Input Tax Credit can’t be denied to Buyer If Seller discharges Tax Liability: Karnataka HC [Read Judgment]

Land Transactions - GST Karnataka High Court

The Karnataka High Court has held that if the assessee purchaser proves that the seller has already discharged the tax liability, then the department cannot deny the benefit of input tax credit to such buyer.

The assessee, a dealer of bags and gift items, availed the credit of input tax paid on the purchases made from the dealers. After deducting the same from the output tax, it discharged the net tax liability.

The department initiated re-assessment proceedings against the assessee by holding that the dealer with whom the assessee had transacted with were all deregistered and hence input tax on purchases made by the assessee is not available.

Before the authorities, the assessee contended that the cancellation can only have prospective effect and not the retrospective effect and thus purchases made prior to the date of deregistration, the input tax so claimed on them cannot be disallowed.

Justice S Sujatha observed that the benefit of input tax cannot be deprived to the purchaser dealer if the purchaser dealer satisfactorily demonstrates that while purchasing goods, he has paid the amount of tax to the selling dealer. If the selling dealer has not deposited the amount in full or a part thereof, it would be for the revenue to proceed against the selling dealer.

“If there is any default on the part of such registered dealers in not remitting the tax, so collected into the Government treasury or any designated bank and furnish monthly returns as specified u/s 35 to the prescribed authority, the proceedings are required to be initiated against such registered selling dealers in accordance with the provisions of the KVAT Act. In view of admission of the genuine transaction as well as bonafide claim and in the absence of any other allegations made against the purchasing dealer in the assessment orders, merely for the reason that selling dealers have not deposited the collected tax amount or some of the selling dealers have been subsequently deregistered cannot be a ground to deny the input tax credit. Thus, re-assessment orders and the demand notices are set aside,” the Court said.

To Read the full text of the Judgment CLICK HERE