GST Case Laws on ITC: Latest Judgements and Analysis

Businesses need to be aware of the GST case rules for ITCs to ensure they do not breach the rules or lose tax credits. This article focuses on current decisions and research that can help explain how recent legal decisions impact ITC claims and strategies.

GST case laws on ITC

Input Tax Credit or ITC is one of the major components of Goods and Services Tax or GST in India. ITC allows businesses to set GST charges on purchases, and determine how much tax they should pay on production. It helps avoid tax chains and reduces the overall tax burden on the end consumer. However, ITC’s claims are not absolute and are subject to certain conditions and interpretations, which have led to legal conflicts

It is important for businesses to be familiar with the important GST case laws relating to the ITC to ensure that they are not penalised for not collecting due debts. This article is based on recent decisions and seeks to understand how these decisions affect ITC claims under GST.

Top 5 GST case laws on ITC

Since GST is fairly new in India, it has several important decisions on ITC. Here is a table summarising the five most important points:

1. SC Quashes GST Departments’ Plea Against High Court

The Supreme Court dismissed the department’s appeal against the High Court’s decision that allowed the collection of ITC despite the violation of a taxpayer provision. This decision also highlights the importance of clearly defining the rights related to the ITC provision.

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2. Delhi High Court: ITC for Customers on Retrospective GST Registration Cancellation

In the recent case of the Delhi High Court, it was held that the customers are entitled to ITC even if the registration of the supplier under GST has been cancelled later on. This case also brought up the issue of how the ITC of the recipient is safeguarded against any form of retrospective adjustment.

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3. Calcutta High Court: ITC is a Vested Right

In the case of M/s. the Hon’ble Calcutta High Court has held that ITC is a vested right and cannot be taken away at the sweet will of the authorities. This ruling affirmed one of the core principles of law that once ITC is accrued, it cannot be terminated in any manner without adherence to the right procedures.

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4. Calcutta High Court Judgement on GST Return Mismatch Cases

The High Court provided several instances where the discrepancies between GSTR-2A and GSTR-3B caused ITC rejection. The court noted that the taxpayer’s case and the appeal were real and the differences should not result in ITC loss if there was no deceit or falsehood.

5. SC’s Review of the Court Decisions on GST Section 16(4) on ITC

Certain significant judgements under Section 16(4) of the CGST Act have also explained the time limit and conditions for availing of ITC. These judgments underlined the necessity to adhere to the statutory time limits and safeguard the taxpayers’ rights.

Latest Supreme Court Verdicts on GST ITC Case

This is a dynamic tax system, and therefore, businesses need to be informed of the latest judgments concerning the ITC under GST. The recent judgment passed by the Honourable Supreme Court of India in March 2023 has far-reaching implications for seeking ITC.

Ms. Vidya Drolia vs. The Union of India

This particular case was based on the theory of ‘vested right’ in ITC. The appellant, M/s Vidya Drolia, is eligible for an input tax credit in respect of GST paid on purchases from a registered dealer under the CGST Act. However, the supplier in this case had earlier registered the name, and the registration was later nullified. The tax authorities refused the ITC based on the registration, which was cancelled earlier.

The Supreme Court entertained the concern of the taxpayer and affirmed the existence of a ‘vested right’ to ITC. The court also found that the credit for GST paid on purchases cannot be denied to a supplier who has cancelled his registration. This judgment provides commercial entities with the necessary protection against being punished for situations that are out of their control.

Key Judgments on Input Tax Credit

For businesses, it becomes extremely crucial to understand the GST case laws concerning ITC to avoid penalties and maximize the tax credit. Below are some of the main judgments that have influenced the understanding and implementation of ITC under GST. In this article, we have explained the five most preferred Input Tax Credit case laws to help taxpayers understand the consequences of such cases under the GST system.

1. Denial of ITC when the supplier has not paid the GST: Bona Fide Recipients

Verdict: The Madras High Court held that a business cannot be debarred from ITC on the ground that the supplier from whom it had purchased goods did not pay the GST charged by him.

Description: This judgement safeguards ordinary recipients who have complied with their reasonable obligations by receiving a tax invoice and ensuring that the details are reported in their GST returns. The court accepted that it is the duty of the supplier rather than the recipient to make the GST payment.

Key Takeaway: Companies can offset ITC provided that they have all the necessary receipts and that they have not indulged with a supplier who is avoiding GST.

2. Responsibility of Proving ITC Eligibility Lies on the Claimant

Verdict: The Supreme Court of India reiterated the legal position that the burden of proof for establishing the admissibility of an ITC claim lies with the business claiming it.

Description: This judgement affirms the duties of businesses to keep proper books of accounts and to ensure that their procurements are proper and related to their business operations.

Key Takeaway: To support their ITC claims, businesses should have adequate documentation such as tax invoices, delivery challans, and receipt evidence.

3. Cancellation of Supplier’s Registration does not Automatically Disqualify ITC

Verdict: The Supreme Court has observed that even if the supplier’s GST registration has been cancelled, the recipient is not debarred from availing of ITC if the transaction is bona fide.

Description: This judgement offers some comfort to businesses that may have contracted with a supplier who had a registration that was later revoked. However, it stresses that the decision to select the suppliers should be made carefully.

Key Takeaway: Even though cancellation of a supplier’s registration may cause suspicion, businesses have a chance to claim ITC if the given transaction is proven to be valid.