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Can Buyer Claim ITC If Supplier Has Not Paid His Tax Under GST?

Input tax credit a.k.a. ITC is the tax paid on the purchase of goods or services which can be set off against the tax liability on the sale of goods or services. Under GSTR-1 and GSTR-3B system, the tax credit is claimed by the recipient based on the sales invoices uploaded by the seller/supplier. The provisional credit (without invoice upload) is allowed only to the extent of 10% of ITC in GSTR-2A. It is divergent from the mechanism laid under the pre-GST regime, where credit was allowed based on the purchase invoices on the record of buyer.

Input Tax Credit is a mechanism to eliminating cascading of taxes. The cascading of taxes means a ‘tax on tax.’ The fundamental principle is that at each stage, from production to sale, the tax need to be levied only on the “value added” in a stage.  The tax should not on the entire sale price. The value-added is the difference between the sale price & cost price. It is important to note here that the concept of ITC is not a novel creation of the GST Regime & similar input credit was available in the VAT regime.

According to the Section 16(2)(c) of CGST Act, the recipient of goods and services can avail ITC only if supplier has deposited the tax with government either in cash or through utilization of input tax credit(ITC).

At the time when GST was implemented (i.e. on 1/07/2017) govt. has said that there is an auto mated process for GST return filing on which match and mismatch tools will be available for Input.

But government provides the facility of GSTR- 2A in the year 2019 and at that time data populated in GSTR-2A was not fully correct also GSTR-2/3 also has not been introduced then how buyer can check his/her ITC and how he/she can check that supplier has filed his return..

Also on the reading of CGST act – section 37/38/39/41/42, we found that Input tax credit matching was the backbone of Automated GST Returns. On the basis of above discussion we can say that it was impossible for the buyer to check that whether supplier has paid their taxes or not then how law can to do something which was impossible. As per CGST act -section 73 and 74, notices can be issued only to the person chargeable to tax (i.e. supplier). Then how government can issue notices to the receipt? From the above discussion we can understand the legal arguments on that issue we need to wait for court decisions.