GST credit is denied to recipient if supplier fails to deposit the taxes to Government exchequer.


GST credit is denied to recipient if supplier fails to deposit the taxes to Government exchequer.



Here is a judgement by Patna High Court which is going to adversely affect the dealer registered in GST. It has been held that GST credit can be given to the recipient only if supplier fails to deposit the taxes to Government exchequer.

The case detail is as under:

Aastha Enterprises


The State Of Bihar

(W.P No. 10395 of 2023 dated 18-08-2023)


Let us have a short overview of the case:

Facts of the case:

Purchaser had paid the tax component to the selling dealer but the dealer failed to pay the tax to the Govt exchequers. Can GST credit be denied if the recipient has paid the taxes to the supplier and holds a valid tax invoice along with GRN copies?
Government advocates relied on ALD. Automotive Pvt. Ltd. v. The Commercial Tax Officer & Ors where it was held that ITC is in the nature of a benefit/concession and not a right extended to the dealer under the statutory scheme, which benefit can accrue to the assessee only as per the scheme of the statute.

HC held as under:

  1. The conditions for availing benefit of ITC are provided under Sec 16(2) of CGST Act. The said conditions are required to be satisfied together and not in isolation.
  2. Mere production of invoices, account details and documents evidencing transportation of goods does not absolve the assessee from the rigor provided under sub-clause (c) of Section 16(2) of the CGST Act, which requires the credit of tax, collected from the purchasing dealer; either in cash or through utilization of admissible ITC , having actually paid tax to the Government and not separately or in isolation
  3. The mere fact that there is a mode of recovery provided under the statute would not absolve the liability of the taxpayer to satisfy the entire liability to the Government.
  4. The purchasing dealer can claim ITC only if the supplier who collected the tax from the purchaser has paid it to the Government and not otherwise .
  5. If a supplier fails to comply with statutory provisions, the purchasing dealer cannot claim GST credit.
  6. If the Govt is able to recover the amount from the selling dealer then the purchasing dealer could seek a refund of taxes so paid.

There is another case recently also by AP High court which has held that the r๐ž๐ฌ๐ฉ๐จ๐ง๐ฌ๐ข๐›๐ข๐ฅ๐ข๐ญ๐ฒย ๐จ๐Ÿย ๐๐ฎ๐ซ๐œ๐ก๐š๐ฌ๐ž๐ซย ๐ข๐ฌย ๐ฅ๐ข๐ฆ๐ข๐ญ๐ž๐ย ๐ญ๐จย ๐ญ๐ก๐žย ๐ž๐ฑ๐ญ๐ž๐ง๐ญย ๐จ๐Ÿย ๐ฏ๐ž๐ซ๐ข๐Ÿ๐ฒ๐ข๐ง๐ ย ๐†๐’๐“ย ๐‘๐ž๐ ๐ข๐ฌ๐ญ๐ซ๐š๐ญ๐ข๐จ๐งย ๐จ๐Ÿย ๐ญ๐ก๐žย ๐’๐ฎ๐ฉ๐ฉ๐ฅ๐ข๐ž๐ซย ๐จ๐งย ๐†๐’๐“ย ๐๐จ๐ซ๐ญ๐š๐ฅ. The caseย detail of the same is as under:

๐Œ/๐ฌย ๐€๐ซ๐ก๐š๐š๐งย ๐…๐ž๐ซ๐ซ๐จ๐ฎ๐ฌย ๐š๐ง๐ย ๐๐จ๐ง-๐…๐ž๐ซ๐ซ๐จ๐ฎ๐ฌย ๐’๐จ๐ฅ๐ฎ๐ญ๐ข๐จ๐ง๐ฌย ๐๐ฏ๐ญ.ย ๐‹๐ญ๐.


ย ๐ƒ๐ž๐ฉ๐ฎ๐ญ๐ฒย ๐€๐ฌ๐ฌ๐ข๐ฌ๐ญ๐š๐ง๐ญย ๐‚๐จ๐ฆ๐ฆ๐ข๐ฌ๐ฌ๐ข๐จ๐ง๐ž๐ซ

[๐–๐ซ๐ข๐ญย ๐๐ž๐ญ๐ข๐ญ๐ข๐จ๐งย ๐๐จ.ย ๐Ÿ๐Ÿ“๐Ÿ’๐Ÿ–๐Ÿ/๐Ÿ๐ŸŽ๐Ÿ๐Ÿ‘ย |ย ๐Ž๐ซ๐๐ž๐ซย ๐๐š๐ญ๐ž๐ย ๐ŸŽ๐Ÿ‘.๐ŸŽ๐Ÿ–.๐Ÿ๐ŸŽ๐Ÿ๐Ÿ‘]

The Petitioner, a trader in iron scrap, bought iron scrap from M/s K.S. Enterprises in Vijaywada and sold it to M/s Radha Smelters Pvt. Ltd. in Sankarampet with valid documentation. The goods were being transported by Mr. T. Srinivasulu’s vehicle. The Respondent intercepted the goods in transit, contending that supplier โ€“ M/s K.S. Enterprises, had no business location in Vijaywada, and took action against suppliers under Section 130 of the CGST Act, 2017. The Petitioner argued that the Respondent ignored the documents evidencing its ownership of goods during interception. They emphasized that action should be taken against the Transporter as per Section 129 of the CGST Act, 2017, since the Petitioner was the one transporting the goods. The Petitioner also stated that they had no obligation to verify the supplier’s business location beyond checking their GST registration and making payments. Further, that the Respondent’s suspicions about the supplier’s registration shouldn’t impact the legitimacy of the transaction between the Petitioner and the Supplier.

Issue: Can goods of the assessee be confiscated based on the proceedings initiated against the supplier of the assessee?

The Court concluded that while the Respondent can take action against the Supplier due to their absence at the specified address and lack of business premises, confiscating the Petitioner’s goods solely based on their purchase from the Supplier is not justified. The Court found doubts about the Petitioner’s claim of purchasing goods, given the uncertainty about the Supplier’s existence. Therefore, the Respondent can proceed under Section 129 of the CGST Act against the Petitioner. This entails initiating an inquiry and allowing the Petitioner a chance to present their case. The Respondents were directed to release the detained goods in favour of the Petitioner on deposit of 25% of the value of goods and execute a bond for the balance and shall also release the vehicles in favour of the transporter.

The Honโ€™ble Court concludingly held that the Petitionerโ€™s responsibility was limited to the extent of establishing that he bona-fidely purchased goods from the Supplier for valuable consideration after verifying the GST registration of the said supplier on the GST portal.