The Madras High Court stated that it cannot expect certain conditions to fall under the Goods and Services Tax Law. Particularly, what to expect if the input tax credit to the buyer is disapproved by the government for the reason that the GST has not been paid by the seller but then recovers the tax from the seller?
The High Court said that this double benefit to the GST department needs to be solved. At present, there is no mechanism to confirm that the advantages of ITC are re-established to the purchaser once the seller pays the tax, the court added. This scenario causes the revenue department to receive taxes not only from the supplier but also from the purchaser.
Rajat Bose, the partner at Shardul Amarchand Mangaldas and Co., said that the issue is to the point and needs a solution. Right now, we don’t have any system that allows purchasers to get ITC without the GST portal system.
Further, he added that the buyer is only liable to claim the credit on one condition: if the seller files a return in the GST portal. But sometimes it doesn’t show on the return even after paying the GST. For example, when tax is collected from the seller after filing the returns. In these cases, the buyer is not eligible to avail of ITC benefits.
In that direction, the High Court ordered to set up of a system to make it certain that, as long as GST is recovered from the supplier, the buyer benefits from the input tax credit. The revenue department stated that it should decide to let the ITC benefits remain with the purchaser only as a protective measure. The foremost liability should be on the seller, and the buyer’s liability should only be a protective one, as the court stated.
The writ petition was filed against the revenue department’s decision by Pinstar Automotive Pvt. It said that the resolution stated to deny ITC benefits to the company even after fulfilling its tax liability, the court concluded.
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Ashish Abraham, the partner at Lakshmikumaran and Srisharan, said that the order is merely a recitation of the principle of restitution.
The court has offered a remedy to counteract the government’s unjust enrichment and has limited its opinion to the specific matter of restoring ITC benefits to the buyer. Abraham further said it has not questioned the strict application of ITC requirements.
Ashish Abraham, Partner, Lakshmikumaran and Sridharan Attorneys said that the mechanism proposed is a common law-based procedural relief that does not lessen the hardship experienced by genuine taxpayers in availing of ITC. This is a withdrawal from the high courts’ previous VAT jurisprudence.
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Abraham said that the ruling has the potential to impact many pending writ petitions. These petitions question the disapproval of ITC benefits to buyers based on any non-compliance by the supplier.
Bose, on the other hand, asserts that a speedy resolution to the issue is possible. He firmly believes that the government can publish a notice allowing buyers to submit claims for ITC based on the seller’s statements that his tax liabilities have been completed. The buyers will thus be eligible to claim an input tax credit regardless of any mismatch in the portal, he stated.
