ITC not allowed to buyer if supplier did not pay GST to the Government
The Hon’ble Patna High Court in M/s. Aastha Enterprises v. State of Bihar [Civil Writ Jurisdiction Case No.10395 of 2023 Order dated August 18, 2023 – HC-GW-836-2023-BH 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.
Facts:
M/s. Aastha Enterprises, the Petitioner and the purchaser, a registered dealer has satisfied the tax liability to the selling dealer, another registered dealer, evidenced by a tax invoice; even when the selling dealer does not pay the said tax to the Government after collecting it from the purchaser.
The Petitioner points out that the purchases were made after making payments through bank accounts. Invoices were issued by the selling dealer which is also produced as Annexure-1 series. Annexure-1 series shows the invoice issued by the selling dealer, evidencing the payment of the value of the goods along with the tax, by the purchasing dealer through bank account and the movement of the goods purchased. Obviously, the selling dealer has not paid up the tax liability, to the State, which stood satisfied by the purchasing dealer and collected by the selling dealer. The underlying object of Input Tax Credit regime brought in, is to avoid the cascading effect of tax and this would be totally frustrated if the department officials attempt recovery of tax from the purchasing dealer, which tax liability has already been satisfied by payment of the tax component, to the selling dealer. The recovery now sought has the character of a double taxation and it should be the department who proceeds against the selling dealer to recover the collected amount of tax; which if not paid after collection, entails penalties under the tax enactment.
Learned counsel for the petitioner also relied on two decisions of learned Single Judges of the Madras High Court. Sri Vinayaga Agencies v. The Assistant Commissioner (CT) & Anr. in WP Nos. 2036 to 2038 of 2013 dated 29.01.2013 and WP (MD) No. 2127 of 2021 and connected cases; M/s D.Y. Beathel Enterprises v. The State Tax Officer (Data Cell) dated 24.02.2021 – HC-GW-313-2021-TN. It is argued that the reasoning squarely applies in the above case.
The Government Advocate, however, relies on Section 16 of the BGST Act and argues that the Input Tax Credit is tied to certain conditions stipulated under the provision; nonfulfilment of which would result in denial of such credit.
It is pointed out that ALD. Automotive Pvt. Ltd. v. The Commercial Tax Officer & Ors. (Civil Appeal Nos. 10412-10413 of 2018) 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. Godrej & Boyce Mfg. Co. Pvt. Ltd. and Others v. Commissioner of Sales Tax and Others; 1992 (3) SCC 624 was also relied on to urge that the rule making authority can provide restrictions in extending the concession.
Issue:
Whether the purchasing dealer can be denied Input Tax Credit evidenced by the invoice and is not the State obliged to take proceedings against the selling dealer, who defaulted payment of collected tax to the State; for which the statute provides ample scope, is the question raised.
Held:
The Hon’ble Patna High Court in [Civil Writ Jurisdiction Case No.10395 of 2023 Order dated August 18, 2023 – HC-GW-836-2023-BH observedas under:
- The case of M/s D.Y. Beathel Enterprises, was under the VAT Act and it was held that when the seller has collected tax from the purchasing dealer, the omission on the part of the seller to remit the tax in question should be viewed very seriously and strict action ought to have been initiated against the seller. The impugned orders were quashed on the ground that the selling dealer was not examined and on the ground that there was no recovery initiated against the selling dealer. The court noticed that the cited decision ignored the provision under sub-clause (c) of Section 16 (2) of the GST Act.
- The conditions for enabling Input Tax Credit benefit, are available in Clauses (a) (b) and (c) which are in seriatim; The said conditions 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.
- The benefit of Input Tax 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. 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 contention of double taxation does not impress us especially since the claim is denied only when the supplier who collected tax from the purchaser fails to pay it to the Government.
- The statutory levy and the further benefit of Input Tax Credit conferred on the purchasing dealer depends not only upon the collection by the seller but also the due payment by the seller to the Government. When the supplier fails to comply with the statutory requirement, the purchasing dealer cannot, without credit in his account claim Input Tax Credit and the remedy available to the purchasing dealer is only to proceed for recovery against the seller.
- Even if such recovery from the supplier is effected by the purchasing dealer; the State would be able to recover the tax amount collected and not paid to the exchequer, from the selling dealer since the rigor of the provisions for recovery on failure to pay up, after collecting tax, enables the Government so to do.
- 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.
- The writ petition would stand dismissed leaving the parties to suffer their respective costs.
GSTWORLD Analysis:
The judgement of the Hon’ble Patna High Court is in the line of the provisions of law and will pave way to a more stringent compliance for claiming Input Tax Credit. The recipient registered person will not be to avail the Input Tax Credit of supplies being not auto populated in GSTR-2B.
We advise to take a call on the issue only after taking into consideration of this judgement unless otherwise decided by the higher court.
