Understanding the Judicial Perspective on Input Tax Credit (ITC) When the Supplier Fails to Deposit Tax

Introduction

Recent judgments from various High Courts in India have shed light on the complexities surrounding the claim of Input Tax Credit (ITC) under the Goods and Services Tax (GST) regime, particularly in cases where the supplier has not deposited the tax. This article provides an analysis of these landmark judgments, highlighting the key legal principles and their implications for businesses.

LGW Industries Limited Case (Calcutta High Court, 13-Dec-2021)

The Calcutta High Court’s decision in the case of LGW Industries Limited vs. Union of India dealt with the refusal to grant ITC to petitioners on the grounds that their suppliers were non-existent and had used fake documents. The petitioners contended that the transactions were genuine, and the Court remanded the matter back to the GST authorities to reconsider the petitioners’ entitlement to ITC. The Court found that the petitioners had carried out their due diligence in verifying the genuineness and identity of the suppliers, and the transactions were supported by relevant documents. This decision underscores the importance of thorough documentation and due diligence in GST transactions.

Agrawal & Brothers Case (Madhya Pradesh High Court, 13-Jun-2023)

In a case where the supplier deposited GST under the wrong GSTIN instead of the assessee’s, but acknowledged receiving payment from the assessee, the Madhya Pradesh High Court ruled that the assessee was entitled to a return of GST paid under protest. This judgment highlights the need for accuracy in GST filings and the rights of assessees to claim ITC even in cases of clerical errors by the supplier.

Balaji Exim vs. Commissioner, CGST Case (Delhi High Court, 10-Mar-2023)

The Delhi High Court ruled in favor of the petitioner in the Balaji Exim case, where it was established that the goods were exported, and the invoices for which ITC was claimed were raised by a registered dealer. The Court found that the petitioner had paid the invoices, which included taxes, and thus, a refund of unutilized ITC could not be denied. This judgment affirms the rights of exporters to claim ITC on exported goods and emphasizes the sanctity of transactions with registered dealers.

Tvl. Surana Enterprises vs. Assistant Commissioner Case (Madras High Court, 14-Sep-2023)

In this case, the Madras High Court set aside an adjudication order that had denied ITC to the petitioner, whose electronic credit ledger was blocked on the ground that the supplier was not genuine. The Court noted that the petitioner had tax invoices and other evidence substantiating the supply of goods and payment of the disputed tax. The case was remanded back to the department for fresh orders on merits. This judgment emphasizes the importance of maintaining comprehensive transaction records to substantiate claims for ITC.

Conclusion

These judgments collectively highlight a judicial trend favoring the genuine claimant of ITC in GST. Courts have consistently shown a willingness to protect the rights of assessees who have conducted transactions in good faith and with due diligence, even when faced with supplier-related irregularities. For businesses, these rulings underscore the importance of maintaining robust documentation and verifying supplier credentials to safeguard their ITC claims. The evolving jurisprudence in this area continues to shape the operational landscape of GST, providing clearer guidelines for both taxpayers and authorities.