2023 (8) TMI 1038 - HC - GST

Input Tax Credit denied if supplier fails to pay GST under Section 16 of the GST Act

M/s Aastha Enterprises Versus The State of Bihar through the Commissioner of Commercial State Taxes, New Secretariat, Patna, The Joint Commissioner, State Taxes, Shahabad Circle, Bhojpur at Ara, Bihar.

HC held that Input Tax Credit (ITC) cannot be claimed by the purchasing dealer if the supplier fails to remit the GST collected to the government. The ... Denial of Input Tax Credit (ITC) - supplier failed to pay the amount of GST to the government - impugned orders were quashed on the ground that the selling dealer was not examined and on the ground that there was no recovery initiated against the selling dealer - Violation of conditions of section 16 of GST Act - HELD THAT:- Input Tax Credit by the very nomenclature contemplates a credit being available for the purchasing dealer in its credit ledger by way of payment of tax by the supplier to the Government. It is true that Input Tax Credit is a concept introduced in the tax regime, all over the country for the purpose of avoiding the cascading effect of taxes. The benefit of such credit being availed by a purchasing dealer who sells or manufactures goods, using raw materials on which tax has been paid is a benefit or concession conferred under the statute - the contention of double taxation does not impress us especially since the claim is denied only when the supplier who collected tax from the purchaser fails to pay it to the Government. Taxation as has been held is a compulsory extraction made for the purpose of public good, by the welfare State and without the levy being paid to the Government; there can be no claim raised of the liability to tax having been satisfied and hence there is no question of double taxation. The seller and purchaser have an independent contract without the junction of the Government. The statute provides for a levy of tax on goods and services or both, supplied by one to the other which can be collected but the dealer who collects it has also the obligation to pay it up to the State. It is clear that the literal nomenclature and the statutory language, mandates that there should be credit available in the credit ledger of the purchaser to claim Input Tax and otherwise the claim would be frustrated. On the above reasoning, it is found that the claim of Input Tax Credit raised by the petitioner cannot be sustained when the supplying/selling dealer has not paid up the amounts to the Government; despite collection of tax from the purchasing dealer. The writ petition would stand dismissed. Issues Involved:1. Sustainable claim of Input Tax Credit (ITC) when the selling dealer does not pay the collected tax to the Government.2. Whether the purchasing dealer can be denied ITC evidenced by the invoice.3. Obligation of the State to take proceedings against the defaulting selling dealer.Summary:1. Sustainable Claim of ITC:The core issue is whether a purchasing dealer can claim ITC when the selling dealer, despite issuing a tax invoice and collecting tax, fails to remit the tax to the Government. The petitioner argued that the tax liability was satisfied by paying the selling dealer, and denying ITC would result in double taxation. The petitioner relied on decisions from the Madras High Court, which supported the view that the department should proceed against the defaulting selling dealer.2. Denial of ITC:The State contended that ITC is subject to conditions under Section 16 of the BGST Act, including the tax actually being paid to the Government. The petitioner did not respond to the show cause notice, leading to an ex-parte order. The Government Advocate cited Supreme Court decisions emphasizing that ITC is a benefit, not a right, and must comply with statutory conditions.3. Obligation of the State:The Court highlighted that Section 16(2)(c) of the BGST Act requires the tax charged to be actually paid to the Government. The burden of proof lies on the purchasing dealer to establish that the tax has been paid. The Court referred to the Supreme Court's decision in The State of Karnataka v. M/s Ecom Gill Coffee Trading Private Limited, which underscored the necessity of proving actual transactions and tax payments.Judgment:The Court dismissed the writ petition, stating that ITC cannot be claimed unless the tax collected by the supplier is paid to the Government. The purchasing dealer's remedy lies in recovering the amount from the selling dealer, not in claiming ITC without the tax being credited in their ledger account. The claim of double taxation was rejected, as the tax liability remains unsatisfied if the supplier does not remit the collected tax to the Government. Conclusion:The purchasing dealer cannot claim ITC if the selling dealer fails to pay the collected tax to the Government. The State is not obliged to grant ITC under such circumstances, and the purchasing dealer must seek recovery from the selling dealer. The writ petition was dismissed, affirming the statutory requirements for claiming ITC.