FACTS OF THE CASE:

A purchasing dealer (“the petitioner”), paid the full amount of tax to the supplying dealer but was denied the benefit of input tax credit (ITC) on the grounds that the supplier had not remitted the tax to the government.

The petitioner contended that denying them the ITC would be contrary to the provisions of the CGST/SGST Acts and would render certain sections of these Acts ineffective.

The petitioner argued that if Section 16(2)(c) of the CGST/SGST Acts were interpreted in a way that denies ITC to a purchasing dealer who has already paid the tax to the supplying dealer, it would undermine the purpose of other sections, including Sections 75(12), 76, 79, 82, 83, and 88 of the CGST/SGST Acts.

The petitioner also argued that such an interpretation would be inconsistent with the Insolvency and Bankruptcy Code, 2016, particularly in situations where the supplier is undergoing insolvency proceedings, as it would unfairly place the burden on the purchasing dealer for the supplier's failure to remit tax. In essence, the petitioner claimed that they should be entitled to ITC as they had fulfilled their obligation by paying the tax to the supplier and should not be penalized for the supplier's non-compliance with the tax remittance requirements.

The respondent submitted that hat ITC under the CGST/SGST Acts is not an absolute right but a conditional benefit, subject to compliance with certain statutory conditions. Specifically, they would have emphasized that one of these conditions is that the tax collected from the purchasing dealer (petitioner) must actually be paid to the government by the supplying dealer for the purchasing dealer to be eligible to claim ITC.

The respondent argued that if the supplying dealer fails to remit the tax, the purchasing dealer cannot claim ITC, even if they have paid the tax to the supplier. This interpretation aligns with the purpose of ITC provisions, which aim to ensure that tax collected is duly credited to the exchequer. Additionally, the respondent likely relied on past judgments, like Nahasshukoor v. Asstt. Commissioner, where it was affirmed that ITC is a statutory benefit subject to certain conditions, and that non-compliance with those conditions would invalidate the claim to ITC.

ISSUE:

Whether the purchasing dealer, who paid the entire tax amount to the supplying dealer, is entitled to claim input tax credit when the supplier did not remit the tax to the government?

HELD:

The Hon’ble Kerala High Court held that the right to avail of ITC under the CGST/SGST Acts is conditional, not absolute and with the interpretation in the case of M. Trade Links v. Union of India, stating that a purchasing dealer cannot claim ITC unless the tax collected from them has actually been paid to the government by the supplying dealer,

Further the court, reasoned that allowing ITC in cases where the supplier has not remitted the tax would go against the statutory framework of the CGST/SGST Acts.

Highlighted that, ITC is a benefit or concession under the law, subject to specific conditions, which include the requirement that the tax must be deposited with the government. Since the petitioner’s case did not meet this requirement.

The Court dismissed the writ petition.

Case Name: TIRUPATI BALAJI TRADERS V. UNION OF INDIA W.P. (C) NO. 16259 OF 2024 JULY 24, 2024 (HIGH COURT – KERALA)

Taxo Citation: 2024 Taxo.online 2422