Goods & Services Tax (GST) in IndiaInput Tax Credit cannot be availed in case of Non-Compliance of the Statutory Conditions

 The Patna High Court in the case of M/S. Aastha Enterprises V.  The State of Bihar (Civil Writ Jurisdiction Case No.10395 of 2023 decided on 18.08.2023) held that ITC cannot be claimed when the statutory conditions were not complied with

FACTS

M/s. Aastha Enterprises (hereinafter referred as ‘Petitioner’) a registered purchasing dealer acquired goods from another registered selling dealer, through banking instruments and duly issued tax invoices. Since the Petitioner had paid the tax to the selling dealer, the latter never passed the collected tax to the government as required. The Petitioner claimed Input Tax Credit (hereinafter referred to as ‘ITC’) under the invoices submitted by them to the government by arguing that since they have performed their part, the government should recover the unpaid tax from selling dealer and not to block ITC to the Petitioner. However, the government (hereinafter referred as ‘Respondent’) invoking Section 16(2)(C) of the Bihar Goods and Services Tax Act, 2017 (hereinafter referred as ‘BGST Act’) argued that ITC could not be availed unless the tax amount was paid to the government. The Petitioner was unable to reply or defend against the show cause notice issued by the Respondent. Subsequently, an ex-parte assessment order dated 25.05.2022 (hereinafter referred to as the “Impugned Order”), was passed by the Respondent, against the Petitioner.  Furthermore, the Petitioner failed to prefer an appeal under Section 107 of the BGST Act within the statutory time period.

Hence, the Petitioner has filed the present Petition after lapsing of the statutory period of appeal.

 ISSUES BEFORE THE HIGH COURT

1. Whether the Petitioner can be denied ITC as the tax has been already paid to the selling dealer, but the selling dealer has not remitted the tax to the government?
2. Whether the Respondent obligated to complete the recovery of unpaid tax from the defaulting selling dealer instead of denying ITC to the Petitioner?

CONTENTIONS OF THE PARTIES

The Petitioner contends that ITC should be granted when the purchasing dealer has satisfied the tax liability to the selling dealer, as evidenced by a tax invoice, even if the selling dealer fails to remit the tax to the government.

It was argued that the department should proceed against the selling dealer to recover the tax, rather than denying ITC to the Petitioner, as this would result in double taxation, which is against the objective of the GST.

It was submitted that the selling dealer, who has failed to discharge the tax liability, shall be held liable for the taxes and penalty should also be imposed instead of double taxing the Petitioner.

The Respondent argued that eligibility  of  availment of ITC is  subject to certain conditions prescribed under Section 16 of the BGST Act, and failure to meet these conditions results in denial of ITC.

The Respondent highlight that the petitioner did not respond to the show cause notice or reminders, leading to an ex-parte Impugned Order.

It was argued that ITC is a benefit or concession under the statutory scheme, not a right, and can only be availed if statutory conditions are met.

It was further submitted  that it is not liable to grant ITC if the tax has not been paid by the selling dealer, and the purchasing dealer’s remedy lies against the selling dealer

FINDINGS AND DECISION

The Hon’ble Patna High Court held that right to claim ITC is contingent upon the fulfilment of specific statutory conditions outlined in Section 16 of the BGST Act.

The High Court relied upon The State of Karnataka v. M/s Ecom Gill Coffee Trading Private Limited; Civil Appeal No. 230 of 2023,  and observed that the onus was upon the Petitioner to prove that the ITC was genuine and there was actual movement of the goods. These conditions require the possession of a valid tax invoice and the actual payment of tax to the government by the supplier. The court made it clear that if the supplier does not remit the collected tax to the government, then the purchasing dealer is not entitled to claim ITC, as this would violate the statutory requirements.

The  High Court pointed out that ITC is not an automatic right but a statutory benefit that can only be claimed if all necessary conditions are satisfied.

The High Court dismissed the petition, as the Petitioner was unable to meet the conditions under Section 16 of the BGST Act.

AMLEGALS REMARKS

In this case, the Patna High Court again recalled that the ITC under the Bihar Goods and Services Tax Act, 2017 is highly depended on the selling dealer’s crediting of the government with the tax. The court stressed that the purchasing dealer has the obligation to ensure that all legal conditions have been met, including payment of the taxes by the supplier as it has noted earlier; the ITC is a statutory entitled advantage but not a right. As a result of a failure to adhere to the requirement of legislative provisions provided under Section 16(2)(c) of the BGST Act, the petitioner’s ITC claim was rejected and the writ petition was thus dismissed.