ITC cannot be disallowed to purchaser if seller has collected tax but not paid to Government – Madras High Court

written by GST expert | November 3, 2020

The judgement was passed in the case of M/s. Sri Ranganathar Valves Private Limited by Madras High court and the judgement was pronounced on 02.09.2020.

In the above judgement Input tax credit were related to earlier year’s 2013 and 2014 wherein Assessee has paid tax amount to the supplier but the supplier failed to deposit the same with government.

On this, the hon’ble High court held that Input tax credit cannot be disallowed on ground that seller has not paid tax to Government, when purchaser is able to prove that seller has collected tax and issued invoices to purchaser.

Section 16 of the Central Goods and Services Tax Act, 2017/Rule 3 of the Cenvat Credit Rules, 2004 – Input tax credit – Whether Input tax credit cannot be disallowed on ground that seller has not paid tax to Government, when purchaser is able to prove that seller has collected tax and issued invoices to purchaser.

There have been numerous similar judgement in the past in previous laws where ITC was allowed to genuine buyers. Some of which are as under:

1. The Punjab & Haryana High court has delivered a landmark judgment namely Gheru Lal Bal Chand Vs. State of Haryana and another

2. Hon’ble High Court of Delhi in the case of Arise India Limited and others Vs. Commissioner of Trade & Taxes, Delhi and others [TS-314-HC-2017(Del)-VAT](“Arise India case”).

3. Hon’ble Madras High Court in the case of State of Madras Vs. Raman & Co. [1974] 33 STC).

4. Sri Vinayaga Agencies vs. Assistant Commissioner (CT), Vadapalani-I Assessment Circle, Chennai and another reported in (2013) 60 VST 283 (Mad).

5. Hon’ble Madras High Court In the decision cited on the side of the petitioner in 2016-TIOL-489-HC-MAD-VAT (Britannia Industries Ltd v. the Deputy Commissioner (CT)-III (FAC), Chennai-8).

6. In the case of M/s New Dhiraj Industries Vs. The State of Telangana in TA Nos. 161/2011, 162/2011, 248/2015 & 249/2015 dated 20.08.2018.

 

However even after so many judgements it is still a matter of debate because the Assessing officer won’t allow the input tax credit to the taxpayer till the time ITC (Input tax credit) is available in GSTR 2A as is mentioned in rule 36.

Rule 36 of CGST rules restrict credit upto 10% of total eligible credit where same is not available in GSTR 2A.

Thus, because of above rule practically you won’t be allowed ITC of GST paid even though you have proper invoice. One will have to always fight for ITC even after being a honest taxpayer.

 

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