‘Purchasing Dealer Cannot, Without Credit In His Account, Claim Input Tax Credit If Selling Dealer Fails To Comply With The Statutory Requirement': Patna High Court

The Patna High Court recently ruled that Input Tax Credit (ITC) should be regarded as a benefit or concession rather than an inherent right granted to taxpayers within the framework of the law. The court's decision emphasized that the availability of ITC to a purchasing dealer is contingent not only upon the seller's tax collection but also on the seller's proper remittance of the collected tax to the government. In this context, the onus of proving that the tax collected by the seller has indeed been paid to the government rests with the taxpayer seeking the credit. The division bench comprising Chief Justice K. Vinod Chandran and Justice Partha Sarthy, observed, “When the supplier fails to comply with the statutory requirement, the purchasing dealer cannot, without credit in his account claim Input Tax Credit and the remedy available to the purchasing dealer is only to proceed for recovery against the seller. Even if such recovery from the supplier is effected by the purchasing dealer; the State would be able to recover the tax amount collected and not paid to the exchequer, from the selling dealer since the rigor of the provisions for recovery on failure to pay up, after collecting tax, enables the Government so to do.”FACTSIn accordance with the factual context of the case, M/s. Aastha Enterprises, the Petitioner, engaged in the purchase of goods from a supplier and duly remitted the applicable value of the goods along with the corresponding tax amount to the supplier. Regrettably, the supplier failed to remit the tax amount to the government as required.The Petitioner sought to avail the Input Tax Credit (ITC) associated with the aforementioned tax payment. Their rationale was that since they had indeed paid the tax to the supplier, they should rightfully be entitled to claim the ITC. However, the Revenue Department issued an assessment order on May 25, 2022, rejecting the Petitioner's ITC claim. The rationale behind this denial was anchored in the assertion that the Petitioner had not adhered to the conditions outlined in section 16(2) of the Central Goods and Services Tax Act, 2017. Consequently, the department contended that the Petitioner was ineligible for the credit in question.In response, the Petitioner lodged a writ petition before the Patna High Court, challenging the assessment order. Their central argument revolved around the notion that disallowing the credit, despite the Petitioner having fulfilled their tax obligations and claimed the ITC based on legitimate tax invoices from the supplier, was unjust. They bolstered their stance by referring to a judgment by the Madras High Court in the case of Sri Vinayaga Agencies v. The Assistant Commissioner [WP Nos. 2036 to 2038 of 2013], as well as the case of M/s D.Y Beathel Enterprises v. The State Tax Officer [(Data Cell). These precedents were cited to underscore the potential for double taxation if proceedings were to be pursued against the Petitioner, who had already settled the tax amount.ISSUEWhether a purchasing dealer can be denied the benefit of ITC in cases where the supplier has collected tax but not paid it to the government?COURT’S VERDICTThe Court's verdict underscored the significance of Input Tax Credit within the nationwide tax framework, aiming to prevent the accumulation of taxes. The Court also noted that the advantage of such credit, accessible to a buyer who sells or manufactures goods using materials with paid taxes, is a concession established by the law, as previously established in the case of ALD Automobile Private Limited.The Court emphasized the necessity of adhering to the stipulated conditions for claiming this credit. Failing to do so would result in the denial of benefits, as the credit's availability is hinged upon statutory compliance. The Court clarified that this benefit is rooted in the law, and if the conditions outlined in the statute are not met, the claimant cannot receive the benefit.The argument against double taxation did not hold sway with the Court, particularly since denial of the claim occurs only when the tax-collecting supplier neglects remitting the tax to the Government. The Court asserted that taxation is an obligatory contribution for public welfare, and without transmitting the levy to the Government, the taxpayer's liability to tax isn't fulfilled, precluding any concern about double taxation.Addressing the assessee's contention about the statutory provisions for recovering unremitted collected tax, the Court ruled that the mere existence of recovery mechanisms does not absolve the taxpayer's responsibility to settle the total liability to the Government.The Court clarified that a purchasing dealer eligible for Input Tax Credit can only avail the benefit if the tax-collecting supplier has indeed paid the tax to the Government. The term 'Input Tax Credit' implies a scenario where the purchasing dealer holds a credit in their ledger account with the Government, contingent on the supplier's...

‘Purchasing Dealer Cannot, Without Credit In His Account, Claim Input Tax Credit If Selling Dealer Fails To Comply With The Statutory Requirement': Patna High Court

Bhavya Singh

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