ITC can't be claimed till seller pays tax: High court

Aug 24, 2023

The Patna high court, in a recent decision that favours the GST authorities, ruled that input tax credit (ITC) is akin to a privilege or a concession rather than an inherent entitlement provided within the GST framework. The eligibility to claim ITC for a buyer hinges not only on the amount collected by the seller (dealer) via the invoice raised, but also on the timely remittance of this sum by the seller to the government. The responsibility of proving that the tax collected has been remitted to the government rests with the buyer.

"This high court decision explicitly points out that a buyer is eligible to claim input tax credit (ITC) only if the GST has been actually paid by the seller (dealer). This will adversely impact genuine buyers, who have already paid the GST component against the invoice raised by the seller. If the seller defaults in payment of the tax to the government treasury, ITC cannot be claimed and in fact, if it has been claimed there will need to be a reversal of such credit," Abhishek Jain, partner and indirect tax head at KPMG India, said.

In the case of Aastha Enterprises, the HC said that ITC by its very nomenclature contemplates a credit being available to the buyer in its credit ledger by way of payment of tax by the supplier to the government. "The contention of double taxation does not impress us especially since the claim is denied only when the supplier who collected tax from the purchaser fails to pay it to the government.

[The Times of India]