ITC cannot be disallowed on the grounds that the seller has not paid the tax to the Government
Input Tax Credit (ITC) is an essential component of the Goods and Services Tax (GST) system, allowing businesses to claim credit for the taxes paid on their purchases. The availability of ITC is subject to certain conditions, including the requirement that the seller has deposited the tax collected from the purchaser with the government. However, recent judicial pronouncements, such as the Madras High Court's decision in the case of M/s. Sri Ranganathar Valves Private Limited, have provided relief to genuine buyers by allowing them to claim ITC even if the seller has not paid the tax to the government.
Judicial Pronouncements Supporting ITC Availability:
1. M/s. Sri Ranganathar Valves Private Limited Case:
In this landmark case, the Madras High Court held that ITC cannot be disallowed to the purchaser solely on the grounds that the seller has not paid the tax to the government. The court emphasized that if the purchaser can provide evidence that the seller collected the tax and issued invoices, the ITC should not be denied. This decision highlights the importance of the seller's responsibility to remit the tax amount to the government while safeguarding the rights of genuine buyers.
2. Gheru Lal Bal Chand Vs. State of Haryana:
The Punjab & Haryana High Court, in this significant judgment, upheld the availability of ITC to the purchaser, even if the seller had not paid the tax. The court emphasized that the buyer's entitlement to ITC should not be curtailed based solely on the seller's non-compliance. This decision further strengthens the position that the seller's tax payment should not be a prerequisite for allowing ITC.
3. Arise India Limited and others Vs. Commissioner of Trade & Taxes, Delhi:
The Hon'ble High Court of Delhi ruled in favor of the taxpayer by allowing ITC despite the seller's non-payment of tax. The court held that if the buyer can prove that the seller collected the tax and issued invoices, the denial of ITC solely based on the seller's non-compliance would be unjust. This judgment reiterates the principle that the buyer's right to claim ITC should not be compromised due to the seller's actions.
Practical Challenges and Rule 36 of CGST Rules:
Despite the favorable judgments, practical challenges persist due to Rule 36 of the CGST Rules. This rule restricts the credit claim to 10% of the total eligible credit if the corresponding details are not available in GSTR 2A, a form reflecting the purchases made by the buyer. Consequently, even with valid invoices, taxpayers may face hurdles in claiming ITC, as the Assessing Officer may require compliance with Rule 36.
The recent judicial decisions, including the Madras High Court judgment in the case of M/s. Sri Ranganathar Valves Private Limited, have brought relief to genuine buyers by allowing them to claim ITC despite the seller's non-payment of tax. These judgments emphasize the importance of the seller's responsibility to remit the tax amount to the government. However, challenges remain in practice, with Rule 36 of the CGST Rules imposing restrictions on ITC claims. As a result, taxpayers may need to persistently pursue their rights to claim ITC, even when they are compliant and possess valid invoices. It is crucial for both buyers and sellers to understand the legal position and the evolving landscape of ITC availability to ensure compliance with GST regulations.