Pinstar Automotive India (P.) Ltd. V/s Additional Commissioner {HIGH COURT OF MADRAS} :
Date of Order : 20-03-2023
simplified explanation of the rulings by the Madras High Court regarding Input Tax Credit (ITC) denial due to non-payment of tax by suppliers and the violation of principles of natural justice in a Rectification of Mistake (ROM) application:
Context
Pinstar Automotive India (P.) Ltd. approached the Madras High Court on two issues related to GST:
- ITC Denial Due to Non-payment by Suppliers: The petitioner, Pinstar Automotive, was denied Input Tax Credit (ITC) on supplies where the supplier had charged GST but failed to deposit it with the tax department. This denial was based on Section 16(2)(c) of the Central Goods and Services Tax Act, 2017, which states that the recipient of supply cannot claim ITC unless the tax charged has been actually paid to the government treasury by the supplier.
- Violation of Principles of Natural Justice in ROM Application: The petitioner filed a Rectification of Mistake (ROM) application against an assessment order. However, the application was disposed of ex parte without giving the petitioner an opportunity to be heard, which is against the principles of natural justice.
Ruling Highlights
- ITC Denial: The High Court upheld the denial of ITC to Pinstar Automotive where the suppliers had charged GST but failed to deposit it with the tax department. This decision was based on the strict interpretation of Section 16(2)(c), which aims to protect the revenue’s interest by ensuring that tax collected from recipients is indeed paid to the government. However, the court also emphasized that if the tax liability is met by the supplier subsequently, the ITC should be restored to the purchaser to avoid double taxation.
- Violation of Natural Justice: The High Court found that disposing of the ROM application without hearing the petitioner violated the principles of natural justice. It referenced Section 161 of the CGST Act, 2017, which mandates that authorities must follow due process, including providing an opportunity to be heard, before taking any adverse action against an assessee. Therefore, the court quashed the order disposing of the ROM application and directed the authority to reconsider the matter after issuing notice to the assessee and allowing them a proper hearing.
Implications
- ITC Compliance: Businesses need to ensure that they only claim ITC when the supplier has actually paid the GST to the government treasury. This ruling underscores the importance of verifying compliance by suppliers to avoid ITC denial.
- Natural Justice: Authorities must adhere to procedural fairness, including providing a fair hearing to taxpayers during adjudication and in ROM applications. Failure to do so can result in orders being quashed and remanded for reconsideration.
- Double Taxation Concerns: The court highlighted the need for mechanisms to prevent double taxation in cases where suppliers later pay the tax liability, emphasizing the importance of fair treatment for taxpayers.
These rulings provide clarity on ITC eligibility under GST laws and underscore the procedural fairness that must be observed by tax authorities in their dealings with taxpayers.
