Hon’ble Patna High Court clarifies ITC rules: Buyer cannot claim ITC if supplier defaults on GST payment

In a recent landmark judgement, the Hon’ble Patna High Court in the case of M/s. Aastha Enterprises v. State of Bihar [CWJ 10395 of 2023 dated August 18, 2023] held that Input Tax Credit (ITC) is in the nature of a benefit/concession and not a right extended to the assessee under the statutory scheme.

Background

M/s. Aastha Enterprises (“the Petitioner”) purchased goods from the supplier and paid the taxable value along with the tax amount to the supplier. However, the supplier did not deposit the tax amount to the government. The Petitioner claimed the ITC of the said tax amount and was of the view that since, the tax has been paid to the supplier thus, he is eligible to avail ITC.

The Contention

The Revenue Department issued an assessment order denying the ITC to the Petitioner on the ground that the Petitioner has not followed the condition stipulated under section 16 (2) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) thus, not eligible for such credit. The Petitioner filed a writ before the Hon’ble Patna High Court against this Assessment Order.

The Judgement

The Hon’ble Patna High Court held that ITC is in the nature of a benefit/concession and not a right extended to the assessee under the statutory scheme. The ITC to purchasing dealer will depend not only upon the collection by the seller but also due payment by the seller to the Government. The burden of proof lies with the assessee to substantiate that the tax collected has been paid to the government by the supplier.

Conclusion

This judgement underscores that mere collection of tax by selling dealer is not sufficient; it must be duly paid to government. It’s a significant addition to jurisprudence on Input Tax Credit eligibility and conditions under CGST Act.

Here are some related FAQs about the topic of ITC not being allowed to buyer if supplier did not pay GST to the government:

Q: What is ITC?

A: ITC stands for Input Tax Credit. It is a refund of the GST that has been paid on inputs. ITC can be claimed by businesses on the GST that they have paid on goods and services that they use for their business activities.

Q: Why is ITC not allowed to buyer if supplier did not pay GST to the government?

A: The ITC is a refund of the GST that has been paid on inputs. If the supplier does not pay the GST to the government, then the buyer has not actually paid any GST. Therefore, the buyer cannot claim ITC.

Q: What are the remedies available to the buyer if the supplier does not pay GST to the government?

A: The buyer has a few remedies available to them. They can:

• Recover the amount of GST from the supplier.
• File a complaint against the supplier with the GST authorities.
• Reduce the purchase price of the goods or services that they have purchased from the supplier.

Q: What can businesses do to avoid this situation?

A: Businesses can avoid this situation by taking the following steps:

• Only purchase goods and services from suppliers who are registered under the GST.
• Ensure that the suppliers are paying the GST to the government.
• Keep records of all GST invoices that they receive from suppliers.

Q: What are the implications of this ruling for businesses?

A: This ruling has important implications for businesses. It means that businesses need to be more careful about who they purchase goods and services from. They need to ensure that the suppliers are registered under the GST and that they are paying the GST to the government. If a supplier does not pay the GST to the government, then the business will not be able to claim ITC on the GST that they have paid to the supplier.

I hope these FAQs are helpful.

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