2023 (3) TMI 487 - AAR - GST

Purchaser denied Input Tax Credit when any seller in supply chain fails tax payment under Section 16(2)(c) CGST Act

The AAR Punjab ruled that a purchaser cannot claim Input Tax Credit on purchases where the immediate seller discharged tax liability but preceding sellers ... Eligibility for input tax credit - requirement of actual payment of tax to the Government - conditions for availing ITC under Section 16(2) - documentary compliance for claiming ITC - scope of advance ruling under Section 97(2)(d)Eligibility for input tax credit - requirement of actual payment of tax to the Government - conditions for availing ITC under Section 16(2) - Whether a purchaser is entitled to claim input tax credit where the immediate supplier has discharged its tax liability but a preceding seller in the chain has not discharged the tax liability. - HELD THAT: - The Authority examined Section 16(1)-(4) of the CGST Act (and corresponding PGST provisions) and Rule 36 to determine statutory conditions for taking ITC. Clause (c) of sub-section (2) of Section 16 requires that the tax charged in respect of the supply must have been actually paid to the Government, either in cash or through utilization of admissible input tax credit, as a condition precedent to entitlement to credit. Applying this statutory test, if the tax pertaining to the supply has not been deposited by the seller or preceding sellers into the Government treasury (either in cash or by admissible credit), the purchaser cannot claim ITC for that supply. The Authority therefore concluded that the entitlement to ITC is conditional upon actual payment of tax in respect of the supply, and absence of such payment by any seller in the chain defeats the purchaser's claim under the statutory scheme.Purchaser is not entitled to claim ITC where the tax in respect of the supply has not been actually paid to the Government by the seller or preceding sellers.Scope of advance ruling under Section 97(2)(d) - documentary compliance for claiming ITC - Whether questions regarding (i) how a purchaser can ensure tax liability has been discharged by all sellers in the chain, (ii) entitlement to ITC where no infrastructure exists to verify upstream payment, and (iii) entitlement to ITC despite non-payment by seller where purchaser has invoice, payment evidence and absence of collusion, fall within the scope of advance ruling under Section 97(2)(d). - HELD THAT: - The Authority considered the statutory scope of advance rulings under Section 97(2) and specifically clause (d) which permits rulings on admissibility of input tax credit. After examination, the Authority found that the applicant's Questions 2, 3 and 4 are outside the ambit of Section 97(2)(d) as formulated in the application and therefore cannot be taken up for adjudication in an advance ruling. Consequently, no substantive ruling on those questions could be issued by the Authority.Questions 2, 3 and 4 are not covered under Section 97(2)(d) of the CGST Act/PGST Act and hence no advance ruling is being given on them.Final Conclusion: The Authority ruled that under Section 16(2)(c) a purchaser cannot claim input tax credit unless the tax charged on the supply has been actually paid to the Government by the supplier or through admissible ITC; queries concerning mechanisms to verify upstream payment, infrastructural limitations, and entitlement in absence of collusion were held to be outside the scope of advance rulings under Section 97(2)(d) and no ruling was given on those questions. Issues Involved:1. Entitlement to Input Tax Credit (ITC) when the preceding seller has not discharged its tax liability.2. Mechanism for ensuring tax liability discharge by all sellers in the transaction chain.3. Eligibility for ITC in the absence of government-provided infrastructure to ensure tax liability discharge by sellers.4. Entitlement to ITC when the immediate seller has not paid tax, despite the purchaser having all relevant documents and no collusion.Issue-wise Detailed Analysis:Issue 1: Entitlement to Input Tax Credit (ITC) when the preceding seller has not discharged its tax liability:The applicant sought to determine whether they could claim ITC on purchases from a seller who discharged its tax liability, but the preceding seller did not. According to Section 16(2)(c) of the CGST Act, 2017, and PGST Act, 2017, a registered person is not entitled to ITC unless the tax charged on the supply has been actually paid to the government. This implies that if the preceding sellers have not deposited the tax, the purchaser cannot claim ITC. The ruling concluded that the purchaser is not entitled to claim ITC if the preceding seller has not discharged its liability, even if the immediate seller has.Issue 2: Mechanism for ensuring tax liability discharge by all sellers in the transaction chain:The applicant questioned how they could ensure that all sellers in the transaction chain have discharged their tax liabilities. However, this query was deemed outside the purview of Section 97(2) of the CGST Act and PGST Act, which lists the scope of questions for Advance Ruling. Therefore, no ruling was provided on this issue.Issue 3: Eligibility for ITC in the absence of government-provided infrastructure to ensure tax liability discharge by sellers:The applicant raised concerns about the lack of infrastructure provided by the government to ensure that all sellers in the transaction chain discharge their tax liabilities. Similar to Issue 2, this query was also found to be outside the scope of Section 97(2) of the CGST Act and PGST Act. Consequently, no ruling was issued on this matter.Issue 4: Entitlement to ITC when the immediate seller has not paid tax, despite the purchaser having all relevant documents and no collusion:The applicant sought clarity on whether they could claim ITC if the immediate seller had not paid tax, provided the purchaser had all relevant documents and there was no collusion. This query, like Issues 2 and 3, was outside the scope of Section 97(2) of the CGST Act and PGST Act. Thus, no ruling was made on this issue.Conclusion:The Authority for Advance Ruling, Punjab, concluded that the purchaser is not entitled to claim ITC on purchases if the preceding seller has not discharged its tax liability, as per Section 16(2)(c) of the CGST Act and PGST Act. The other queries raised by the applicant were not addressed as they fell outside the scope of Section 97(2) of the CGST Act and PGST Act.