In Civil Writ Jurisdiction Case No.10395 of 2023 -PAT HC- Seller's failure to remit GST to government bars purchaser from claiming ITC, rules Patna High Court
Justice K. Vinod Chandran [18-08-2023]

Read Order: Aastha Enterprises v. The State of Bihar and Ors

Chahat Varma

New Delhi, August 23, 2023: In a recent ruling, the Patna High Court has held that seller and purchaser have an independent contractual relationship, and the imposition of statutory tax and the subsequent benefit of Input Tax Credit (ITC) are contingent not solely upon tax collection by the seller, but also on the proper remittance of the tax amount to the government by the seller.

The central issue under consideration in the present petition filed by Aastha Enterprises (petitioner), revolved around the scenario where a registered dealer, acting as the purchaser, had paid the GST to another registered dealer, who was the selling party, as supported by a valid tax invoice. However, the selling dealer had failed to remit the collected GST amount to the government. The primary question raised was whether the purchaser was still entitled to claim ITC for the GST amount that was paid to the selling dealer, despite the latter's non-payment of the GST to the government.

The bench of Justice K. Vinod Chandran emphasized that the presence of a recovery mechanism outlined in the statute does not release the taxpayer from their responsibility to fulfil their entire tax liability to the government. In the context of the purchasing dealer seeking ITC, the eligibility for ITC hinges on the crucial factor of whether the selling dealer, who received the tax payment from the purchaser, has indeed remitted that tax amount to the government. The bench highlighted that the purchasing dealer is entitled to claim ITC only if the selling dealer has effectively paid the collected tax amount to the government, and not otherwise.

The bench highlighted that the seller and purchaser maintain an independent contractual relationship that operates outside the realm of government involvement. In cases where the supplier fails to meet this statutory requirement, the purchasing dealer is ineligible to claim ITC and cannot offset any such credit against their liabilities. The appropriate course of action for the purchasing dealer in such scenarios is to seek recovery of the unpaid tax amount from the seller.

The bench concluded that the statutory language and literal interpretation of the provisions emphasize the necessity for credit to be present in the purchaser's credit ledger in order to claim ITC. In the absence of such credit, the claim for ITC would be untenable.

Given this interpretation, the bench ruled that the petitioner’s claim for ITC cannot be upheld when the selling dealer, despite collecting tax from the purchasing dealer, had not remitted the tax amounts to the government.