In a significant legal development, petitions have been filed challenging the vires of Section 16(2)(c) of the Central Goods and Services Tax Act, 2017 (CGST Act), a provision identical to that found in the Gujarat Goods and Services Tax Act, 2017.

Issue

The primary contention raised by the petitioners revolves around the burdens imposed on the purchaser of goods under Section 16(2)(c) of the CGST Act. This section dictates that for a purchaser to be entitled to Input Tax Credit (ITC), they must meet two stringent conditions:

1. Verification of Seller’s GST Registration and Tax Payment: The purchaser must ensure that the seller is registered under the GST Act and has actually paid the tax on the goods supplied.
2. Confirmation of Seller’s Compliance in All Past Transactions: The purchaser must demonstrate that the seller has utilized the input tax credit admissible for all past transactions related to the supplied goods.

Arguments Presented by the Petitioners

1. Unreasonable Burden on Purchasers: Mr. Rao argued that imposing such responsibilities on the purchaser is impractical and burdensome. It effectively requires purchasers to audit the seller’s compliance history, which is beyond their reasonable control and capacity.

2. Liability in Case of Supplier's Default: The petitioners highlighted a significant issue where, in instances of supplier registration cancellation, the authorities are raising demands on the purchaser. This situation arises despite the purchaser having no control over the supplier's tax compliance. Essentially, the petitioners are being held liable for the GST not paid by the supplier.

Court’s Interim Relief

In light of these submissions, the court issued a rule returnable on 10.07.2024. Moreover, by way of ad interim relief, the court directed that no coercive steps shall be taken by the respondent authorities during the pendency of these petitions. This measure provides temporary respite to the petitioners from any immediate enforcement actions by the tax authorities.This legal challenge, to be heard along with Special Civil Application No.15188 of 2020 and allied matters, has significant implications for the GST framework.

Case Law-Pravinbhai Mohanbhai Vadi S/O Kanjibhai Patel Versus Deputy Commissioner of State Tax Enforcement Division

Citation-2024 TAXONATION 949 (GUJARAT)

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