FACTS OF THE CASE
The petitioner, M/s Aastha Enterprises, is a registered dealer engaged in the business of purchasing goods from another registered dealers (selling dealer). In this case, the petitioner had made purchases from selling dealer and paid the consideration, inclusive of Goods and Services Tax (GST), through bank transfers. Valid tax invoices were also issued by the supplier and were produced before the tax authorities as part of the petitioner’s claim for Input Tax Credit (ITC) under the Bihar Goods and Services Tax Act, 2017 (BGST Act).
Subsequently, it came to light that the selling dealer, despite collecting the tax from the petitioner, had failed to remit it to the government. Based on this non-payment by the seller, the tax authorities disallowed the petitioner’s ITC claim. The petitioner did not appeal the assessment order within the statutory time limits under Section 107 of the BGST Act and instead filed the present writ petition. Though the writ was filed beyond the statutory appeal period, the Court decided to examine the legal question given its significance to the interpretation of ITC provisions under the GST law.
ISSUES RAISED
The issue before the Court was Whether a purchasing dealer who has paid the tax amount to a registered selling dealer and possesses valid tax invoices and proof of payment can be denied Input Tax Credit solely because the selling dealer failed to remit the tax to the government?
ARGUMENTS BY THE PETITIONER
- The petitioner, represented by Smt. Archana Sinha, argued that the tax amount was paid in full, including GST, to the selling dealer via banking channels. The petitioner had obtained proper tax invoices and had documentary evidence to establish movement of goods and the genuineness of the transaction.
- It was contended that the denial of ITC in such circumstances would undermine the very object of the Input Tax Credit mechanism under the GST regime, which is to eliminate the cascading effect of taxes. The petitioner further argued that recovery of tax should be pursued against the selling dealer who failed to remit the tax, and not against the innocent purchasing dealer who has already borne the tax burden by paying it to the supplier.
- Reliance was placed on two decisions of the Madras High Court Sri Vinayaga Agencies v. Assistant Commissioner (CT) in relation to VAT Act in Tamil Nadu, where ITC was upheld despite the seller’s failure to pay tax and the court found that power to revoke the credit does not extend to the non-payment by the selling dealer. In M/s D.Y. Beathel Enterprises v. State Tax Officer (Data Cell) (WP (MD) No. 2127 of 2021), which applied the same logic under the GST regime and held that the department must proceed against the defaulting seller and not the purchaser.
- These cases were cited to support the claim that ITC should not be denied to a purchaser who has fulfilled their obligations under the law.
ARGUMENTS BY THE RESPONDENT (STATE)
- The State of Bihar, represented by Government Advocate opposed the writ petition by emphasizing the statutory conditions under Section 16 of the BGST Act. Specifically, Section 16(2)(c) requires that ITC can be availed only if the tax collected by the supplier has been “actually paid to the Government,” either in cash or by utilization of ITC.
- The State argued that ITC is a concession granted by statute and not a vested right. It is subject to strict compliance with the statutory scheme. Since the tax was not paid by the seller to the government, one of the essential conditions for availing ITC had not been met.
- The State relied on ALD. Automotive Pvt. Ltd. v. Commercial Tax Officer (Civil Appeals Nos. 10412–10413 of 2018), where the Supreme Court held that ITC is not a right but a concession under the statute, and Godrej & Boyce Mfg. Co. Pvt. Ltd. v. Commissioner of Sales Tax, (1992) 3 SCC 624, which allowed the legislature and delegated authorities to impose reasonable conditions and restrictions for availing such concessions.
- It was also submitted that the petitioner did not respond to statutory notices and failed to avail the appellate remedy provided under the BGST Act, making the writ petition not maintainable on procedural grounds as well.
LAW APPLIED BY THE COURT
The Court analyzed Section 16(1) and 16(2)(a) to (d) of the BGST Act. Section 16(1) grants a registered person the right to ITC, subject to conditions and restrictions. Section 16(2) specifies four cumulative conditions that must be met.
JUDGEMENT
The High Court held that the petitioner’s claim for ITC was not sustainable under the BGST Act, as one of the key conditions—payment of tax by the supplier to the government—was not fulfilled. The Court dismissed the argument of double taxation, clarifying that no tax is considered paid unless it reaches the public exchequer.
The court observed that the conditions as provided under section 16(2) are to be satisfied together and not separate or in isolation. The input tax credit is available for the purchasing dealer in the credit ledger by way of payment of tax by the supplier to the govt.
The court relied on State of Karnataka v Ecom Gill Coffee Trading, which said that to sustain a claim for the ITC, the purchasing dealer has to prove actual transaction and establish the physical movement of the goods and the genuineness of the transaction by furnishing the details like the name and address of the selling dealer, payment of freight charges, acknowledgment of delivery of goods, tax invoice etc and mere tax invoices are not sufficient to claim ITC.
The court noticed that the burden of proof is upon the purchasing dealer who is claiming the ITC. It said that the ITC can be availed when the credit of tax collected from the purchasing dealer actually paid by the selling dealer to the govt.
The Court stated that even though the government may have remedies to recover tax from the defaulting seller, this does not entitle the purchaser to claim ITC unless all statutory conditions are met. The claim of ITC is linked to a credit reflected in the electronic credit ledger, which only arises when the tax by the selling dealer has been deposited with the government and not solely on the basis that tax invoices, movement of the goods or services etc are provided.
Therefore, denial of ITC in this case was found to be legally valid and not arbitrary. The writ petition was accordingly dismissed, with the Court holding that the purchaser has no statutory entitlement to ITC when the supplier fails to remit the tax, even if the purchaser paid the amount and possesses valid invoices.
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