Bobieri Creazon Fashion Accessories (P.) Ltd. Vs State of Haryana And Another (Punjab and Haryana High court)
The Punjab and Haryana High Court has stayed coercive action against Bobieri Creazon Fashion Accessories (P.) Ltd. in a case challenging Section 16(2)(c) of the GST Act, 2017. The petitioner argued that this provision unfairly places the burden of a supplier’s tax default on bona fide purchasers who have already paid their taxes. Similar cases are pending before the court, raising concerns about the implications of this rule on Input Tax Credit (ITC) eligibility.
The State, represented by the Deputy Advocate General, sought time to file a response, which must be submitted before the next hearing on March 6, 2025. Meanwhile, the court permitted the petitioner to amend its plea to include the Union of India as a respondent. Until further orders, the court directed that no coercive measures be taken against the petitioner, offering temporary relief in this ongoing legal challenge.
Please note Section 16(2)(c) of the CGST Act, 2017, which governs ITC eligibility, has become a major source of contention, particularly concerning supplier defaults. This section stipulates that ITC can be availed only if the supplier has actually paid the tax to the government.
The core problem lies in the practical difficulties of ensuring supplier compliance. While businesses diligently record transactions and pay their dues, they lack direct control over whether their suppliers ultimately remit the collected GST to the government. Suppliers might default due to various reasons, including financial difficulties, negligence, or even fraudulent intent. The current system places the onus of verifying supplier payments squarely on the recipient business, a task that is often impractical and resource-intensive. This effectively shifts the responsibility of tax collection onto businesses, turning them into de facto tax enforcers.
This situation has led to genuine hardship for businesses, particularly small and medium-sized enterprises (SMEs). They face the risk of losing eligible ITC, impacting their profitability and cash flow, even when they have acted in good faith and complied with all procedural requirements. Furthermore, tax authorities have often resorted to coercive actions against recipient businesses for supplier defaults, further exacerbating the problem. Such actions can include demanding reversal of ITC, imposing penalties, and even initiating recovery proceedings, creating an environment of uncertainty and fear for businesses.
The legal landscape surrounding this issue is evolving. Several court cases have challenged the validity and interpretation of Section 16(2)(c), arguing that it unfairly penalizes businesses for circumstances beyond their control. While some judgments have provided relief in specific cases, a definitive legal position is yet to emerge.
FULL TEXT OF THE JUDGMENT/ORDER OF PUNJAB AND HARYANA HIGH COURT
