Input Tax Credit (ITC) constitutes a fundamental aspect of the Goods and Services Tax (GST) framework. Since the enactment of the Goods and Services Tax Act, 2017, the conditions for the eligibility and availment of ITC have been a subject of considerable debate. The uninterrupted and seamless flow of ITC is a cornerstone of the GST regime; any disruption in this flow undermines the very principle it seeks to uphold. While the Act intends to facilitate the smooth flow of ITC, certain provisions appear to disrupt this continuity, thereby appears to be conflicting with the core objectives of the legislation.
Section 16 of the CGST Act, 2017 lists out various conditions with regards availment of Input Tax Credit by buyer of goods. In this article, we shall restrict our discussion to the legal validity of Clause (c) of Sub Section 2 of Section 16 of the Act which reads as under:
“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;”
Eligibility and condition for taking input tax credit
The Heading to Section 16 reads “Eligibility and condition for taking input tax credit” wherein sub-section (1) talks about eligibility to take ITC and (2), (3) & (4) prescribes the conditions for taking ITC.
A plain reading of Section 16(2)(c) of the Act leads us to the following conclusions with regard to the conditions for availment of ITC:
i) That the buyer of goods must ensure that the seller of goods has actually paid the Output GST collected by the seller by issuing a Tax Invoice against a genuine supply transaction to the Government under the scheme of the Act and as per the provisions of the Law.
ii) That in case, the seller does not pay the collected tax to the Government due to any reason whatsoever, ITC cannot be availed by the buyer of goods who has lawfully purchased goods from the seller, who is a registered dealer under the CGST Act, 2007 and has been given a valid registration under the Act.
iii) That the buyer of goods has to bear the loss due to disallowance of GST Input which should lawfully belong to him and for which he has made payments to the registered supplier.
The word actually paid may be construed to mean that the amount actually reaches the bank account of the Government. However, to ensure such payment, a buyer has the following mechanisms in hand:
a) Can verify the validity of GST Registration number of the seller.
b) Can verify the credentials of seller.
c) Can ensure that ITC gets reflected in the GSTR-2B of the buyer which indicates that the seller has filed his GSTR-1.
d) Can verify if the seller has filed his GSTR-3B thereby getting a reasonable assurance that due tax has been paid by the seller.
e) Can maintain proper documentation as regards the purchase transaction.
Apart from the above, a buyer has no other mechanism to ensure compliance by the seller. However, even after ensuring that the above compliances are made by the seller, tax may not have actually reached the Government coffers. Few such instances may be illustrated as under:
a) Seller availing & utilising ITC passed on by a non-existent supplier.
b) Seller availing & utilising ineligible ITC [Eg. Blocked u/s 17(5)].
c) GSTR-1 may be filed correctly, but GSTR-3B may be filed with Nil tax liability by the seller.
In this article, we shall critically analyse Section 16(2)(c) and attempt to place arguments both in favour of the assessee and in favour of the Department and also make an attempt to find the way forward. The article shall also try to touch upon the provisions of the Constitution of India and check whether the fundamental rights get contravened by the application of this provision.
Arguments in Favour of the Assessee
i) Supplier is an Agent of the Government
The Government grants GST Registration after various checks and balances specified under the Act and once it grants registration to any dealer, it allows him to collect GST on its behalf and deposit taxes as per the provisions of the Act failing which stringent/ coercive actions can be taken against him. Registration under the GST Law is granted only after submitting necessary documents and verification of the registrant by the officers appointed by the Government. Thus, every registered dealer is an agent of the Government under which he is authorised to collect GST on behalf of the Government on sales made by him. Thus, in case of GST Law, the Principal (i.e. Government) authorises an Agent (i.e. Supplier) to collect taxes on its behalf. Thus, when the Agent lawfully and under a valid authority (i.e. when the GST Registration is active) receives Output GST on behalf of his Principal (i.e. Government), the transaction should end at that very point and the third party should be eligible for the ITC. If at any later point, the Agent does not deposit the Output GST with his principal due to any reason whatsoever, it should be a dispute between the Principal and Agent and the third party should not be disallowed of his valid and lawful ITC. The third party has purchased from the Agent when the registration was active and without him having any fraudulent complicity with the Agent. Thus, not allowing him his validly accrued ITC is not justified.
The Indian Contract Act, 1872 defines the relationship between agent and principal u/s 182 as under:
182. An “agent” is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the “principal”.
Further, the Act also defines the enforcement and consequences of agent’s contracts u/s 226 as under:
226. Contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner, and will have the same legal consequences, as if the contracts had been entered into and the acts done by the principal in person.
Thus, as per the provisions of the Indian Contract Act, it is very apparent that Principal cannot disown any act done by a duly authorised agent on his behalf.
Court Rulings
a) The Apex Court in Corporation Bank v. Saraswati Abharansala and another, (2009) 19 VST 84 (SC) held that 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. Neither the State nor the agent is entitled to collect tax at a rate higher than specified.
b) The Hon’ble Supreme Court in State of Punjab and others v. Atul Fasteners Ltd., (2007) 4 SCC 471 read that 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.
ii) There has to be a Collision
A fraud can be said to be committed by any person only when the person has deliberately done some act towards the commission of the offence. If some act is done in good faith and genuinely believing that there is no mischief behind the same cannot be categorised as fraud.
Section 2(9) of the Bharatiya Nyaya Sanhita, 2023 reads as under:
(9) “fraudulently” means doing anything with the intention to defraud but not otherwise;
Thus, in cases where the buyer of goods has purchased goods from a registered person (who is an agent of the Government) believing that the person is genuine and complying with all the provisions of the Act in the said transaction, cannot be made party to a fraud committed by the supplier. There has to be a positive act confirming the fraudulent intent.
Court Rulings
a) The Hon’ble High Court of Punjab and Haryana in M/s Gheru Lal Bal Chand vs The State of Haryana and another, (2011) 45 VST 195, held that 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.
b) In Arhaan Ferrous and Non-Ferrous Solutions (P.) Ltd. v. Deputy Assistant Commissioner-1(ST), 2023 (8) TMI 583, the Hon’ble Andhra Pradesh High Court held that responsibility of purchaser would be limited to extent of establishing that he bonafidely purchased goods from seller for valuable consideration by verifying GST registration of seller available on official web portal. It held that purchaser need not be aware of credentials and business activities of seller or about the fact that seller obtained GST registration by producing fake documents.
c) The Hon’ble High Court of Orissa in Bright Star Plastic Industries v. Additional Commissioner of Sales Tax [2021] 132 taxmann.com 146 held that registration of purchasing dealer cannot be cancelled for fraud committed by the selling dealer. It held that cancellation of registration is not sustainable when department has failed to prove that ITC was availed with full knowledge of seller being non-existent.
d) In the case of LGW Industries Ltd. v. Union of India, [2022] 134 taxmann.com 42 (Calcutta), it was held that issue of entitlement to input tax credit was to be considered afresh. Payments along with tax actually paid to suppliers were to be verified. It was also to be verified as to whether transactions were made before cancellation of registration of suppliers. Benefit of ITC would be granted if purchases were genuine and purchases were supported by documents.
e) In Sri Ranganathar Valves (P.) Ltd. v. Assistant Commissioner (CT) (FAC), [2020] 120 taxmann.com 345 (Madras), the Hon’ble Madras High Court held that Input tax credit cannot be disallowed on ground that seller has not paid tax to Government, when purchaser is able to prove that seller has collected tax and issued invoices to purchaser.
f) In Sanchita Kundu v. Assistant Commissioner of State Tax, [2022] 142 taxmann.com 576 (Calcutta), the Calcutta High Court held that petitioner’s entitlement of benefit of Input Tax Credit should be decided by considering documents relied on for proving that all purchases and transactions in question were genuine and transactions in question were made before cancellation of registration of suppliers.
g) The Hon’ble Calcutta High Court in Suncraft Energy (P.) Ltd. v. Assistant Commissioner, State Tax, [2023] 153 taxmann.com 81 (Calcutta), held that where revenue reversed appellant’s input tax credit alleging non-reflection of supplier invoices in GSTR 2A, since appellant clarified compliance with Section 16(2) and payment via valid tax invoice and show cause notice faults appellant’s GSTR 1 not tax invoice possession or receipt, action against supplier essential before seeking reversal from appellant, and therefore order reversing ITC was to be set aside.
h) In Gargo Traders v. Joint Commissioner, Commercial Taxes (State Tax), [2023] 151 taxmann.com 270 the Calcutta High Court held that ITC claim was rejected on ground of cancellation of registration of supplier with retrospective effect without considering whether documents relied on by petitioner was proper or not and that authority should consider petitioner’s grievance afresh.
iii) Government has Mechanisms to Recover Tax
The Government has all the mechanisms in place for recovery of tax evaded, if any, by taxpayers. There are provisions for harsh penalties and even prosecutions which can be resorted to by the revenue authorities and the law enforcement agencies are duty bound to help them. However, instead of using these mechanisms and taking into task the erring taxpayers in a strong and swift manner, imposing unnecessary obligations on innocent taxpayers defeats the very purpose of the enactment of the Law.
On the flip side, an innocent buyer does not have any such mechanism at his disposal. The provision is an unjust obligation cast upon the taxpayers who does not have any means to compel the supplier of goods to pay tax so that they can get their rightful ITC. The liability of the buyer ceases once payment is made to the seller by him. The only responsibility of the buyer is to ensure that the seller is holding a valid GST Registration Number. The said restriction increases the working capital requirements of the business houses for no fault of theirs and may also lead to total denial of ITC available to them due to the fault of dishonest taxpayers.
The Hon’ble Madras High Court in D.Y. Beathel Enterprises v. State Tax Officer (Data Cell), Tirunelveli [2021] 127 taxmann.com 80 held that where assessee purchased goods through registered dealers and substantial portion of sale consideration was paid through banking channels, revenue could not reverse ITC availed by assessee for failure of seller to deposit tax on such supply without examining seller and initiating recovery proceeding against seller. Similar views were taken by the Hon’ble Calcutta High Court in Sanchita Kundu v. Assistant Commissioner of State Tax, [2022] 142 taxmann.com 576 (Calcutta).
Thus, when the Government has all mechanisms in place to take actions on the supplier, directly asking the recipient to reverse his ITC is not desirable and is also not indicative of the intent of the law.
iv) Doctrine of Impossibility
Doctrine of Impossibility is an established principle in legal jurisprudence wherein it is held that law cannot compel an individual to do something that is impossible to be done.
The Hon’ble High Court of Punjab and Haryana in M/s Gheru Lal Bal Chand vs The State of Haryana and another, (2011) 45 VST 195 held that law cannot impose an almost impossible condition.
The Hon’ble Delhi High Court in the case of Arise India Limited vs Commissioner of Trade & Taxes, Delhi And Ors., TS-314-HC-2017(Del)-VAT, taking a view in favour of the assessee held that it is trite that a law that is not capable of honest compliance will fail in achieving its objective and that if it seeks to visit disobedience with disproportionate consequences to a bona fide purchasing dealer, it will become vulnerable to invalidation on the touchstone of Article 14 of the Constitution.
Out of all the conditions under the GST Law which are imposed for claiming ITC, the condition prescribed u/s 16(2)(c) is completely out of control of the recipient. All other conditions are such which the recipient is capable of ensuring proper compliance.
In the case of ensuring compliance with Section 16(2)(c), it would be impossible for any honest buyer of goods to
> Ascertain and pre-empt in advance as to whether the seller is bona fide or not and whether he would deposit the tax or not.
> Ensure that the tax is actually paid by the seller.
v) Article 14 of the Constitution of India
Article 14 reads as under:
“14. Equality before law:
The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India. Prohibition of discrimination on grounds of religion, race, caste, sex or place of birth.”
Article 14 of the Indian Constitution ensures equality for all citizens. A provision may be said to be violative of the Article if it fails to pass the “test of arbitrariness” as laid down by various court judgements.
In Ajay Hasia Etc vs Khalid Mujib Sehravardi & Ors. Etc (1981) AIR 487, the Hon’ble Supreme Court of India patiently dealt with this ‘test of arbitrariness’. It reads as under:
“It must therefore now be taken to be well settled that what Article 14 strikes at is arbitrariness because any action that is arbitrary, must necessarily involve negation of equality. The doctrine of classification which is evolved by the courts is not para-phrase of Article 14 nor is it the objective and end of that Article. It is merely a judicial formula for determining whether the legislative or executive action in question is arbitrary and therefore constituting denial of equality. If the classification is not reasonable and does not satisfy the two conditions referred to above, the impugned legislative or executive action would plainly be arbitrary and the guarantee of equality under Article 14 would be breached. Wherever therefore there is arbitrariness in State action whether it be of the legislature or of the executive or of “authority” under Article 12, Article 14 immediately springs into action and strikes down such State action. In fact, the concept of reasonableness and non- arbitrariness pervades the entire constitutional scheme and is a golden thread which runs though the whole of the fabric of the Constitution.”
The Hon’ble Supreme Court in E. P. Royappa vs State Of Tamil Nadu & Anr, 1974 AIR 555, stated as under:
“Equality is a dynamic concept with many aspects and dimensions and it cannot be “cribbed cabined and confined” within traditional and doctrinaire limits. From a positivistic point of view, equality is antithetic to arbitrariness. In fact equality and arbitrariness are sworn enemies; one belongs to the rule of law in a republic while the other, to the whim and caprice of an absolute monarch. Where an act is arbitrary it is implicit in it that it is unequal both according to political logic and constitutional law and is therefore violative of Art. 14.”
Thus, Equality may be said to be ensured if any provision passes the test of arbitrariness. In the instant case, the section very clearly treats guilty sellers and innocent purchasers alike which is clearly arbitrary and thus against the essence of Article 14. The innocent buyers are forced to take responsibility of the illegal acts of the guilty sellers over whom they have no control. Further, it is also observed that in many cases, the Government on the one hand reverses ITC of the buyer and levies interest from him and on the other hand, recovers due tax from the seller with interest and penalty. Thus, there is double recovery of tax by the revenue. Further, it is very much justified to penalise buyers by not allowing them ITC in case a nexus is established between the erring seller and buyer in a manner that the entire transaction was done to avoid tax liability with a malafide intention.
Thus, from the above analysis we come to a broad conclusion that Section 16(2)(c) of the CGST Act, 2017 is unjustified in treating guilty and innocent taxpayers alike and thus there is complete arbitrariness in this section and clearly violative of Article 14 of the Constitution of India.
Tax collection and enforcement is the primary responsibility of the State and Article 14 does not allow the State to cast a liability on its citizens for which they have no control and for which the state is primarily responsible. The foundation of GST Law is ITC and imposition of any condition which is beyond the control of any taxpayer shatters this very foundation and the legislature cannot make this intent otiose by imposing an impossible condition. Further, it is very well understood that the intention of the Government is noble and to check tax evasion by unscrupulous elements. Thus, restriction for protection of interests of revenue should be such that they are reasonable and not arbitrary.
Arguments in Favour of the Revenue
i) ITC is not a vested right
The right to claim ITC is a statutory right and such credit is available only if the statute permits and to the extent that it does. Exemptions, concessions and exceptions are to be treated at par and must be strictly construed. The Input Tax Credit is in the nature of a benefit or concession extended to the dealer under the statutory scheme which is subject to restrictions imposed by law. Entitlement to ITC is neither a fundamental right nor a Constitutional right. Such entitlement is always subject to statutory prescription and can be regulated by the statute providing conditions and limitations.
ii) Principle of Strict Interpretation
In Chief Commissioner of Central Goods and Service Tax & Ors. Versus M/s Safari Retreats Private Ltd. & Ors. [2024 (10) TMI 286-Supreme Court] the Apex Court held as under:
a. A taxing statute must be read as it is with no additions and no subtractions on the grounds of legislative intendment or otherwise;
b. If the language of a taxing provision is plain, the consequence of giving effect to it may lead to some absurd result is not a factor to be considered when interpreting the provisions. It is for the legislature to step in and remove the absurdity;
c. While dealing with a taxing provision, the principle of strict interpretation should be applied;
Thus, a plain reading of Section 16(2)(c) gives a complete understanding that ITC shall be allowed to any taxpayer only when its payment is actually made to the Government and it is actually credited to the Government Exchequer. There is no scope for any additions or deletions on the same.
iii) No Equity in Taxing Statutes
It is a well settled principle that there cannot be any equity in taxation laws and the same was also affirmed by the Hon’ble Apex court in M/s Safari Retreats Private Ltd. & Ors. (supra). Taxation laws are framed for revenue collection to ensure public good and establish the rule of law. Thus, there cannot be any expectation of equity in matters of taxation.
iv) Government is not a partner to the sale contract
It is true that GST Registration is granted by the Government to the taxpayers to collect revenue on its behalf from the public. However, it is not a part of the contract of sale which is entered into between both the parties. It is the sole prerogative of the buyer of goods or services to decide whether to make any purchases from the dealer.
v) Burden of Proof on Registered Tax Payer
Section 155 of the CGST Act, 2017 reads as under:
Where any person claims that he is eligible for input tax credit under this Act, the burden of proving such claim shall lie on such person.
Thus, the law is very clear in its language and intent that it is upon the person claiming ITC to prove that he is eligible to claim the same. Further, it is also very clear that ITC can be claimed only when the tax has been actually paid to the Government Exchequer.
vi) Constitutional Validity
A fiscal statute may be adjudged constitutionally infirm if it impinges upon the fundamental liberties guaranteed by Part III of the Constitution of India, particularly Article 14. However, in deference to the inherent complexities inherent in the fiscal orchestration of diverse constituents, a wider ambit of discretion must be afforded to the legislative body in its exercise of the classificatory power, so long as such classification does not contravene the cardinal tenets underlying the doctrine of classification.
The conditions and restrictions governing the entitlement to avail Input Tax Credit (ITC) or claim a concession on ITC are universally applicable to all registered taxpayers, and as such, it cannot be asserted that there exists any violation of Article 14 of the Constitution of India. This position finds ample support in Nahasshukoor v. Assistant Commissioner [2023 (11) TMI 1153 – Kerala High Court] wherein it was held that judicial interference in tax legislation is limited. Courts must exercise restraint unless the statute is demonstrably unjust or unconstitutional. Tax laws are not subject to the same scrutiny as those impacting fundamental rights and that they are assessed on stricter standards. It held that the challenge to Article 14 is vague and it does not discriminate between purchasing and selling dealers. Input tax credit is a statutory benefit, and eligibility conditions do not constitute discrimination. The court held that mere arbitrariness or unreasonableness is insufficient to invalidate a statute. Manifest arbitrariness, meaning drastically unreasonable, capricious, or lacking a determining principle, must be established and that the impugned provisions do not meet this standard and are therefore not unconstitutional.
Thus, a statutory provision may only be subjected to challenge if it is demonstrated to be manifestly arbitrary or unreasonable, in conjunction with legislative incompetence or a breach of the rights enshrined under Part III of the Constitution of India. No such manifest arbitrariness or unreasonableness is evident in the imposition of conditions for a registered person to avail the ITC concession on the supplies of goods or services received from another registered dealer since all that the law is asking is that ITC can be availed only when the payment of tax actually reaches the Government. If this condition is not imposed, there will be complete chaos in the country as if a major portion of tax do not reach the exchequer and ITC is allowed, the entire revenue apparatus shall fail. Thus, there does not seem to be any harm to the essence of Article 14 in the instant case.
Author’s Analysis
From a close analysis of arguments on both the sides, it is apparent that there is a case on both sides wherein on the one side an honest taxpayer may have to suffer a major loss due to a fraud committed by a registered person and on the other side, the Government Exchequer may suffer irreparable loss due to loss of revenue and ultimately nation as a whole may have to suffer. Thus, it is necessary to find a mid-way between the two sides to find out a lasting and equitable solution to the entire issue. Where it is understood that a free hand cannot be given to tax payers in claiming ITC, but it should also be ensured that innocent tax payers are not made to suffer unnecessarily. Accordingly, the author has highlighted some points which can help come mid-way in this pursuit.
i) Introduction of GSTR-2B
Section 16(2)(aa) has been inserted in the CGST Act, 2017 and Rule 36(4)(b) has been suitably amended wherein it is prescribed that ITC shall be available only when the same gets reflected in GSTR-2B of the recipient. Thus, any recipient of goods or services may withhold the GST component in the invoice which may be paid on verifying the same in GSTR-2B of the recipient. However, it should be the duty of the Department to ensure that once ITC gets reflected in GSTR-2B of the recipient i.e. the supplier has filed his GSTR-1, the tax also gets paid by him. Further, after the introduction of DRC-01B and DRC-01C, in case of any difference in liability (GSTR-1 vs GSTR-3B) and difference in ITC claimed (GSTR-3B vs GSTR-2B), the supplier is served with a system generated notice wherein he is mandatorily required to respond as regards the reason for such difference and the Proper Office is required to take action on the same, if required. However, if even after the prompt by the system, department does not take any action and if at a later stage the ITC is considered to be ineligible, recipient should not be held responsible for the same.
ii) Rating of Registered Taxpayers
Section 149 of the Act contains provisions regarding rating of taxpayers on the basis of their compliance levels and placing the same on public domain. The main objective of the provision is to inform the taxpayers about the compliance pattern of the taxpayer and take an informed decision as to whether to make purchases from the vendor or not. If any vendor is having rating below a specified level, B2B sales should not be allowed to be made by him. In this manner, honest taxpayers may be saved from the impact of possible non-compliances committed by the supplier. If the rating of a taxpayer is within tolerable limits and he does not make payment to the Government as per the provisions of the Act even after uploading the same in his GSTR-1 and filing GSTR-3B i.e. utilising ineligible ITC, using fake invoices, the honest recipient who is not in collision with him should not be held accountable for the same and he should be allowed his rightful ITC.
iii) Swift actions by Department
Departmental officers should be very swift in taking actions against errant taxpayers and should take him to talk at the first committed act of non-payment or irregular payment. Such actions will instil discipline among the taxpayers and shall not cause any injustice to honest recipients. As for example,
> If there is any difference between output liability as per GSTR-1 and GSTR-3B, DRC-01B is generated and the Proper Officer should be obligated to check the same and take appropriate actions on the same immediately.
> If there is any difference between ITC as per GSTR-2B and GSTR-3B, DRC-01C is generated and the Proper Officer should be obligated to check the same and take appropriate actions on the same immediately
> If any alert reports are received, appropriate actions should be immediately.
iv) Impact of Introduction of Invoice Management System (IMS)
With a vision to enable taxpayers to efficiently address invoice corrections/amendments with their suppliers through the portal, a new communication process has been introduced in the GST Portal which will also facilitate taxpayer in matching of their records/ invoices vis a vis issued by their suppliers for availing the correct Input Tax Credit (ITC). Accordingly, to claim eligible ITC in GSTR-3B, any recipient has to either:
- Accept an invoice if it pertains to him
- Reject an invoice if it does not pertain to him
- Keep an invoice pending if required
ITC will flow to GSTR-3B only if it is accepted by the recipient. However, if no action is taken on the invoice i.e. neither accepted, rejected or kept pending, after the stipulated time, the same is deemed to be accepted and it flows to GSTR-3B. However, there is no mechanism to upload those invoices by a recipient issued by a supplier which has not been uploaded in GSTR-1 by him. Thus, again a question arises whether the system will serve its intended purpose and also whether any ITC claimed via invoice routed through IMS which if subsequently becomes tainted due to non-payment by supplier can be disallowed to the recipient.
In view of the above analysis, the author is of the firm view that ITC cannot be denied to taxpayers in genuine cases i.e. where the buyer has genuinely purchased goods, but either the tax is not deposited by the seller (intentionally or unintentionally) or it is due to some other technical or non-technical reasons and there is no unholy nexus between them. The only thing which must be ensured by the buyer is to
> verify the validity of GST Registration number of the seller,
> should be prima facie satisfied about the credentials of the seller
> should ensure that the ITC gets reflected in his GSTR-2B and the supplier has filed his GSTR-3B
> should also have adequate evidence to prove that he has purchased the goods and that the same has been received by him.
Above this no other liability should be fastened onto the recipient of goods as it is beyond his control and gets covered by the Doctrine of Impossibility and is also violative of Article 14 of the Constitution of India. However, in case any sort of nexus is established between the buyer and the seller and it is proved that the transaction was made with an intent to evade taxes, the taxpayers should face the wrath of law and should be dealt with firmly.
In conclusion, while the government’s concern about revenue leakage is understandable, Section 16(2)(c) as it currently stands, places an undue burden on honest taxpayers. The Doctrine of Impossibility, coupled with the potential violation of Article 14, suggests that this provision needs to be revisited. A balanced approach, incorporating the suggestions outlined above, particularly the strengthening of the IMS and swift departmental action against defaulting suppliers, would better serve the interests of both taxpayers and the government.
Note: The views expressed are the personal views of the author only and is for educational purposes only. Therefore, the same should not be considered as final opinion on the subject matter. There may be other views also. So, the readers are advised to consider all the points before relying upon the above write ups.
Author Bio
Thanks for taking pain to prepare such a wonderful and elaborate and indepth analysis of the provision with case laws.