Introduction :- Section 16(2)(c) of the Central Goods and Service Tax Act 2017 ( Act) states that 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. Further Section 41 states that same shall be credited in the electronic credit ledger.
In the simple word, the law states that If defaults committed by the selling dealer, the purchasing dealer is expected to bear the consequence of being denied the ITC.
Analysis of this clause :- this issue was discussed multiple times in the MODVAT law and VAT law in the various court of india with decision in the favour of revenue as well as assessee both cases, below are the list of both the decision with decision remarks for the reference/Analysis.
Decision in the favour of the Assessee :-
Para 18. Sales tax is leviable on sale of goods. It must be collected by the dealer as an agent of the State at such rate as may be specified: Corporation Bank v. Saraswati Abharansala and another, (2009) 19 VST 84 (SC)
“The question of paying interest will also not arise because sales tax is an indirect tax. It is collected by the assessee from its customers. The incidence of tax falls not on the assessee but on its customers. The assessee collects the sales tax from its customers as a part of sale price. It forms part of his turnover for the stipulated period. Under the Scheme the liability to pay tax by the assessee accrues each year but the payment of tax is deferred. On expiry of seven years the assessee has to pay back the tax collected by it during 7 years. It is a sort of a loan given by the State to the assessee so that the assessee can use the tax amount to meet its working capital requirement. As stated, the liability of the respondent assessee accrued each year, therefore, there is no question of the Department paying interest @ 18% on the tax collected by the assessee during the afore- stated period. The tax was collected by the assessee from its customers as an agent for the Government. The assessee is allowed to retain that amount which has accrued to the account of the State Government.” Hon’ble Supreme Court in State of Punjab and others v. Atul Fasteners Ltd., (2007) 4 SCC 471
No liability could be fastened on the petitioner on account of non-deposit of input tax received by the selling dealer from the purchasing dealer as the term “paid” is to be interpreted to mean “ought to have been paid” as held by the Supreme Court in Sanjana, Assistant Collector of Central Excise, Bombay and others v. The Elphinstone Spinning and Weaving Mills Co. Ltd., AIR 1971 SC.
Para 3 – To claim the benefit of tax on the ground that the sales effected by the assessee are second sales, the assessee need not show that their sellers have in fact paid tax. It is enough for them to show that the earlier sales are taxable sales and that the tax is really payable by their sellers. In (1975) 35 STC 50 (Mad.).
Para 33 – no liability can be fastened on the purchasing registered dealer on account of non-payment of tax by the selling registered dealer in the treasury unless it is fraudulent, or collusion or connivance with the registered selling dealer or its predecessors with the purchasing registered dealer is established.- Gheru Lal Bal Chand v. State of Haryana (2011) 45 VST 195 (P&H)
Once the purchasing dealer produced the bill of registered dealer then it had to be presumed that the goods had suffered the incidence of tax – Multi Metal Products vs. Commissioner of Sales Tax, M.P. (1999) 112 STC 605 (M.P.).
Mahadev Enterprise v. State of Gujarat 2016 (92) VST 360 (Gujarat), Jinsasan Distributors v. CTO (2013) 59 VST 256 (Madras) to urge that as long as there is no mismatch of Annexures 2A and 2B, ITC cannot be denied
Cases in the favour of the Revenue :-
A selling dealer cannot obviate his liability to pay tax on his „sale transaction‟ by claiming set off and placing the responsibility to recover tax on an earlier link in the chain on the Revenue. It proceeds on the basis that the State Legislature is not “bound to grant a set off”. It further states that the Legislature cannot be “compelled to grant a set-off, ignoring the conditions which it imposes”. Khazan Chand v. State of Jammu and Kashmir and Central Wines v. Special Commercial Tax Officer
It is hereby declared that, in no case the amount of set off or refund on any purchase of goods shall exceed the amount of tax in respect of the same goods, actually paid, if any, under this Act or any earlier law, into the Government Treasury except to the extent where purchase tax is payable by the Claimant dealer on the purchase of the said goods effected by him: – M/s. Mahalaxmi Cotton Ginning Pressing & Oil Industries v. State of Maharashtra the Bombay High Court
Conclusion :– For the assessee to establish that the registered selling dealer has deposited the tax collected from the purchasing dealer is an onerous condition which is not capable of performance as the purchasing dealer has no control over the registered selling dealer or its predecessors. State has all the machinery at its command to effect recovery from the real defaulter and no person other than the defaulting person can be penalized for somebody else’s lapses. Further revenue is extensively believed on the decision of Mahalaxmi Cotton in all the plea, which was rejected in the mostly cases, even in the recent case of Arise India in the Delhi HC also. So there is scope with assessee to use these judgment in the case of not deposit of dues by selling dealer. Suggestion are welcomed.
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