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GST has been prevailing in India since 1st July, 2017 constituted under article 246A of the Indian Constitution. Broadly, the prominent motive of the government to introduce GST is to streamline the indirect taxing in India. There are many types of GST returns  for an instance GSTR-1, GSTR-3B, GSTR-4 etc., which vary according to the type of registration obtained. Among all of them GSTR-1, GSTR-2B & GSTR-3B holds the limelight for ITC (Input Tax Credit) interested buyers. The issue before buyers in India pertains to the eligibility for claiming Input Tax Credit (ITC) under the Goods and Services Tax (GST) regime when the supplier has not filed the requisite returns (GSTR-1) or declared the buyer’s invoice in the GSTR-1 form. Despite buyers having paid GST along with other charges to the supplier, the GST authorities often deny and reverse the ITC claimed by the buyer on the ground of discrepancies between GSTR-3B (which contains a summary of GST liability and available ITC) and GSTR-2B (an auto-generated ITC statement based on the supplier’s GSTR-1). The crux of the issue lies in whether buyers, after having fulfilled their payment obligations to the supplier, can still avail ITC if the supplier fails to remit the GST to the government. This situation has led to significant litigation, with different High Courts in India offering divergent views on the matter, that for instance:

1. Aastha Enterprises Vs. State of Bihar (Patna High Court) (2023) 9 Centax 270 (Pat.)

The Patna High Court explicitly points out that a buyer is eligible to claim Input Tax only if the GST has actually been paid by the seller(dealer). If the seller defaults in the payment of tax to the government treasury, ITC cannot be claimed and if it has claimed there will be need to reversal of such credit.

GSTR-2B vs GSTR-3B Is Buyer Responsible for Supplier’s Conduct

2. Suncraft Energy Private Limited And Another Vs. The Assistant Commissioner, State Tax, Ballygunge (Calcutta High Court), MAT 1218 OF 2023 dated 2 August 2023

The Calcutta High Court held that buyers who comply with conditions contemplated under section 16(2) of the Central Goods and Services (CGST) Act, 2017 are eligible to avail ITC. The court further mentioned that denial of ITC cannot be made without any investigation of the supplier and recovery procedure shall be directed against the buyer only in exceptional cases etc.

Therefore the case favours the appellant unlike in Aastha Enterprises. The dept. Further filed SLP [(c) No.(s) 27827-27828/2023] in supreme court against the said order which eventually get rejected by the supreme court through the Judgment dated 14-12-2023.

3. Press Release Dated 4thMay, 2018

Point no. (iv) of this document clearly defines that:

(iv) No automatic reversal of credit: There shall not be any automatic reversal of input tax credit from buyer on non-payment of tax by the seller. In case of default in payment of tax by the seller, recovery shall be made from the seller however reversal of credit from buyer shall also be an option available with the revenue authorities to address exceptional situations like missing dealer, closure of business by supplier or supplier not having adequate assets etc.

This press release issued by Central Board of Indirect Taxes and Customs clarify that there should not be any automatic reversal of  ITC from the buyer if seller didn’t paid the tax.

Conclusion

The conflicting judgments and official clarifications reveal a complex landscape for buyers regarding ITC claims under GST. The Patna High Court’s ruling underscores a stringent approach, placing responsibility on buyers to ensure supplier compliance. In contrast, the Calcutta High Court and CBIC advocate a more balanced view, protecting buyers who have fulfilled their obligations while emphasizing recovery from defaulting suppliers.

This divergence highlights the need for a clear, unified approach to address the challenges faced by businesses under the GST regime.

How you think about this issue?

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5 Comments

  1. Sumeet says:

    Being a NBFC, we availed ITC of 50% under 17(4).

    Supplier defaulted and did not deposit GST..

    Now GST authorities are asking for refund of 100% of GST, despite the fact that we availed ITC only 50% of GST under 17(4).

    We have shown them the press release of 04.05.2018 that only reversal of credit can be asked. However, of no use.

    Please advise and any such case law etc…..

    1. Ansh Mishra says:

      I understood your issue. Kindly go through the judgment suncraft energy private limited Vs Assistant Commissioner that I have mentioned in the above article. This judgment squarely covers your case and the order in this judgment was further upheld by the SC. This judgment can be a strong submission in your appeal. For further query you can write me at anshmishra.legal@gmail.com

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