ITC is Substantive Right granted to Assessee u/s 16 of GST Act: Allahabad HC quashes Rs 235 crores Demand against Vivo Mobile [Read Order]

The Allahabad High Court quashed Rs 235 crores demand against Vivo Mobile India and ruled that Input Tax Credit (ITC) is substantive right granted to the assessee under Section 16 of the Goods and Service Tax (GST) Act, 2017.

The primary relief sought by the petitioner, M/S Vivo Mobile India Private Ltd, is against the order passed by the Deputy Commissioner. By that order, passed under Section 74 (9) of the CGST Act, 2017, the said authority has opined that the petitioner had availed/utilised excess Input Tax Credit (ITC), Rs. 110,06,90,100.31, for the months of February 2020 to August 2020.

Construing the same to be a violation of Rule 36(4) of the CGST Rules, 2017, it has been directed to be reversed and added to the output tax liability of the petitioner, with consequent interest obligation. Also, an equal amount of penalty referable to Section 74 of the Central Goods and Service Tax Rules, 2017 has been imposed.

Thus, total demand of Rs. 235.52 crores had been created - inclusive of interest at Rs. 15,40,00,000/-. Against that demand, the petitioner had self-deposited Rs. 11,00,69,010/- being 10% of the disputed demand of tax. However, it has disputed the entire liability.

The Senior Counsel has laid emphasis on the provisions of the CGST Act to establish that the ITC is the backbone of the GST regime. Entitlement thereto arises under Section 16 of the CGST Act by way of a statutory right. The same cannot be defeated either by administrative instructions or by construing the law in any other manner.

The counsel also stated that the error in the computation made by the revenue authorities is stated to have arisen upon misreading of the Circular issued by the Central Board of Indirect Taxes and Customs (CBIC in short). Thus, a serious challenge has been laid to Circular No. 123/42/219-GST dated 11.11.2019, specifically clause 3(3) thereof. That administrative instruction issued by the CBIC is described to be in the teeth of Rule 36(4) of the Rules read with its first proviso.

The Advocate General for the state argued that in the first place, GSTR-3B is the monthly return prescribed to be filed by 20th March 2020. That requirement of the law was not waived or relaxed, to any extent. Also, the GSTR-2A pertaining to the present petitioner would have been auto populated on the strength of the details fed by the individual suppliers on GSTR-I. Therefore, the ITC available to the petitioner for each month including the months of February 2020 to August 2020, remained fixed and unaltered, being dependent solely on the figures disclosed by the individual suppliers on Form GSTR-I.

Next, it has been urged, no dealer/supplier could file more than one return/Form GSTR-3B for any month. Only a revision of that return was permissible, in certain facts and circumstances. Therefore, the petitioner could, and it filed only original return on Form GSTR Form-3B, for each of the months from February 2020 to August 2020. Those returns not revised, it never became open to the petitioner to claim any amount by way of ITC, more than the amount already disclosed as per GSTR-2A and the monthly returns filed.

A Division Bench comprising Justice Vinod Diwakar and Justice S.D. Singh observed that “The scheme of the CGST Act is to let ITC arise and be availed provisionally, in a continuously moving value addition chain, subject to other conditions including actual payment of tax being eventually proven and remaining undoubted. That provisional allowance would become absolute upon tax being paid not later than 180 days. There can be no lis as to the wisdom of the Parliament in incorporating that period of 180 days. If the law were to be read otherwise, i.e., that the ITC claim may never arise unless the tax is first paid then, the second proviso to section 16(2) itself would be rendered otiose.”

The Court further noted that by way of conditions of eligibility to ITC, Section 16 of the CGST Act has made it necessary that the Tax Invoice or Debit Note must be issued by the supplier to the registered person to enable the latter to avail ITC. Also, he must have physically received the goods or services, on which ITC claim may arise. As to the requirement of payment of due tax to the Government, that stipulation has been made subject to the provisions of Section 41of the CGST Act.

“The entire amount recovered may be returned to the petitioner within a period of six weeks from the date a copy of this order is served on the proper officer, by the petitioner. At the same time, the petitioner would remain entitled to interest that we provide @ 6% on the amount of excess recovery of Rs. 11,00,69,010/-, from the date of that excess recovery to the date of its actual refund” the Court concluded.

Counsels Nishant Mishra and Alok Yadav appeared for the petitioner and A.S.G.I., Ashok Singh, C.S.C. and Manu Ghildyal appeared for the State.

To Read the full text of the Order CLICK HERE

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