The brief facts of the above case are as follows that the present appeal had been filed against the impugned orders dated vide 10-04-2018 by the Ld. OHA u/s 32of DVAT Act who upheld the orders of assessment of tax and interest vide 13-09-2017. The appellant i.e. the purchaser is a registered dealer and filed the VAT returns of all four quarters. The return of VAT for the tax period 1/1/2014 to 31/3/2014 claiming a refund of Rs. 3,89,284/- was filed by the appellant on 8/1/2014. That the assessing officer vide notices of default assessment of tax and interest while processing the refund claimed by the appellant in its return of the 4th qtr. Of 2013-14, disallowed the entire ITC of Rs. 4,44,749/- claimed by the appellant firm in its return of VAT u/s 9(2) of the DVAT Act, on account of purchases made from one M/S Dee Pee Gupta, a registered dealer, and created a demand of Rs. 7,08,491/-(tax +interest).
The seller was a registered dealer at the time of making the transactions and not only the dealer issued the valid tax invoices to the purchaser which clearly mentioned the Tin no. , he also submitted its VAT return for the assessment year 2013-2014. The dealer also made the payments through account payee cheques which were duly reflected in the books of the appellant firm. The notices of default assessment of tax and interest are illegal and void as AVATO failed to consider the fact that there was no mismatch between the 2A and 2B of the selling and purchasing dealer. As it is well established in the case of Shanti Kiran v Commissioner of VAT that unless any collusion is proved between the selling and purchasing dealer, the ITC cannot be disallowed to the purchasing dealer.
“the expression “dealer or class of dealer, occurring in Section 9(2) (g) of the DVAT Act should be interpreted as not including a purchasing dealer who has bonafide entered into purchase transactions with validly registered selling dealers who have issued tax invoices in accordance with the Section 50A of the Act where there is no mismatch of the transactions in Annexure 2A & 2B. Unless the expression ‘dealer or class of dealers’ in Section 9(2) (g) is read down in above manner, the entire provision would have to be held to be violative of Article 14 of the constitution.
Thus, ITC to the purchaser cannot be disallowed if
- He is in possession of a Valid Tax Invoice issued by the registered seller under Section 50 of the DVAT Act.,
- there is no mismatch between 2A and 2B under DVAT Act.
- There is no collusion between the seller and the buyer.
As mentioned in the facts of the present case, there was no collusion and mismatch between the respective parties and the ld. OHA in a mechanical manner, without looking into the facts of the case and various judgments of the Hon’ble High Court and Hon’ble Supreme Court framed an illegal and void order.
The appellant filed the objections on various grounds:
1] It is a well-settled law established in the case of Quest Merchandising India
(P) Ltd. V Govt. of NCT of Delhi and Ors, where Hon’ble High Court held that ITC cannot be denied to a purchasing dealer who has bonafide entered into a purchase transaction with a registered selling dealer who has issued a tax invoice reflecting the TIN number. On any failure to deposit tax collected by him from purchasing dealer, the remedy of the department would be to proceed against the defaulting selling dealer to recover the tax and not deny the purchasing dealer the ITC. The purchasing dealer also had no notice of cancellation of the registration certificate of the selling dealer by the department at the time of making purchases as it is alleged that the RC of M/s Dee Pee Gupta has been canceled w.e.f. 1/2/2017, whereas the purchases have been made by the appellant from the above dealer in 2013-14.
2] The appellant also objected on the ground that as the tax period of the appellant firm is quarterly for which the appellant firm also filed quarterly returns, the ld. VATO was required to frame assessment according to the quarterly tax period.
On the basis of the contentions stated above the impugned orders passed by ld. OHA was hereby set aside and the concerned VATO was directed to re-frame the assessment afresh after giving notice to the concerned selling dealer M/s Dee Pee Gupta and giving an opportunity of hearing of appellant.
Conditions for availing Input Tax Credit under GST
Section 16 of the Central Goods and Services Act talks about eligibility conditions for availing Input Tax Credit. Every Registered person is entitled to take credit of input tax charged on the supply of any goods or services.
Conditions for availing input Tax credit are :
- The registered dealer should be in possession of Valid ax invoice or debit note issued by a supplier registered under this Act
- He has received goods or services or both.
- Tax charged has been actually paid to government
- He has furnished the return under Section 39 of CGST Act.
Duties & Responsibilities of Seller and Purchaser to claim Input Tax Credit under GST
- According to Section 37 of the CGST Act, 2017, every registered person(seller) needs to furnish, electronically, in GSTR1 form, details of outward supplies of goods and services or both effected during a tax period on or before the 10th day of the month succeeding the tax period month. And such details should be communicated to the purchaser.
- Under section 38 of the CGST Act, every registered person(purchaser) needs to verify, modify or delete, if required, the details related to outward supplies. He also needs to furnish details of inward supplies (purchase) in GSTR 2A form electronically.
- Then according to Section 42(1) (a) of CGST Act, the details of every inward supply furnished by a registered person(recipient) for a tax period shall, in such manner and within such time as may be prescribed, be matched with the corresponding details of the outward supply furnished by the corresponding registered person (supplier) in his valid returns for the same period or any preceding tax period.
GST and Delhi Value Added Tax (DVAT)
Under GST (same as in Annexure 2A & 2B under VAT), the seller needs to submit GSTR1 form for his/her outward supplies and these supplies are automatically reflected in the GSTR 2A(inward supplies) of the purchaser. According to Section 42(3), where the input tax credit claimed by recipient in respect of the inward supply is in excess of the tax declared by the supplier for the same supply or the outward supply is not declared by the supplier in his valid returns, the discrepancy shall be communicated to both such persons in such manner as may be prescribed.
When the monthly return in Form GSTR- 3B is filed, the details in the inward supply of the purchaser should be matched with the corresponding outward supply furnished by the seller in his returns. On the basis of this, the Input tax credit is claimed by the purchasing dealer.
According to Section (9) of the DVAT Act, 2004 the Input tax credit can be disallowed only if there are any discrepancies between Sales and Purchases of the respective dealers. Though there is no mismatch in the present case but still Hon’ble court by quoting the ratio of Quest Merchandising India(P) Ltd vs. Govt of NCT of Delhi and Ors in the present judgment provided much relief to the purchasing dealer who purchased the goods in bonafide contention from the seller and there is no mistake on this part.
In Quest Merchandising India(P) Ltd vs. Govt of NCT of Delhi and Ors, the court held that :
the expression “dealer or class of dealer, occurring in Section 9(2) (g) of the DVAT Act should be interpreted as not including a purchasing dealer who has bonafide entered into purchase transactions with validly registered selling dealers who have issued tax invoices in accordance with the Section 50A of the Act where there is no mismatch of the transactions in Annexure 2A & 2B. Unless the expression ‘dealer or class of dealers’ in Section 9(2) (g) is read down in the above manner, the entire provision would have to be held to be violative of Article 14 of the constitution.
In the case of CST v Hari Ram Oil Company (1992) 87 STC 493, it was observed that even whether registration of the dealer has been canceled before the sales took place and such cancellation is not notified in the official Gazette subsequent to the date of sale, the selling dealer cannot be deprived of the benefit of the scheme of the Act. Hereby when referred such situation under GST regime it has been found that According to section 29 of the CGST Act, cancellation of registration under this section shall not affect liability of person to pay tax and other dues under this Act or to discharge any obligation under this Act or the rules made thereunder for any period prior to the date of cancellation whether or not such tax and other dues are determined before or after the date of Cancellation.
The relevance of this Judgment in GST Regime
Thus it is observed that, If there is any mismatch between the seller and purchaser under GSTR1 and GSTR 2A but;
- Purchaser is in possession of a Valid Tax Invoice issued by the registered seller and;
- there is not any such collusion between the seller and the purchaser;
Then Input Tax Credit(ITC) cannot be disallowed to the purchasing dealer. This is because the purchasing dealer has bonafide entered into a purchase transaction with a validly registered selling dealer. Thus, the Legal Right of the Purchasing dealer will get violated if the dealer suffers from the default or negligence of the selling dealer because the act of omission is on the part of the seller.
Yogesh SharmaWriter & Co-founder, Lawcirca
A human rights enthusiast who loves to write & fight against the social evils. He is the backbone of team Lawcirca. Find me a more dedicated writer, I’ll wait!. For any clarifications, feedback, and advice, you can reach him at [email protected]