Facts of the Case

The petitioner, M/s Aastha Enterprises, a registered dealer, claimed Input Tax Credit on purchases made from another registered dealer, evidenced by tax invoices and payments through banking channels, where the selling dealer had collected GST but failed to remit it to the Government. The petitioner did not file a statutory appeal against the assessment order dated 24/25.05.2022 within the time permitted under Section 107 of the Bihar GST Act, 2017, but approached the High Court directly, raising a pure question of interpretation of Section 16 of the BGST/CGST Act.

Issues Involved

  1. Whether a purchasing dealer, who has paid the full invoice value including GST to the selling dealer through banking channels, can be denied Input Tax Credit solely because the selling dealer failed to remit the collected tax to the Government.
  2. Whether such denial amounts to impermissible double taxation, and whether the department's remedy lies instead against the defaulting selling dealer.

Petitioner's Arguments

  • The petitioner relied on the Madras High Court decisions in Sri Vinayaga Agencies (under the TNVAT Act) and M/s D.Y. Beathel Enterprises (under the GST Act), both holding that once a purchasing dealer establishes payment of tax to the selling dealer, the department must proceed against the defaulting seller rather than reverse the purchaser's ITC, and that denial in such circumstances amounts to double taxation.

Respondent's Arguments

  • The Government Advocate relied on Section 16 of the BGST Act, arguing ITC is conditional and not an absolute right, citing the Supreme Court's rulings in ALD Automotive Pvt. Ltd. v. Commercial Tax Officer and Godrej & Boyce Mfg. Co. that ITC is a statutory concession that can be conditioned or restricted by the legislature, and noted the petitioner had not responded to the show-cause notice, resulting in an ex-parte order.

Court Order / Findings

  • The Court examined Section 16(2)(a)-(d) of the BGST/CGST Act, holding that clauses (a) possession of tax invoice, (b) receipt of goods/services, and (c) actual payment of the tax charged to the Government by the supplier are cumulative, not disjunctive, conditions — all must be satisfied together before ITC can be claimed.
  • The Court distinguished the Madras High Court's Sri Vinayaga Agencies (decided under the VAT Act, whose statutory scheme differed) and found that D.Y. Beathel Enterprises had overlooked Section 16(2)(c) of the GST Act altogether, and also relied on the Supreme Court's decision in State of Karnataka v. Ecom Gill Coffee Trading Pvt. Ltd. that mere production of tax invoices and payment proof does not suffice to establish a genuine ITC claim.
  • The Court held that Section 16(2)(c) casts the burden of ensuring the supplier's actual remittance of tax on the purchasing dealer claiming ITC, that this is not a case of double taxation since no tax liability has in fact been discharged to the Government by the defaulting seller, and that as long as the collected tax is not paid up to the Government, the purchaser cannot raise a claim of Input Tax Credit — the remedy of recovering the amount lies against the selling dealer, not through the ITC mechanism.
  • The writ petition was accordingly dismissed.

Important Clarification

  • Under Section 16(2)(c) of the CGST/BGST Act, 2017, a purchasing dealer's entitlement to Input Tax Credit is conditional on the supplier having actually paid the collected tax to the Government — mere possession of a valid tax invoice, proof of receipt of goods, and payment of consideration (including tax) through banking channels to the seller is not sufficient by itself if the seller has defaulted in remitting that tax.
  • This is not regarded as double taxation, because until the supplier pays the tax, no tax liability has in fact been discharged to the exchequer; the purchasing dealer's remedy, if any, lies in recovering the amount from the defaulting seller under general law, not by claiming ITC against the Government.

Sections Involved

  • Section 16(2) of the CGST/Bihar GST Act, 2017 - lays down the cumulative conditions (tax invoice, receipt of goods/services, actual tax payment by supplier, filing of return) for availing Input Tax Credit.
  • Section 107 of the Bihar GST Act, 2017 - the statutory appeal provision, not invoked by the petitioner within time in this case.

Decision – In Favour of

The writ petition was dismissed in favour of the Department; the Court held the petitioner not entitled to Input Tax Credit where the supplying dealer had not remitted the collected tax to the Government, leaving parties to bear their own costs.

Case Details

High Court of Judicature at Patna, Civil Writ Jurisdiction Case No.10395 of 2023; Coram: Hon'ble The Chief Justice K. Vinod Chandran and Hon'ble Mr. Justice Partha Sarthy; decided on 18 August 2023.

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