Buyers Can’t Claim GST Credit If Suppliers Fail To Pay Tax To Govt

In the case of M/s. Aastha Enterprises Vs. State of Bihar [CWJ 10395 of 2023 dated 18th August 2023] Hon’ble Patna High Court held that Input Tax Credit (ITC) is a benefit or concession granted to the assessee under the statutory scheme, rather than a right conferred upon them.

In the case of M/s. Aastha Enterprises, the petitioner, purchased the goods from the supplier and the taxable value, as well as the tax amount, were paid to the supplier. However, the supplier failed to deposit the tax amount with the government.

The petitioner claimed Input Tax Credit (ITC) for the tax amount paid to the supplier, arguing that they were eligible for ITC since the tax had been paid to the supplier.

However, the Revenue Department issued an assessment order on May 25, 2022, denying ITC to the petitioner on the grounds that they had not fulfilled the conditions stipulated under section 16(2) of the Central Goods and Services Tax Act, 2017 (the CGST Act).

Then the petitioner filed a writ with the Hon’ble Patna High Court against the assessment order, arguing that ITC could not be denied to a purchasing dealer who had paid the tax and availed ITC based on tax invoices issued by the supplier.

The petitioner cited judgments from the Madras High Court in the cases of Sri Vinayaga Agencies v. The Assistant Commissioner and M/s D.Y Beathel Enterprises v. The State Tax Officer, arguing that initiating proceedings against a petitioner who had already paid the tax would result in double taxation.

The Revenue Department countered that section 16 of the CGST Act stipulates certain conditions for ITC eligibility, and failure to meet those conditions would result in denial of credit.

The Hon’ble Patna High Court in CWJ 10395 of 2023 ruled that the Input Tax Credit (ITC) claim was raised by the petitioner, M/s. Aastha Enterprises could not be sustained if the supplier had not paid the collected tax to the government.

The court relied on judgments from the Madras High Court and the Supreme Court, which held that the purchasing dealer must prove the genuineness of transactions and that mere production of tax invoices is not sufficient to claim ITC.

The court also held that if the supplier fails to comply with statutory requirements, the petitioner cannot claim ITC and must seek recovery from the seller.