasing dealer who claims ITC, which is a right created under statute; sustained only under the specific terms of the statute.
- Relied upon judgment in ALD. Automotive Pvt. Ltd. v. The Commercial Tax Officer & Ors. that Input Tax Credit (ITC) is in the nature of a benefit/concession and not a Statutory Right and held that if the conditions prescribed in the statute are not complied ; no benefit flows to the claimant.
- Stated that the Recipient Purchaser cannot content for double taxation since the claim of ITC is denied only when the supplier who collected tax from the purchaser fails to pay it to the Government.
- Held that mere fact that there is mode of recovery provided under statute would not absolve the liability of the tax payer to satisfy the entire liability to the Government. The ITC can be availed only if the supplier who collected the tax from purchaser has paid it to Government and not otherwise.
In view of above the High Court finally held that claim of input tax credit 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.
Statutory Provisions
Section 16. Eligibility and conditions for taking input tax credit.-
(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,-
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;
(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;
(b) he has received the goods or services or both.
Explanation.- For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services-
(i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
(ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person;]
(ba) the details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted;
(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; and
(d) he has furnished the return under section 39:
Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment:
Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed:
Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
