The Allahabad High Court has denied Input Tax Credit (ITC) and has imposed a penalty on purchaser for failing to prove actual supply of goods beyond tax invoice.
The bench of Rohit Ranjan Agarwal has observed that registration of supplier firms was cancelled and on inquiry, it was found that no tax was deposited by the supplier with the Government as was required under sub-section (2)(c) of Section 16 before ITC is claimed. purchaser (Petitioner) could not demonstrate before the taxing authorities that tax was in fact deposited by supplier pursuant to issuance of tax invoice.
The bench noted that the purchaser apart from the tax invoice could not bring any document before the taxing authorities in pursuance to the show-cause notice to demonstrate that supplier had supplied the goods and had deposited the tax with the Government as mandated under Section 16(2)(c) of the GST Act.
The Petitioner/assessee made purchase of what-man filter paper required for soil testing from one Shree Radhey International, Delhi, who at the time when the sale was made was also a registered dealer. According to the petitioner, payment for the entire purchase so made was through the banking channel from March to April, 2018.
The goods purchased were against tax invoices and it was declared by the petitioner in its GSTR-3B return for the period in question. Input tax credit on output tax liability was claimed and for input tax credit, credit was availed.
A show-cause notice was issued for financial year 2017-18 by Assistant Commissioner, State Tax, Block-3, Jhansi under Section 74(1) of the Act of 2017. A reply was submitted, thereafter, an order under Section 74(9) was passed demanding tax/interest and penalty on 17.12.2021. The order was subjected to appeal by the petitioner before Additional Commissioner, Jhansi who dismissed the appeal.
The petitioner contended that transaction had taken place and the goods were purchased from the supplier firm Shree Radhey International, which was a registered firm under the Act, all the payments were made through RTGS and filter paper so purchased was brought in the car of petitioner itself and no help of outside transportation was taken up. The registration of Shree Radhey International was cancelled on 11.09.2019 while the transaction had taken place between March and April, 2018. Necessary documents for claiming ITC were provided pursuant to which the benefit was accorded and there stood no occasion for reversing the ITC availed by the petitioner. It is the fault of the supplier firm who had not deposited the tax so calculated and not of the recipient firm.
The department submitted that Section 16(2)(c) of the Central Act, 2017 clearly provides that subject to the provisions of Section 41, the tax charged in respect of such supply has been actually paid to the Government either in cash or through utilisation of input tax credit then only ITC can be availed. According to him, the petitioner could not place any proof before the authorities pursuant to issuance of notice under Section 74 that transaction was bona fide and tax invoice along with transportation of goods and tax deposited by supplier firm was placed. The Assessing Authority had rightly repelled the contention of petitioner and ordered for payment of taxes along with interest and penalty.
The issue raised was whether the purchaser is entitled for input tax credit for alleged transactions having taken place between the supplier, Shree Radhey International, Delhi and petitioner in the year 2018.
The scheme for availing input tax credit under the Central Act & State Act, 2017 has been provided under Chapter V of the Act and Section 16 lays down the eligibility and condition for taking input tax credit. While sub-section (1) of Section 16 provides that every registered person subject to conditions and restrictions as may be prescribed be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business. The amount shall be credited to the electronic credit ledger of person.
However, sub-section (2) restricts the power and lays down the eligibility and condition for taking the input tax credit. Sub-section (2)(c) clearly lays down that subject to provisions of Section 41 or 43A (which was prior to amendment), the tax charged in respect of such supply has been actually paid to the Government by the supplier. The condition clearly restricts the power to take the benefit of input tax credit subject to deposit by supplier.
The court stated that proceedings initiated under Section 74 has to be read in consonance with Section 16(2) of the Act. The entire scheme for the eligibility and condition for input tax credit is provided under Section 16 by Legislature. However, various checks and balances have been put and also the procedure has been laid for the availment of ITC which are under Section 41 and previously omitted Section 43A. Section 74 is a mechanism where any input tax credit which has wrongly been availed can be taken back by the Government along with interest and penalty.
The court added that the scheme under the Act has been provided to prevent fraudulent transactions and bogus claims of ITC. Safeguards have been put in place through various provisions to match transactions which have taken place between the parties before ITC is availed. Despite these safeguards in place, there are cases where the ITC is fraudulently obtained by misstatement or suppression of facts.
The court while dismissing the writ petition held that Finding of fact has been recorded by both taxing authorities which needs no interference of the Court.
Case Details
Case Title: Trendships Online Services Private Limited Versus Commissioner Commercial Taxes U.P. At Lucknow And Another
Case No.: WRIT TAX No. – 501 of 2023
Date: 26.05.2025
Counsel For Petitioner: Pooja Talwar
Counsel For Respondent: CSC
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