The Gauhati High Court clarified that the Input Tax Credit (ITC) benefit to a bona fide buyer cannot be avoided, as that would be against the object and purpose of the CGST Act itself, which is to charge tax only on “value additions” and avoid a cascading effect of taxes.
The Court agreed that any exemption available in the taxing regime is dependent on certain conditions and the conditions are required to be complied with; however, it found that in the present case, the conditions are that the GSTR-2 Form should reflect the payment of tax/invoice, which may or may not have been paid or correctly uploaded.
The Court also said that a person who claims an exemption or concession has to establish that he is entitled to that exemption or concession. However, Section 16(2)(aa) puts a condition on such exemption or concession, namely, the compliance by the seller over which a buyer may or may not have any actual control.
The Division Bench comprising the Chief Justice Ashutosh Kumar and Justice Arun Dev Choudhury observed that the restriction is quite iniquitous because an onerous burden is placed on the purchasing dealer. However, since the object and purpose of the amendment in the Act is to prevent fraudulent ITC claims and to promote supplier compliance, the Bench refused to hold the amendment in Section 16 as unconstitutional.
However, the Bench reads down the said amendment to the extent that, in case of the supplier acting truant, before denying the ITC benefits to a bona fide purchaser, he ought to be allowed to prove his bona fides, which can be verified by the tax invoices and other documents.
The Bench, however, cautioned that the reading down of the provision of Section 16(2)(aa) is only till the time CBIC comes out with any practical solution to the problem posed by making the availability of ITC to the bona fide purchaser contingent on factors which are totally in the hands of a supplier and not the purchaser.
Briefly, the petitioner has questioned the validity of the provisions contained in Section 16(2)(aa) of the Act, 2017, alleging that Clause (aa) of sub-section (2) of Section 16 puts an arbitrary condition that the Input Tax Credit (ITC) would be available to a purchaser, subject to the condition that the supplier has furnished the details of the invoice or debit note issued to the purchaser for the supply of goods or services, in his return in GSTR-1 and the details of such invoice or debit note is communicated to the purchaser, namely, the recipient, in the manner by which the details of outward supplies are furnished in GSTR-1 as prescribed under Section 37 of the CGST Act and AGST Act.
The petitioner claimed that the fulfilment of the conditions cannot be done by the purchaser as Section 37 does not provide any mechanism for such communication to be made by the supplier to the recipient, namely, the purchaser.
Thus, essentially, the Petitioner alleged that Section 16(2)(aa) restricts the vested right of claiming ITC of a bona fide tax payer, namely, the recipient, due to the default of its supplier to furnish the details of invoices or debit notes of such supply in GSTR-1 return; that the denial of the ITC to the genuine taxpayers, irrespective of the fact that the recipient has already paid the tax to the supplier, is thus clearly arbitrary and irrational; that the provision is required, in the alternative to be read down if not held to be unconstitutional.
Appearances:
Advocate A Kanodia, for the Petitioner/ Taxpayer
Advocates S C Keyal and R Hussain, for the Respondent/ Revenue
