Introduction
Let's dive into a situation where someone buys things and has to pay taxes on them. But what if the person they bought from doesn't pay those taxes to the government? This situation is what we're going to talk about, and it's all related to something called Input Tax Credit and taxes.
What's Input Tax Credit?
Imagine you buy something and pay taxes on it. Then you use that thing to make something else, and you sell it. Now, you have to pay taxes again on what you've sold. But here's the thing: with Input Tax Credit (ITC), you can get some relief. It's like the government saying, "Hey, you already paid taxes once, so we'll give you a credit for that."
The Problem Scenario
Now, picture a registered seller selling things to a registered buyer. The buyer pays the taxes to the seller, which is shown in a special paper called a tax invoice. This is all good, but what if the seller doesn't give that tax money to the government? That's where the problem begins.
The Big Question
The question that comes up is whether the buyer can still get that tax credit even if the seller didn't pay the taxes to the government. It's like the buyer asking, "Hey, I paid my taxes, and I have proof. So, can I still get the credit?"
The Legal Framework and Procedural Aspect
The case pertains to the Bihar Goods and Services Tax Act, 2017 (BGST Act). The petitioner contends that ITC should be allowed based on the payment made through bank accounts and supported by valid invoices. The assessment order was issued, and an appeal should have been filed within the stipulated time frame. The question remains whether the appeal can be entertained beyond the prescribed period. Despite the procedural aspect, the focus of this analysis is on the substantive issue of ITC.
Arguments in Favor of ITC
The petitioner's argument centers on the fact that the purchasing dealer fulfilled their tax liability by making payment to the selling dealer as evidenced by valid invoices. This situation brings to light the purpose of ITC in the GST framework, which is to prevent the cascading effect of taxes. The petitioner asserts that if the tax department seeks recovery from the purchasing dealer, it could lead to double taxation, negating the purpose of ITC.
Two judgments from the Madras High Court are cited by the petitioner in support of their claim. These cases emphasize that recovery should be pursued against the selling dealer who collected the tax and failed to remit it, rather than burdening the purchasing dealer who has already satisfied the tax liability.
Government's Counterarguments
The government, however, cites Section 16 of the BGST Act and argues that ITC eligibility is tied to specific conditions. Non-fulfillment of these conditions can lead to denial of ITC. The government also emphasizes that ITC is not an absolute right but a benefit or concession conferred by the statute, subject to the fulfillment of prescribed conditions. The case of ALD. Automotive Pvt. Ltd. v. The Commercial Tax Officer & Ors. is cited to support the view that ITC is not an inherent right but a privilege granted by the statute.
Legal Interpretation
The court acknowledges the purpose of ITC to prevent the cascading effect of taxes, but also highlights that ITC is a statutory benefit subject to fulfillment of conditions. While the petitioner provides valid invoices and payment evidence, the crucial requirement for ITC is that the selling dealer must have paid the collected tax to the government.
Precedents and Burden of Proof
The court refers to a Supreme Court decision involving the Karnataka Value Added Tax Act, where the burden of proving legitimate transactions for ITC was placed on the purchasing dealer. The court emphasizes that ITC cannot be claimed solely based on the existence of invoices and transaction evidence. The burden of proof is on the purchasing dealer to establish that the tax collected by the selling dealer was actually paid to the government.
What the Court Says
A court looked at this case and said that while ITC is meant to prevent double taxation, there are rules to follow. The court explained that the buyer needs to show not only the tax invoice but also that the seller paid the taxes to the government. If the seller didn't pay, the buyer can't get the credit.
Conclusion
In the end, this case teaches us that while getting tax credits is helpful, there are rules to follow. Just having a tax invoice and paying the taxes to the seller isn't enough. The government wants to make sure that the taxes are actually paid to them. So, it's important for both buyers and sellers to know and follow the rules to avoid any tax troubles.
Section 16. Eligibility and conditions for taking input tax credit.—
(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, 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 and the said amount shall be credited to the electronic credit ledger of such person.
(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,––
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;
(b) he has received the goods or services or both.
Explanation.—For the purposes of this clause, it shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
(c) 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 admissible in respect of the said supply; and
(d) he has furnished the return under section 39”
Topic- Aastha Enterprises through its Proprietor Sanjay Kumar versus The State of Bihar
Court- Patna HIgh Court
Date- 18/08/2023
Team Taxonation
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