Bihar Medical Services & Infrastructure Corporation Ltd. Vs Assessment Unit (ITAT Patna)
₹84.92 Crore GST Deduction Requires Evidence: ITAT Orders Fresh Assessment, Keeps Allowability Open
The controversy
A government-owned corporation paid substantial GST after accepting an adverse advance ruling and claimed the payment as expenditure. The Department disallowed the claim because the corporation had not adequately established the accounting treatment, the connection with its receipts or the supporting reconciliation.
The Tribunal granted another opportunity to substantiate the claim. It set aside both the assessment and appellate orders and directed a fresh assessment.
The decision does not finally allow the GST deduction. It restores the matter for examination on a complete evidentiary record.
The facts
The assessee is a wholly owned corporation established by the Government of Bihar. It functions as a procurement agency for medical equipment, drugs and services, and undertakes construction and infrastructure activities for the State’s Department of Health.
For the services rendered, it receives centage charges from the Government of Bihar.
The corporation filed its return for AY 2023-24 on 29 September 2023, declaring total income of ₹2,72,02,570.
During scrutiny, the Assessing Officer examined substantial expenses comprising GST payment of ₹84,90,34,589 and GST filing fee of ₹2,19,998, aggregating to ₹84,92,54,587.
The entire amount was disallowed, resulting in assessed income of ₹87,64,57,157.
GST liability followed an adverse advance ruling
The corporation had disputed the GST levy on the ground that it rendered services to the Government of Bihar and was covered by Entry 8 of Notification No. 12/2017 dated 28 June 2017.
According to the submissions recorded in the order, the Bihar Authority for Advance Ruling, by its ruling dated 24 March 2022, held that the corporation did not fall within the definition of “Government” or “local authority” for the exemption claimed.
The corporation was consequently held liable to pay GST on its centage receipts from 1 July 2017 onwards.
The assessee stated that it accepted the ruling and claimed the GST payment and filing fee in FY 2022-23, corresponding to AY 2023-24, on an actual-payment basis.
Its contention was that the liability had crystallised upon acceptance of the ruling and that the payment was deductible.
Why the Assessing Officer rejected the deduction
The Assessing Officer found that sufficient documentary evidence had not been furnished to substantiate the claim.
In particular, the assessee had not satisfactorily established whether its centage receipts were inclusive or exclusive of GST or demonstrated that the GST payment directly related to the income disclosed.
The dispute therefore involved more than proof that money had been paid to the GST authorities. The Assessing Officer required an explanation of how the receipts and liability had been accounted for and why the payment qualified as deductible expenditure in computing the corporation’s income.
In the absence of that material, he disallowed the aggregate claim of ₹84.92 crore.
CIT(A) insisted upon accounting reconciliation
The CIT(A) confirmed the disallowance.
The appellate authority observed that the assessee had not furnished a reliable reconciliation demonstrating that the income credited to the profit and loss account was exclusive of GST.
It also held that payment of a statutory liability does not automatically make it deductible. Its allowability must first be established with reference to the nature of the liability and the relevant accounting treatment.
Thus, the claim failed before both lower authorities principally because of the evidentiary deficiencies.
The assessee sought an opportunity to supply the records
Before the Tribunal, the corporation explained the background of the advance ruling, its acceptance and the subsequent payment.
It maintained that it possessed the evidence necessary to support the deduction, but that the material had not been furnished earlier. It requested restoration of the matter so that proper submissions and documents could be placed before the authorities.
The Revenue supported the CIT(A)’s order.
Although the assessee referred generally to a favourable Supreme Court decision, the Tribunal’s order does not identify that decision or decide the deduction by applying its ratio.
The Tribunal’s decision
The Tribunal noted that the disallowance arose from the assessee’s failure to furnish the required documents before the Assessing Officer and the CIT(A).
In the interests of justice and fair play, it considered another opportunity appropriate.
It therefore set aside both orders and remanded the matter to the Assessing Officer for assessment de novo. The assessee was to receive a reasonable opportunity to make further submissions supporting the relief claimed and was directed not to seek unnecessary adjournments.
The appeal was partly allowed for statistical purposes.
Author’s comments
An adverse GST ruling establishes a liability under GST law; the income-tax deduction requires its own examination. The assessee must connect the payment with its business receipts, explain the year-wise liability and demonstrate the accounting treatment.
The crucial practical document is a reconciliation showing centage income, GST charged or borne, liability recognised and payment made, supported by the ruling, ledgers and payment records. Since the payment related to liability extending back to July 2017, the period-wise break-up is particularly relevant.
The order should be reported accurately as a remand for fresh examination. Neither the crystallisation argument nor the actual-payment argument was finally accepted as establishing deductibility.
The corporation secured an opportunity to prove its ₹84.92 crore claim; the substantive entitlement remains open.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This appeal filed by the assessee is against the order of the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [Ld. ‘CIT(A)’] passed u/s 250 of the Income Tax Act, 1961 [the ‘Act’] for AY 2023-24 dated 14.05.2026.
2. The assessee is in appeal before the Tribunal raising the following grounds of appeal:
“1. For that the Ld. CIT(A) has erred in confirming disallowance of GST paid amounting to Rs.84.92 crores and GST filing fee of Rs.2.19 lakhs.
2. For that the Ld. CIT(A ) has erred in holding that mere payment of a statutory liability is not allowable as deduction unless it is established that liability is otherwise allowable.
3. For that the Ld. CIT(A) has erred in holding that if the receipt are inclusive of GST, the GST component partakes the character of a pass- through item and cannot be treated as an allowable expenditure.
4. For that the Ld. CIT(A) has erred in holding that the GST liability is not a charge on income.
5. For that the Ld. CIT(A) has erred in holding t hat the appellant has not furnished reliable reconciliation to prove that the income credited in P&L account is exclusive of GST.
6. For that the Ld. CIT(A) has erred in holding that allowance of claim would result in distortion of real income permitting d eduction of an amount which may not represent an actual expenditure incurred out of the appellant’s own fund.
7. For that the Ld. CIT(A) has erred in holding that no verifiable co- relation between GST payment vis-à-vis the turnover/ receipt has been established.
8. For that the Ld. CIT(A) has erred in holding that failure to produce clear and consistent accounting evidence weakens the appellant’s claim and supports the findings of the Α.Ο.
9. For that the sustenance of disallowance of expenditure of Rs. Rs. 84.92 crores and Rs.2.19 lakhs on account of GST and GST filing fee are wrong, illegal and unjustified on the facts and in the circumstances of the appellant’s case.
10. For that the appellant reserves its right to furnish detailed written submission along with documents and evidences on or before date of hearing.
11. For that the appellant may be given opportunity of personal hearing physically/virtually at the time of hearing of the appeal.
12. For that the whole order is bad in fact and law of the case a nd is fit to be modified.
13. For that the other grounds, if any, shall be urged at the time of hearing of the appeal.”
3. Brief facts of the case are that the assessee had filed the return of income for AY 2023-24 on 29.09.2023 declaring the total income at ₹2,72,02,570/-. The case was selected for scrutiny and during the assessment proceedings, the Assessing Officer [Ld. ‘AO’] observed large other expenses claimed and investigated the GST payment expense of ₹84,90,34,589/- and GST filing fee of ₹2,19,998/-, aggregating to ₹84,92,54,587/-. The Ld. AO noted that the assessee had failed to furnish sufficient documentary evidence to substantiate the claim, establish whether the centage receipts were inclusive or e xclusive of GST, and prove that the GST payment was directly related to the income shown. Consequently, the Ld. AO disallowed the total GST expenses of ₹84,92,54,587/- and determined the total income at ₹87,64,57,157/- u/s 143(3) r.w.s. 144B of the Act. Ag grieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A). The appellate authority observed that the assessee did not furnish reliable reconciliation to demonstrate that the income credited in the Profit & Loss Account was exclu sive of GST and held that mere payment of a statutory liability does not automatically render it allowable as an expenditure. Accordingly, the Ld. CIT(A) confirmed the order of the Ld. AO and dismissed the appeal of the assessee.
4. Aggrieved with the ord er of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal.
5. Rival contentions were heard and the submissions made have been examined.
6. The Ld. AR submitted before us that the assessee is a wholly owned corporation established b y the Government of Bihar as a procurement agency for procurement and distribution of medical equipment, drugs, service, construction and infrastructure for Department of Health, Government of Bihar and is receiving centage charges from Government of Bihar in lieu of services rendered. It was submitted the assessee had disputed the levy of GST on the ground that it is rendering services to Govt. of Bihar and therefore, there is no liability of GST in terms of Clause no. (8) of Notification No.12/2017 dated 28/06/2017. However, t he Bihar Authority for Advance Ruling Goods and Service Tax, Commercial Taxes Department, Govt. of Bihar vide its order dated 24/03/2022 has held that since the Corporation is not falling within the definition of “Government’ or ‘Local Authority’, the services rendered will not be exempt under Clause (8) of Notification No. 12/2017 dated 28/06/2017 and accordingly, Corporation is liable for payment of GST from 01/07/2017 onwards on the centage received against providing service to the Govt. of Bihar. It was submitted that the order of Authority for Advance Ruling has been accepted. The Corporation has accordingly claimed expenditure of Rs.84.92 crores which inter alia include GST of Rs.84.90 crores and GST filing fee of Rs.2.19 lakhs in FY 2022-23 corresponding to AY 2023- 24 on actual payment basis which has been disallowed by the A.O. and confirmed by the CIT(A). The Ld. AR submitted that the issue i s covered by the decision of the Hon’ble Apex Court in favour of the assessee and requested for remanding the issue before the Ld. AO or the Ld. CIT(A) so that proper submission could be made as the liability had crystalized on account of acceptance of the ruling of the Bihar Authority for Advance Ruling Goods and Service Tax, Commercial Taxes Department and, therefore, is allowable as a deductible expenditure and the assessee has the required evidence for the claim of deduction, which could not be filed earlier. The Ld. DR relied upon the order of the Ld. CIT(A) and requested that the same may be upheld.
7. We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). The disallowance was made on account of failure of the assessee to furnish the required documentary eviden ce before the Ld. AO/the Ld. CIT(A). The Bench was of the view that in the interest of justice and fair play, one more opportunity may be provided to the assessee to present its case. Hence, after examining the facts of the case, we deem it appropriate to set aside the order of the Ld. CIT(A) as well as the order of the Ld. AO and remand the matter before the Ld. AO for making the assessment de novo. Needless to say, the assessee shall be given a reasonable opportunity of being heard to make any further submission it wants to make in support of the relief claimed and shall not seek unnecessary adjournments. Accordingly, the grounds taken by the assessee in the appeal are partly allowed for statistical purposes.
8. In the result, the appeal filed by the assessee partly allowed for statistical purposes.
Order pronounced in the open Court on 7th October, 2026.
