Patna High Court tightens the IT Cnorms- Claims of IT by purchasing dealer subjected to strict rigors of payment of tax by selling dealers
From the date of inception of the GST Act, one issue which is full of litigation is claim of ITC.
The recent decision dated 18.08.2023 by the Patna High Court (DB) might create troubles even for genuine purchasers in case seller defaulted to pay tax to the Govt.
The decision might heavily impact ongoing audits and investigations.
Here is a short overview oftheycas:
- ITC claimed might be recovered from purchasing dealer if selling dealer defaulted in payment of tax to the Govt even if claim of ITC is based on following evidence:
o Valid tax invoice issued by seller;
o Payment of tax by purchaser to seller through banking channels;
o Genuine movement of goods and receipt of the same by purchaser.
- The conditions for ITC listed in clauses (a), (b) and (c) of Section 16(2) are to be satisfied together and not separately.
- ITC claim is in nature of benefit/concession subject to stipulated conditions and not a right extended to purchaser – 𝐀𝐋𝐃𝐀𝐮𝐭𝐨𝐦𝐨𝐭𝐢𝐯𝐞 (𝐒𝐂) and 𝐆𝐨𝐝𝐫𝐞𝐣&𝐁𝐨𝐲𝐜𝐞 (𝐒𝐂) followed.
𝐕𝐢𝐧𝐚𝐲𝐚𝐠𝐚𝐀𝐠𝐞𝐧𝐜𝐢𝐞𝐬 (𝐌𝐚𝐝) and 𝐃.𝐘. 𝐁𝐞𝐚𝐭𝐡𝐞𝐥 (𝐌𝐚𝐝) were taken note of and distinguished basis first was rendered in the context of VAT regime and second decision ignored provisions of Section 16(2)(c). Notably, said decisions were rendered by a single member.
- The recent Supreme Court decision in case of 𝐄𝐜𝐨𝐦𝐆𝐢𝐥𝐥𝐓𝐫𝐚𝐝𝐢𝐧𝐠 (𝐒𝐂) was also distinguished and the High Court held that even if there are not only invoices but also account details and documents evidencing transportation of goods, the same will not absolve purchaser from rigor provided under Section 16(2)(c) which requires payment of tax by seller to the Govt.
- Contention of double taxation was rejected.
- Though the Govt could use its machinery to recover amount from seller and if such amount is recovered at later point of time, purchaser possibly seek for refund. However, purchaser cannot claim ITC unless tax is paid to the Govt by seller.
- The remedy available to purchaser is only to proceed for recovery against seller. Even in such cases, the Govt can recover tax amount from seller.
- Notably, the High Court did not take a note that Section 16(2)(c) is not sacrosanct but subject to rigors of Section 41 and Section 43A. Rule 37A (read with Section 41) was inserted in CGST rules on 26.12.2022 to provide for a mechanism for reversal of ITC in such cases and also for re-availment on subsequent furnishing of GSTR-3B by selling dealer. However, the recent decision seems to back the provision right from inception of law.