LI Network
Published on: 27 August 2023 at 16:22 IST
The Patna High Court has recently clarified the conditions for availing Input Tax Credit (ITC), stating that it should be considered a benefit or concession granted to taxpayers under the law, rather than an inherent right.
The court emphasized that a purchasing dealer cannot claim ITC if the selling dealer fails to comply with statutory requirements, and the availability of ITC hinges not only on the seller’s collection of tax but also on the proper remittance of the tax to the government.
The court’s ruling was issued by a division bench comprising Chief Justice K. Vinod Chandran and Justice Partha Sarthy.
The court’s ruling came in response to a case involving M/s. Aastha Enterprises, where the petitioner had purchased goods from a supplier and remitted the corresponding tax amount to the supplier. However, the supplier failed to remit the tax to the government as required.
The petitioner sought to claim ITC based on the tax payment they had made. Nevertheless, the Revenue Department rejected their ITC claim, stating that the petitioner hadn’t adhered to the conditions outlined in section 16(2) of the Central Goods and Services Tax Act, 2017.
The central question before the court was whether a purchasing dealer could be denied the benefit of ITC when the supplier had collected tax but not remitted it to the government.
The court’s verdict stressed the importance of adhering to statutory conditions for claiming ITC. It clarified that ITC is a benefit rooted in the law, and a claimant must meet the conditions outlined in the statute to avail it.
The court also rejected the argument against potential double taxation, highlighting that denial of the claim only occurs when the tax-collecting supplier fails to remit the tax to the government.
The court affirmed that taxation is a mandatory contribution for public welfare and that the taxpayer’s liability to tax remains unfulfilled without transmitting the tax to the government.
The court’s ruling underscored that a purchasing dealer can only claim ITC if the tax-collecting supplier has indeed paid the tax to the government.
The term ‘Input Tax Credit’ implies that the purchasing dealer holds a credit in their ledger account with the government, contingent upon the supplier’s tax payment.
The court emphasized, “The purchasing dealer being the person who claims Input Tax Credit could only claim the Input Tax benefit if the supplier who collected the tax from the purchaser has paid it to the Government and not otherwise.”
The court further highlighted that elements such as tax invoices, goods movement, and financial aspects alone do not qualify for ITC. The credit must be present in the purchasing dealer’s ledger account.
The ruling clarified that both the statutory tax levy and the benefit of ITC depend not just on collection by the seller but also on timely payment to the government. Consequently, if the supplier fails to meet this obligation, the purchasing dealer cannot claim ITC unless there’s credit in their account.
The court’s decision underscores the intricate interplay between selling and purchasing dealers, the government, and statutory requirements when it comes to availing Input Tax Credit under the GST framework.