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

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 court emphasized that ITC is contingent upon the supplier's payment of tax to the State, and denial of ITC in such cases does not amount to double taxation. The purchasing dealer's claim was rejected as the supplier had neither been examined nor was any recovery initiated against them. The writ petition challenging the denial of ITC was dismissed, affirming that ITC is available only when the tax is duly paid by the supplier to the government as mandated under section 16 of the GST Act.

---

---

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.

---