Purchaser Is Not Entitled To ITC On The Purchases Made From The Seller Who Had Discharged Its Tax Liability: AAR

The Punjab Authority of Advance Ruling (AAR) has held that the purchaser is not entitled to claim Input Tax Credit (ITC) on the purchases made by it from the seller, who had discharged its tax liability.

The two-member bench of Varinder Kaur and Viraj Shayamkarn Tidke has observed that no registered person shall be entitled to take credit for any input tax in respect of any supply of goods or services or both unless the tax charged in respect of the supply has been actually paid to the government.

The assessee runs a furnace at Mandi Gobindgarh and procures ferrous alloys, scrap, gas, and other materials from within the State of Punjab. The assessee receives the material against the GST invoice on which it is entitled to claim the input tax credit on the tax paid on the purchases made by it. The assessee is making the payments through banking channels, and all the transactions are reflected in its books of accounts.

For the sake of abundant precaution, the assessee is procuring returns from its immediate vendors, i.e., Form GSTR-3B and Form GSTR-1, in order to make sure that the seller has discharged his tax liability and the purchases made by him have been entered in the books of accounts of the seller.

The applicant sought an advance ruling in respect of the issue of whether the purchaser is entitled to claim input tax credits on the purchases made by it from the seller, who had discharged its tax liability, but the preceding seller has not discharged its liability under the Act.

The AAR noted that as per Section 16(2)(c) of the CGST Act if the seller or preceding sellers have not deposited the tax either in cash or through the utilization of input tax credits admissible in respect of the supply, the purchaser is not eligible to claim ITC on the supply.

Applicant’s Name: Vimal Alloys Ltd.

Date: 03.02.2023

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