UNJUSTIFIED DENIAL OF ITC under GST

1. The case is on section 16 (2) (b) as well as CBIC Circular number 241/35/2024 GST dated 31/12/2024. In case the taxpayer is unaware of the extant provisions of law and avails ITC without fulfilling the required conditions set out in Section 16 and 17, the taxpayer is at a loss and ends up paying GST as well as applicable interest. However, in case the adjudicating authority is not aware of the clarifications issued by CBIC, then also only the taxpayer is at loss as the taxpayer has to either pay the tax which is UNJUSTIFIED or knock the doors of Appellate Authority and in case Appellate Authority is also not up to date on the subject, the tax payer is forced to file a writ in the Jurisdictional High Court which is also UNJUSTIFIED. One such interesting case was decided by the Patna High court on 11/04/2025.

2. The Patna High Court has ruled in the case of M/S SANE RETAILS PRIVATE LIMITED VERSUS THE STATE OF BIHAR THROUGH THE COMMISSIONER CUM SECRETARY, COMMERCIAL TAXES DEPARTMENT, GOVERNMENT OF BIHAR, PATNA, COMMISSIONER CUM SECRETARY, COMMERCIAL TAXES DEPARTMENT, GOVERNMENT OF BIHAR, PATNA, ADDITIONAL COMMISSIONER OF STATE TAX (APPEAL), CENTRAL DIVISION, PATNA, THE DEPUTY COMMISSIONER OF STATE TAX, PATLIPUTRA CIRCLE, PATNA, CENTRAL BIHAR, THE UNION OF INDIA - 2025 (4) TMI 1055 - PATNA HIGH COURT that ITC was wrongly denied by adjudicating officer as well as the first appellate authority and set aside both the orders and remanded the case to the original adjudicating authority for fresh exercise in line with Section 16 (2) (b) of the CGST Act along with the explanations thereto.

3. In the instant case all the required conditions under section 16 as well as 17 of the CGST Act are fulfilled  and the recipient has made payment to the supplier and supplier also paid applicable GST to the Government. The ITC was denied on the ground that the materials were not received by the recipient at his place of business,  despite the fact that the law recognizes the bill to ship to model. The fact that receipt of goods includes deemed receipt as per law was not considered by the tax officials despite this fact being brought to their notice.

4. The explanation at the end of section 16 (2) (b) very clearly and categorically provides for delivery at a place other than the buyers place in line with the directions of the buyer. This is exactly the case and despite the clear legal position as well as departmental clarifications on this issue, the adjudicating authority has UNILATERALLY passed the orders confirming denial of ITC rejecting the claims of the tax payer.

5. The First Appellate Authority took a stand which was exactly the same as that of the Adjudicating Authority.

6. While passing the orders, the authorities relied on two decisions to strengthen their stand but the cases were not applicable in the current situation factually as well as legally.  (Para 7 of the order dated 11/04/2025)

7. The High Court has observed vide para 16 that respective contentions urged by the petitioners have not been appreciated and not dealt with to the extent there is TOTAL NON -APPLICATION OF MIND.

8. This is a classic example of the attitude of the adjudicating authorities on denial of ITC in a UNJUSTIFIED manner by disregarding the legal position, ignoring the submissions of the tax payer and placing reliance on a case law which is neither factually nor legally connected with the current issue.

9. It is High Time that CBIC may voluntarily come forward to instruct the field formation to pass orders  by holding the status that of a QUASI JUDICIAL OFFICER and not that of a TAX COLLECTOR.

10. As the amount involved in the instant case was huge, the petitioner approached the High Court by way of writ. However, when the UNJUSTIFIED denial of ITC is not significant and the cost of writ is more than the demanded amount, the taxpayer ends up paying the GST to make the Government RICH by way of UNJUST ENRICHMENT.

11. It may be concluded that the concept of UNJUST ENRICHMENT should be applicable to BOTH the tax payer as well as the Government.