The Delhi High Court is set to hear a bunch of petitions together on the ground of Goods and Service Tax (GST) Input Tax Credit (ITC) Denial to Buyer on ground of Default by Seller. The petitioners have challenged the vires of Section 16(2)(c) of the Central Goods and Services Tax Act, 2017.
In situations where suppliers have failed to file returns or remit tax on specific supplies, Input Tax Credit (ITC) already obtained by the respective buyers on the said supplies is reversed. Assessment orders are being made by the appropriate officers authorised under the GST Acts based on portal scrutiny. The mismatch between GSTR 2A and GSTR 3B is used to finish assessments levying tax (reversal of alleged ineligible ITC), interest, and penalty.
In response, writ applications contesting the constitutionality of Section 16(2)(c) along with Section 16(4) of CGST Act, 2017 are flooding High Courts across the nation.
Relevant extract from Section 16(2)(c)
“(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, ––
(c) subject to the provisions of section 41 or section 43A, 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.”
Amended Section 16(4) provides that, “A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after November 13 following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier”.
The Court determined that the outcome of this petition will have bearing on other batch petitions challenging provisions qua availment of input tax credit including Rule 36(4) of CGST Rules (unamended) and therefore, opines that, “in the first instance”, it could decide the petitions pending in case of Bharti Telemedia and Bharti Airtel and “depending on their outcome, decision be taken in the remaining matters”
The Bench observed that embargo placed under Section 16 (2)(c), qua availment of ITC is akin to condition placed under Section 9(2) (g) of Delhi Value Tax Act, 2004, which was read down to the extent of bona fide purchases in the case of Quest Merchandising India Private Limited vs. Government of NCT of Delhi and affirmed by Supreme Court.
The Court listed the matter along with the other pending batch of petitions for hearing on April 19 and the matter is being heard by Justice Rajiv Shakdher and Justice Tara Vitasta Ganju.
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