This article is in context of the judgement M/s AASTHA ENTERPRISES given by the Hon’ble High Court of Patna on 18-08-2023 relating to the provisions stated in clause (c) of sub-section (2) of the section 16 of the CGST Act.
Section 16(2)(c) of the CGST Act – 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;
Issue before the Court
The issue before the court was for interpretation of the provision enabling Input Tax Credit under the BGST Act/CGST Act. The petitioner’s case before the court was that 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.
Facts of the Case
The petitioner put the case before the court in regard to transaction that the petitioner made purchases vide valid Tax Invoices, the petitioner made payments through the bank account and the petitioner proved movement of goods and receipt of goods.
The disputed issue is that the selling dealer has not paid up the tax liability to the state even after collected the tax from the petitioner.
The petitioner submitted that 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.
Final Judgement
The writ was dismissed by giving following verdict that
It is clear that the literal nomenclature and the statutory language, mandates that there should be credit available in the credit ledger of the purchaser to claim Input Tax and otherwise the claim would be frustrated. On the above reasoning, we have to find 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.
Grounds of the Verdict
- The conditions stipulated under the section 16 are to be satisfied together and not separately or in isolation.
- 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 burden on the purchasing dealer to prove that the actual tax has been paid to the Government or not.
- The purchasing dealer who claims Input Tax Credit, which is a right created under statute; sustained only under the specific terms of the statute.
- The benefit (availing of ITC) is one conferred by the statute and if the conditions prescribed in the statute are not complied; no benefit flows to the claimant.
- 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. Taxation as has been held is a compulsory extraction made for the purpose of public good, by the welfare State and without the levy being paid to the Government; there can be no claim raised of the liability to tax having been satisfied and hence there is no question of double taxation.
- About recovery from the Supplier by the Government – The mere fact that there is a mode of recovery provided under the statute would not absolve the liability of the tax payer to satisfy the entire liability to the Government. The purchasing dealer being the person who claims Input Tax Credit could only claim the Input Tax benefit if the supplier who collected the tax from the purchaser has paid it to the Government and not otherwise. The Government definitely could use its machinery to recover the amounts from the selling dealer and if such amounts are recovered at a later point of time, the purchasing dealer who paid the tax to its supplier could possibly seek for refund.
- The word ‘Input Tax Credit’ itself postulates a situation where the purchasing dealer has a credit in the ledger account maintained by it with the Government. The said credit can only arise when the supplier pays up the tax collected from the purchaser. The mere production of a tax invoice, establishment of the movement of goods and receipt of the same and the consideration having been paid through bank accounts would not enable the Input Tax Credit; unless the credit is available in the ledger account of the purchasing dealer who is an assessee.
- 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.
Judgements not considered in favour of the petitioner
M/s D.Y. Beathel Enterprises and Sri Vinayaga Agencies
The court noticed that in the case of M/S D.Y. Beathel Enterprises provisions of section 16(2)(c) have been ignored.
Supreme Court Judgements which relied
- The State of Karnataka v. M/s Ecom Gill Coffee Trading Private Limited; Civil Appeal
- M/s Tallam Apparels
- M/s Ecom Gill Coffee Trading Private Limited
The gist of these judgements is that the dealer who claims Input Tax Credit has to prove beyond doubt, the actual transaction by furnishing the name and address of the selling dealer, details of the vehicle delivering the goods, payment of freight charges, acknowledgment of taking delivery of goods, tax invoices and payment particulars etc.. It was also held that to sustain a claim of Input Tax Credit on purchases, the purchasing dealer would have to prove and establish the actual physical movement of the goods & genuineness of transactions, by furnishing the details referred to above and mere production of tax invoices would not be sufficient to claim ITC.
Conclusion
The dispute whether ITC should be available to the purchaser or not in the case that all conditions stated under section 16 CGST are fulfilled except the condition that the tax had not been actually paid by the supplier. In my opinion it should be available to the purchaser if the supplier admits the supply by furnishing the return GSTR-1 and there is no case of collusion between the supplier and purchaser. The supplier’s duty is to pay the tax. The purchaser has no control upon the supplier if the supplier does not pay the tax.
It has been correctly observed in the case of M/s D.Y. Beathel Enterprises that 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. Without examining the selling dealer and without initiating the recovery proceedings against the selling dealer, no any proceeding should be initiated against the purchasing dealer where there is sole reason that the tax has not been actually paid by the supplier.
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