AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (1) TMI 385
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....Services Tax, Tripura Division-I, Agartala (Respondent no. 3) confirming a demand of Rs. 1,11,60,830/- along with interest and penalty under section 73 of the said Act. The factual background to the filing of the Writ Petition: 2) The petitioner, a proprietary concern engaged in trading of rubber products, had purchased different products from M/s Sentu Dey (for short "supplier/ Respondent no. 4") on due payment of Goods and Services Tax (for short 'GST') and further sold them as such. These transactions took place between July, 2017 to January, 2019 involving GST of Rs. 1,11,60,830/- which it had paid to its vendor/supplier. 3) On an investigation by officers of the Enforcement Branch of the CGST Commissionerate, Agartala of the supplier Company, it was discovered that the respondent no. 4 was supplying rubber products to different traders, but was not depositing the GST paid by the purchasers to it including the petitioner with the Government. Respondent no. 4 had filed Form GSTR-01 return under section 37 of the Act showing the sale of goods to the petitioner, but failed to deposit the tax collected from petitioner while filing GSTR-3B under section 39 of the Act. It ha....
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....tution and contended that it is valid in all respects. They also contended that Courts must be slow in inferring unconstitutionality of taxing statues as legislature has lot of freedom in enacting such laws. According to them the impugned order dt.17.5.2022 does not suffer from any defect or error and should be sustained. Consideration by the Court: 11) Section 16 deals with eligibility and conditions for taking ITC. The said section to the extent relevant for our consideration states: "Section 16. Eligibility and conditions for taking input tax credit.- (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person. (2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,- ....
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....to the supplier] of the amount towards the value of supply of goods or services or both along with tax payable thereon. (3) ...... (4) ... ... [Provided ... ... [(5) ... .... (6)... ..." (emphasis supplied) 12) Section 16(2)(c) of the Act thus denies to an assessee availment of ITC in relation to supply of goods or services or both if tax charged in respect of such supply has not been actually paid to the Government or through utilization of input tax credit admissible in respect of the said supply. 13) Rule 36 of the Central Goods and Services Tax Rules, 2017 is also relevant and it states: "Rule 36: Documentary Requirements and Conditions for claiming Input Tax Credit: (1) The input tax credit shall be availed by a registered person, including the Input Service Distributor, on the basis of any of the following documents, namely, - (a) an invoice issued by the supplier of goods or services or both in accordance with the provisions of section 31; (b) an invoice issued in accordance with the provisions of clause (f) of sub-section (3) of section 31, subject to the payment of tax; ....
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.... purchaser only when the supplier had discharged the output liability through cash or by using ITC. But if the supplier has not paid the tax to the Government, the purchaser is not eligible to avail ITC. 16) The fact that there is no mechanism with the recipient of goods to verify whether the supplier has discharged its liability to the Government, or not, is not disputed by respondents. In view of this, it is impossible for the purchaser to check whether the supplier has deposited the tax paid by him to the Government and then avail ITC. Also the supplier is not normally under the control of the purchaser. It is not disputed that it is not possible for a purchaser to keep a check on activities of its supplier or ensure that the latter makes over to the Government, the GST paid to him by the purchaser. 17) Petitioner contends that to deny a purchaser like petitioner, who is a bona fide purchaser, and who has paid the GST to the supplier, the ITC benefit is arbitrary and unreasonable and violates Art. 14, 19(1)(g) and Art. 300-A of the Constitution of India. They contend that for a mistake on the part of the supplier to make over the tax collected from purchaser to the Governm....
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....eading it down, it should be done, unless plain words are so clear to be in defiance of the Constitution. These interpretations spring out because of concern of the courts to salvage a legislation to achieve its objective and not to let it fall merely because of a possible ingenious interpretation. The words are not static but dynamic. This infuses fertility in the field of interpretation. This equally helps to save an Act but also the cause of attack on the Act. Here the courts have to play a cautious role of weeding out the wild from the crop, of course, without infringing the Constitution. For doing this, the courts have taken help from the Preamble, Objects, the scheme of the Act, its historical background, the purpose for enacting such a provision, the mischief, if any which existed, which is sought to be eliminated." 26) In CST v. Radhakrishan (1979) 2 SCC 249 : (1979) 118 ITR 534, at page 257, sanction for prosecution of a dealer under the M.P. General Sales tax Act was given by the Commissioner of Taxes under section 46(1)(c) of the said Act, though there was a procedure for recovery of tax by imposing penalty under section 22(4-A) of the said Act. The validity of the sa....
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....to the Commissioner to resort to one of the two remedies as the facts of the case may require. In graver cases he will be justified in taking the drastic remedy and resorting to prosecution in the criminal court if he is satisfied that such a course is necessary for the collection of the tax expeditiously. If the discretion is not properly exercised the court may be justified in interfering in such cases but the law cannot be held to be invalid." (emphasized supplied) 27) A provision similar to Section 16(2)(c) of the Act also existed in Section 9(2)(g) the Delhi Value Added Tax Act, 2004. 28) This provision was considered by the Delhi High Court in Quest Merchandising India Pvt.Ltd and others v. Government of NCT of Delhi and others (2017) SCC ONLINE DELHI 13037(2017) SCC ONLINE DELHI 13037. Section 9(1) of DVAT Act permits ITC to a registered dealer in respect of turnover of purchases occurring during the tax period where the purchase arises in the course of his activities as a dealer and the goods are to be used by him directly or indirectly for the purpose of making sales which are liable to tax under Section 7 of the DVAT Act. Sub-section (2) of Section 9 sets o....
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....should be interpreted as not including a purchasing dealer who has bona fide entered into purchase transactions with validly registered selling dealers who have issued tax invoices in accordance with Section 50 of the Act where there is no mismatch of the transactions in Annexures 2A and 2B. Unless the expression 'dealer or class of dealers' in Section 9(2)(g) is 'read down' in the above manner, the entire provision would have to be held to be violative of Article 14 of the Constitution. 54. The result of such reading down would be that the Department is precluded from invoking Section 9(2)(g) of the DVAT to deny ITC to a purchasing dealer who has bona fide entered into a purchase transaction with a registered selling dealer who has issued a tax invoice reflecting the TIN number. In the event that the selling dealer has failed to deposit the tax collected by him from the purchasing dealer, the remedy for the Department would be to proceed against the defaulting selling dealer to recover such tax and not deny the purchasing dealer the ITC. Where, however, the Department is able to come across material to show that the purchasing dealer and the selling dealer acted in collus....
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....rification. The appeals lack merit and are, accordingly, dismissed." 32) The contention of the Dy. Solicitor General of India that the judgments of the Supreme Court in M/s Arise India (4 Supra) and in Commissioner Trade and Tax, Delhi (6 supra) are not binding precedents, cannot be countenanced. 33) This is because in the former case, the Solicitor General, who is the law officer of the Union of India, himself wanted to pursue cases pending in the Delhi High Court where the transactions were not bona fide, thus implying that the Government had accepted the basis of the judgment. In the latter case, the Supreme Court applied to the facts of the said case the principle that if the transactions are not doubted, ITC cannot be denied. When the principle is actually applied by the Supreme Court to the facts of the case, it has to be taken that the view in Quest Merchandising India Pvt. Ltd (3 supra) has been approved by the Supreme Court and it cannot be contended that it's judgment is not a precedent. 34) We are of the view that the same reasoning as adopted by the Delhi High Court in Quest Merchandising India Pvt. Ltd (3 supra) and M/s Shanti Kiran India (P) Ltd (5 supra) as ....
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....ystem of taxation in proper and reasonable ways, though it is permissible to declare a taxation statute as unconstitutional if it infringes the fundamental rights guaranteed under part III of the Constitution; that input tax credit is in the nature of a benefit or concession extended to the dealer under the statutory scheme ; even if it held to be an entitlement, this entitlement is subject to the restrictions as provided under the scheme or the statute; and that claim to input tax is not an absolute right, but it can be said that it is an entitlement subject to the conditions and restrictions as envisaged in Section 16(2) to 16(4), Section 43, and the Rules made thereunder. They hold that as per the scheme of the Act only tax paid and collected and paid to the Government could be given as ITC; and when the Government has not received the tax, a dealer cannot be given ITC. According to some of them, taxation legislation may not be easily interfered with and Court must show judicial restraint to interfere with tax legislation unless it is shown and proved that such taxing statute is manifestly unjust or glaringly unconstitutional; that challenge to it on ground of violation of Art. ....
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....in this regard. Now, the only question that remains to be decided is whether in fact there is a specific provision for including the income earned from the Sikkim lottery ticket prior to 1-4-1990 and after 1975, in the income tax return or not. We have gone through the relevant provisions but there seems to be no such provision in the IT Act wherein a specific provision has been made by the legislature for including such an income by an assessee from lottery ticket. In the absence of any such provision, the assessee in the present case cannot be subjected to double taxation." (emphasis supplied) 45) We do not find anything in the language of the Act which expressly enables the respondents to tax a purchaser, who has already paid tax to the seller, a second time, by denying him ITC, in all situations. If that were to be so, there would be no concept of giving ITC at all in the Act. 46) We are of the view that the other High Courts have also overlooked this important principle that ITC is introduced to avoid double tax burden on a tax payer under the GST regime. The Parliament, in our opinion, though intended it to be a benefit/concession, it had not intended to punish....
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.... has been suspended/cancelled since 21.1.2020 and criminal cases have also been filed against it. 53) Importantly, the Assistant Commissioner (Respondent no. 3) had invoked only Section 73 of the Act against the petitioner and issued a Show Cause notice to petitioner on 7.1.2021 which resulted in the impugned order dt.17.5.2022. Section 73 lays down the procedure for determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful misstatement or suppression of facts. 54) The fact that Section 74 of the Act which lays down the procedure for determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts, is not invoked by respondent No. 3 is very significant. 55) Thus the respondents are not disputing that the petitioner did pay the GST of Rs. 1,11,60,830/- to respondent no. 4, the supplier, though they contend that the latter has not passed over the same to the Government. There is no allegation by the respondents that petitioner had failed to discharge its....