Recently, the Gauhati High Court said that a bona fide purchaser cannot be refused Input Tax Credit (ITC) just because the selling dealer did not submit GST returns after collecting tax from the purchaser and that the department should move against the defaulting seller.
Justice Devashis Baruah permitted a writ petition by Advance Engineering Farms and Equipments challenging the denial of GST ITC on generators bought in FY 2017-18, holding that considering the claim as excess ITC went against the Division Bench ruling in National Plasto Moulding v. State of Assam. The Court said that-
“…The imposition of the ITC or holding that the Petitioner has made excess claim of ITC is contrary to the law laid down by the learned Division Bench of this Court in National Plasto Moulding…”
Advance Engineering Farms and Equipments had purchased generators from a registered supplier and paid the sale consideration including GST. However, the purchaser claimed ITC on the transaction; the authorities did not accept the claim after the supplier failed to submit GST returns and proceeded to raise a demand for tax, interest and penalty against the purchaser.
At the time of proceedings, the supplier’s representative considered that the supplier had collected the GST amount from Advance Engineering Farms and Equipments but did not submit the required returns. The Court said that the purchaser could not be penalised for the seller’s failure in the absence of any material exhibiting collusion between the parties.
The Gauhati High Court Division Bench in National Plasto Moulding, stated that Section 16(2)(c) and Section 16(2)(d) of the Assam Goods and Services Tax Act, 2017, which mention the terms for claiming ITC, should be read down so that a bona fide purchaser who has purchased goods from a registered supplier, paid GST and have valid tax invoices cannot be refused ITC only because the selling dealer did not deposit the tax or file returns.
The Division Bench had put reliance on the specified principles by the Delhi High Court in On Quest Merchandising India Pvt. Ltd. that a bona fide purchasing dealer cannot be refused ITC only because the selling dealer defaults, unless there is proof of collusion between the parties. It mentioned that the department’s remedy in these matters is to move against the defaulting selling dealer.
Therefore, the HC set aside the rectification order on 10 April 2024, raising demands of Rs. 1,60,506 each towards Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) against Advance Engineering Farms and Equipments.
Also Read: GST Cancellation Proceedings Must Be Dropped if Returns Filed and Dues Paid
It stated that the authorities have the chance to recover the tax from the defaulting selling dealer as per the norms of the Central Goods and Services Tax Act and the Assam Goods and Services Tax Act.
| Case Title | M/s Advance Engineering Farms and Equipments Vs State of Assam |
| Case No. | Wp(c)/4312/2024 |
| Counsel For Petitioner | Mr S. S. Zia |
| Counsel For Respondent | Mr B. Gogoi, Mr D. Gogoi |
| Gauhati High Court | Read Order |
