As you navigate the complexities of claiming Input Tax Credit (ITC) under Section 16(2)(c) of the CGST Act, it is crucial to understand how case laws can support your claims, especially when the department questions the bona fides of your purchases. In this article CA. Ramanujan Sharma, present a detailed examination of relevant case laws that can help you defend your ITC claims and demonstrate the legitimacy of your transactions.
Section 16(2) of the CGST/AGST Act, 2017
(c) 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;
Key Case Laws on Section 16(2)(c) of the CGST Act: Defending Input Tax Credit Claims for Bona Fide Purchases:
ARISE INDIA LTD. VERSUS COMMISSIONER OF TRADE AND TAXES, DELHI HIGH COURT
Issue in Challenge:
There was a requirement in the DVAT Act that purchasing dealer has to ensure, for the purposes of claiming ITC, that the selling dealer has deposited VAT with the Government or has lawfully adjusted it against such selling dealer’s output tax liability.
Observation:
It treats both innocent and guilty purchasers the same way. In other words, it is argued that by treating unequal cases equally, the legislative measure violates Article 14 of the Constitution. Reliance is placed on the decisions in K.T. Moopil Nair v. State of Kerala (AIR 1961 SC 552) and State of Kerala v. Haji and Haji (AIR 1969 SC 378).
The statutes deny a bona fide purchaser the benefit of the ITC solely due to the default of the selling dealer, over whom the purchasing dealer has no control. This measure, as it applies to the purchasing dealer, is arbitrary, irrational, and unduly harsh, and therefore violates Article 14 of the Constitution.
“Lex non cogit ad impossibilia” The Buyer cannot be expected to do the impossible. This is not within the control of the purchasing dealer. The purchase has been made from the registered dealer, and ITC is claimed based on Tax Invoice and payment has already been made by the purchaser.
Conclusion:
The Department cannot deny ITC to a purchasing dealer who has made a bona fide purchase from a registered seller with a valid tax invoice. If the seller defaults, the Department should recover the tax from the seller, not deny ITC to the purchaser. However, if evidence of collusion between the purchaser and seller is found, the Department may also take action against the purchaser.
Note: The decision in Arise India Limited was challenged before the Hon’ble Supreme Court by the Government in Commissioner of Trade and Taxes, Delhi Versus Arise India Limited and the special leave petition was dismissed by judgment dated 10.01.2018, reported in MANU/SCOR/01183/2018.Though the above decision arose under the provisions of the Delhi Value Added Tax Act, the scheme of availment of Input Tax Credit continues to remain the same even under the GST regime though certain procedural modification and statutory forms have been made mandatory.
SUNCRAFT ENERGY PRIVATE LIMITED AND ANOTHER VERSUS THE ASSISTANT COMMISSIONER, STATE TAX, BALLYGUNGE CHARGE AND OTHERS
Decision-In Favour of Taxpayer
Issue in Challenge:
Some of the invoices of the said supplier was not reflected in the GSTR 2A of the appellant for the Financial Year 2017-18.
Observation:
The show cause notice does not allege that the appellant was not in possession of a tax invoice issued by the supplier registered under the Act. There is no denial of the fact that the appellant has received the goods or services or both.
They are in possession of a valid tax invoice and payment details to the supplier have been substantiated by producing the tax invoice and the bank statement has been produced.
Revenue has not conducted any enquiry on the supplier more particularly when clarification has been issued where furnishing of outward details in Form GSTR 1 by a corresponding supplier and the facility to view the same in Form GSTR 2A by the recipient is in the nature of tax payer facilitation and does not impact the ability of the tax payers to avail input tax credit on self-assessment basis in consonance with the provisions of Section 16 of the Act. (Press Release)
Furthermore, it was clarified that there shall not be any automatic reversal of input tax credit from buyer on non-payment of tax by seller. Further it is clarified that in case of default in payment of tax by the seller recovery shall be made from the seller however, reversal of credit from the buyer shall also be an option available with the revenue authorities to address the exceptional situations like missing dealer, closure of business by supplier or supplier not having adequate assets etc. (Press Release)
Conclusion:
The order is set aside with a direction to the appropriate authorities to first proceed against the Supplier and only under exceptional circumstance as clarified in the press release issued by the CBIC, then and then only proceedings can be initiated against the appellant.
Relevant Case Laws:
- The Assistant Commissioner (CT) vs. Sri Vinayaga Agencies, decided on March 4, 2020, by the Madras High Court.
- National Plasto Moulding vs. State of Assam, reported in [2024] 165 Taxmann.com 255 (Gauhati High Court), decided on August 5, 2024.
- Y. Beathel Enterprises vs. State Tax Officer (Data Cell), Tirunelveli, reported in [2021] 127 Taxmann.com 80 (Madras High Court).
- Diya Agencies vs. State Tax Officer, reported in [2023] 154 Taxmann.com 421 (Kerala High Court).
- Gheru Lal Bal Chand vs. State of Haryana, reported in [2013] 29 Taxmann.com 484 (Punjab & Haryana High Court).
- M/s Elite Furniture Mart vs. The Assistant Commissioner, adjudicated by the Madras High Court.
- Milan Plywood Suppliers vs. State of Karnataka, reported in [2014] 49 Taxmann.com 330 (Karnataka High Court) and [2014] 48 GST 87 (Karnataka High Court).
Press Release Dated: 04/08/2018
(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.
Press Release Dated: 18.10.2018
It is clarified that the furnishing of outward details in FORM GSTR-1 by the corresponding supplier(s) and the facility to view the same in FORM GSTR-2A by the recipient is in the nature of taxpayer facilitation and does not impact the ability of the taxpayer to avail ITC on self-assessment basis in consonance with the provisions of Section 16 of the Act. The apprehension that ITC can be availed only on the basis of reconciliation between FORM GSTR-2A and FORM GSTR-3B conducted before the due date for filing of return in FORM GSTR-3B for the month of September, 2018 is unfounded as the same exercise can be done thereafter also.
Relevant Circular:
Circular No. 183/15/2022-GST
Circular No. 193/05/2023-GST
Doctrine:
lex non cogit ad impossibilia: The law does not compel the impossible
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