Sane Retails Private Limited Vs State of Bihar (Patna High Court)
Whether ITC can be denied merely for non-physical receipt of goods by the purchasing dealer, where delivery was directed to end consumer
The Patna High Court in Sane Retails Pvt. Ltd. vs State of Bihar examined whether Input Tax Credit (ITC) under Section 16(2)(b) of the Central Goods and Services Tax Act, 2017 (CGST Act) and Bihar GST Act, 2017 (BGST Act) can be denied merely because goods purchased by a dealer were not physically received at its premises but delivered directly to end consumers on the dealer’s instructions.
The petitions were filed by several registered dealers, including M/s Utkrisht Trade Solutions Pvt. Ltd., against orders of the Deputy Commissioner of State Tax, Patliputra Circle, rejecting ITC claims and raising tax demands on the ground that there was no actual movement of goods from suppliers to the petitioners. Appeals to the Additional Commissioner of State Tax (Appeals) were dismissed, prompting the dealers to move the High Court.
Counsel for the petitioners argued that all conditions under Section 16 for availing ITC were met. Taxes had been paid to suppliers, who in turn deposited the taxes with the government. The denial of ITC was solely based on the ground that goods were not received physically by the petitioners but delivered to the end consumers on their instructions. It was contended that physical receipt at the dealer’s premises was not a mandatory requirement, as long as the goods were supplied directly to end customers in accordance with a business arrangement.
The State countered that Section 16(2)(b), read with Section 31 of the CGST Act, requires actual movement of goods to the purchasing dealer. Reliance was placed on State of Karnataka vs. Ecom Gill Trading Pvt. Ltd. (2023 SCC OnLine SC 248), where the Supreme Court emphasized that the burden of proving the correctness of ITC claims lies with the dealer. The State also referred to Aastha Enterprises vs. State of Bihar, where ITC was denied because the supplier failed to remit taxes to the government.
The petitioners distinguished these cases. In Aastha Enterprises, the supplier defaulted in paying taxes, while in the present case, there was no such allegation. In Ecom Gill, the issue was related to the dealer’s failure to prove actual transactions, whereas here, necessary documentation including tax invoices, payment proofs, and records of delivery instructions to suppliers had been submitted.
The Court considered statutory provisions including:
