Karnataka High Court: GST ITC Cannot Be Denied Solely Due to Revenue Loss to State

The Karnataka High Court, citing norms on Input Tax Credit (ITC), stated that if a taxpayer makes a claim for ITC during reassessment proceedings, it cannot be disallowed merely because the claim is not beneficial to the state exchequer.

It was noted by the division bench of Justices Krishna S Dixit and G. Basavaraja that ordinarily, the claim for Input Tax Credit has to be made in the Return or Revised Return only. A claim otherwise is an exception and bona fide of the same has to be demonstrated.

In this case, the Assessee/department had submitted his Returns inter alia claiming Input Tax Credit on the purchase of goods that were used in the manufacture and sale/stock transfer.

The order was contested by the department which was passed via the Appellate Tribunal where the assessee/respondent has been granted a deduction of Input Tax Credit at the rate admissible in law but the claims in the returns submitted via him were lower compared to that.

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It was furnished by the department that as a corollary, the grant of advantage could not surpass the claim cited in the return. A default in the same concern could not be rewarded. Compliance with the norms is crucial. There is a legal limitation to making the input tax credit (ITC) claim. After all the ITC being a concession could not be claimed as a case of right.

Taxpayers claimed that in the scheme of Article 265 of the Constitution of India, the State cannot possess money belonging to subjects. Input Tax Credit is not similar to gratis, but experiences the character of State liability; hence, Input Tax Credit is a concession, which is misconceived.

It was mentioned by the bench that if the assessing authority undertaking the re-assessment finds deductions or exemptions that are incorrectly permitted then he would be required to improve the same even if it ensures the benefit of the dealer. These duties become more difficult when a representation is provided by the dealer.

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Once the assessment/reassessment proceedings are concluded or the limitation period otherwise has expired, No rectification whatsoever can be sought, bench mentioned.

The bench stated that if the reassessed tax surpasses the amount originally due, it must be recovered from the taxpayer along with any applicable interest or penalty. Conversely, if the amount paid exceeds the reassessed tax liability, the ITC claim should be allowed, provided it is made before the conclusion of the reassessment proceedings.

The bench, in light of the above-mentioned view, has dismissed the petition.