Credit available in electronic ledger of purchasing dealer is pre-requisite for claiming ITC

While hearing a petition involving demand for reversal of Input Tax Credit, raised against the buying dealer of certain goods, the High Court of Patna observed that the buying dealer of goods could not claim Input Tax Credit where the selling dealer of such goods did not pay tax on the same, despite having collected tax on the goods, from the buying dealer.

A Division Bench of Justice K Vinod Chandran and Justice Partha Sarthy observed that when the supplier failed to comply with statutory requirements, then the purchasing dealer, without having credit in the electronic credit ledger, could not claim Input Tax Credit.

The Bench emphasized on the need for the purchasing dealer to have credit available in the electronic ledger, as a pre-requisite for claiming Input Tax Credit, and without which the only remedy was to proceed for recovery from the selling dealer.

The Petitioner was represented by Advocate Archana Sinha, whereas the Respondent-Department was represented by Advocate Vivek Prasad.

The issue at hand in the present petition was whether a purchasing dealer could claim Input Tax Credit, where the purchasing dealer has discharged the tax liability, but where the selling dealer has not deposited the tax element despite having collected it from the purchasing dealer.

Another aspect of the matter at hand was whether the Input Tax Credit could be denied to the purchasing dealer and whether the State could commence proceedings against the selling dealer who defaulted on payment of tax collected from the purchasing dealer.

On hearing the contentions of both parties, the Bench first touched upon the Petitioner’s contention of having been doubly taxed in respect of the same transaction, in the sense that the petitioner, the purchasing dealer, paid tax on the goods purchased but also was unable claim Input Tax Credit thereon.

In this regard, the Bench observed – “…Taxation as has been held is a compulsory extraction made for the purpose of public good, by the welfare State and without the levy being paid to the Government; there can be no claim raised of the liability to tax having been satisfied and hence there is no question of double taxation…”. (Para 12)

Coming to the aspect whether Input Tax Credit could be availed on the strength of an invoice alone, the Bench observed that submitting a tax invoice, establishing movement of goods and receipt of the same and consideration being paid through bank channels, could not per se enable the purchasing dealer to claim Input Tax Credit.

The Bench further observed that the Petitioner must have credit available in the Electronic Credit Ledger account, in order to claim Input Tax Credit. (Para 13)

Finally, touching upon the issue as to whether the purchasing dealer could be made to bear the liability of non-payment of tax by the selling dealer, by means of denial of Input Tax Credit claimed by the purchasing dealer, the Bench observed that the purchasing dealer could not claim Input Tax Credit where the purchasing dealer did not have credit in the ledger.

The Bench also observed that the only remedy here would be for the purchasing dealer to proceed for recovery against the seller.

“…. Even if such recovery from the supplier is effected by the purchasing dealer; the State would be able to recover the tax amount collected and not paid to the exchequer, from the selling dealer since the rigor of the provisions for recovery on failure to pay up, after collecting tax, enables the Government so to do…”, the Bench clarified. (Para 14)

Cause Title: M/s Aastha Enterprises Vs State of Bihar [Civil Writ Jurisdiction Case No.10395 of 2023 / 2023-Enterslice-6-HC-Patna-GST]

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