GST Alert: High Court upholds ITC disallowance and penalty on Buyer if No Tax paid by Supplier:

GST Alert: High Court upholds ITC disallowance and penalty on Buyer if No Tax paid by Supplier Upholding the validity of Section 16(2)(c) of the GST Act, the High Court in one of the recent matters, has disallowed the Input Tax Credit (ITC) claim and upheld penalty imposed on the buyer (The Petitoner) who claimed the ITC where Tax was not deposited by the Supplier and Petitioner could not demonstrate before the taxing authorities or before the Court that tax was in fact deposited by supplier pursuant to issuance of tax invoice. Facts of the case: Petitioner 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 petitioner, payment for 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 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 dated was issued by GST Assistant Commissioner against which a reply was submitted by the petitioner, thereafter, an order under Section 74(9) was passed demanding tax/interest and penalty was imposed. The order was appealed by the petitioner, but the same was dismissed. Hence, this writ petition. Arguments of Petitioner Petitioner submitted that the supplier was registered in GST when the transaction had taken place and the goods were purchased from the supplier's firm. All the payments were made through RTGS and the good so purchased was brought in the car of petitioner itself and no help of outside transportation was taken up. The registration of supplier was cancelled on 11.09.2019 while the transaction had taken place between March and April, 2018. According to her, 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. Petitioner relied on the following judgments:

• M/s Solvi Enterprises vs. Additional Commissioner Grade II and another, Writ Tax No. 1287 of 2024
• Suncraft Energy Private Limited and another vs. The Assistant Commissioner, State Tax, MAT 1218 of 2023
• Rimjhim Ispat Ltd. vs. Union of India and others, Writ Tax No. 1611 of 2022

Arguments of Department Section 16(2)(c) of the Central Act, 2017 clearly provides that, the tax charged in respect of such supply has to be actually paid to the Government either in cash or through utilisation of input tax credit then only ITC can be availed. Also, the petitioner could not place any prove 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. Decision of Court Section 16(2) a non obstante clause: High Court disallows claim of ITC if tax not paid by Supplier Sub-section (2) of Section 16 is a non obstante clause stating that notwithstanding anything contained in Section 16, no registered dealer shall be entitled to credit of any input tax in respect of any supply of goods or services or both to them unless conditions in the section are fullfilled. Thus Once the supplier has not deposited the tax mandated under sub-section (2)(c) of Section 16, the petitioner purchaser cannot claim the benefit. High Court Affirms Penalty on Buyer In this case registration of supplier firm was cancelled and on inquiry, it was found that no tax was deposited by supplier with the Government as was required under sub-section (2)(c) of Section 16 before ITC is claimed. Petitioner could not demonstrate before the taxing authorities or before this Court that tax was in fact deposited by supplier pursuant to issuance of tax invoice. Accordingly, the High Court affirmed order of Lower Authorities refusing ITC claim and imposing penalty.