In a major decision the Patna High Court observed that Input Tax Credit (ITC) is not sustainable when the supplying dealer has not paid to the Government, despite collection of tax from the purchasing dealer.
The writ petitioner in the present matter is M/s Aastha Enterprises. The issue raised in the writ petition is as to the sustainable claim of Input Tax Credit, when it has been proved that the purchaser, a registered dealer has satisfied the tax liability to the selling dealer, another registered dealer evidenced by a tax invoice; even when the selling dealer does not pay the said tax to the Government after collecting it from the purchaser.
It was also raised whether the purchasing dealer can be denied Input Tax Credit evidenced by the invoice and is not the State obliged to take proceedings against the selling dealer, who defaulted payment of collected tax to the State; for which the statute provides ample scope, is the question raised.
The question was raised against an assessment order on which there is a statutory appeal provided. The assessment order and as per Section 107 of the Bihar Goods and Services Tax Act, 2017 (“BGST Act”) an appeal has to be filed within three months and with sufficient cause shown for the delay occasioned, within a further period of one month.
Archana Sinha, counsel who appeared for the petitioner pointed out that the purchases were made after making payments through bank accounts. Invoices were issued by the selling, evidencing the payment of the value of the goods along with the tax, by the purchasing dealer through bank account and the movement of the goods purchased. Obviously, the selling dealer has not paid up the tax liability, to the State, which stood satisfied by the purchasing dealer and collected by the selling dealer.
The Counsel also stated that the underlying object of Input Tax Credit regime brought in, is to avoid the cascading effect of tax and this would be totally frustrated if the department officials attempt recovery of tax from the purchasing dealer, which tax liability has already been satisfied by payment of the tax component, to the selling dealer.
A Division Bench comprising Chief Justice K. Vinod Chandran and Justice Partha Sarthy observed that “It is clear that the literal nomenclature and the statutory language, mandates that there should be credit available in the credit ledger of the purchaser to claim Input Tax and otherwise the claim would be frustrated. On the above reasoning, we have to find that the claim of Input Tax Credit raised by the petitioner cannot be sustained when the supplying/selling dealer has not paid up the amounts to the Government; despite collection of tax from the purchasing dealer.”
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