GST Course

Share on Facebook

Share on Twitter

Share on LinkedIn

Share on Email

Share More

1) Relevant Provision

Section 16(1) and (2) of the CGST Act:

"16. Eligibility and conditions for taking input tax credit.

(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,–

(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;

(b) he has received the goods or services or

Explanation.-For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services - 

Non-Payment of Tax to the Government - Is the Seller liable or the Buyer

(i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;

(ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person.

(c) subject to the provisions of section 41 or section 43A, 7] the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and

(d) he has furnished the return under section 39: Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment:

As per Section 16(2)(c) of the CGST Act, provides that tax has been PAID to the Government as a condition for claiming ITC by the buyer. ITC can be denied where Supplier has NOT paid the tax to Government.


2) Judicial Pronouncement

During the VAT regime varios High Courts have held that if the seller has not paid the tax, credit cannot be denied to the buyer especially incase where transaction is genuine i.e. without intention to deceive.

Recently the Hon’ble Madras High Court in M/s. D. Y. Beathel Enterprises v. the State Tax Officer quashed the order passed by the officer levying the entire tax liability on the purchasing dealer without involving the seller, where the payment of tax has been made by the purchasing dealer, but the same has not been remitted to the Government by the Seller.

Held that, the omission on the part of the Seller to remit the tax should have been viewed very seriously and strict action ought to have been initiated against the seller.

3) Observation

Two important observations are noted from above Madras HC

  • After reading Section 16 has held that if the tax is not paid to the Government, that has to be borne by either of the party i.e. seller or buyer.
  • Court has given relief to the genuine buyer that the seller must be examined in such cases and recovery proceedings must be initiated against the seller.

Disclaimer: The purpose of this is to share knowledge and it is for education purpose only. This does NOT constitute NOR does this form part of neither it is to be construed as, A LEGAL OPINION. The analysis is solely based on the reading abilities of the Author. They may be correct/incorrect as per you. No representation or warranty, express or implied, is made or given in respect of any information provided. UNDER NO circumstances should any recipient rely on this communication as a basis for any legal decision. The views expressed are of personal to the author. They do not reflect the views of any organization he may be directly/indirectly associated with. Neither author nor any of its affiliates accepts any legal liability, or responsibility, for, or provides any assurance or guarantee of accuracy, authenticity, completeness, correctness, dependability, reliability, suitability or timeliness of, any part of this article. The contents of this article are based only on the understanding of the Law, Rules, Notifications, etc. of the author and THEY ARE NOT BASIS FOR ANY LEGAL OPINION.

Tags :

Category GST, Other Articles by - CAJayprakash Pandey