Stories
Supreme Court Upholds ITC Denial for Supplier Default: Compliance Reality Remains Complex
- •The Supreme Court ruled that Input Tax Credit (ITC) can be denied to a recipient if the supplier fails to deposit the corresponding GST, distinguishing it from the VAT regime.
- •The GST framework allows re-availment of ITC once the supplier discharges tax liability, making it fundamentally different from the previous VAT system.
- •Despite the ruling, practical implementation faces challenges as the current GST system lacks a foolproof mechanism for recipients to verify supplier tax deposits for specific invoices.
- •The GSTR-3B, a summary return, does not contain invoice-level details, making it difficult for recipients to confirm if tax paid by suppliers relates to their specific invoices.
- •The judgment may lead to new litigation over historical ITC mismatches, highlighting the need for policy intervention to protect bona fide taxpayers from supplier defaults they cannot detect.
Key Questions Answered
The Supreme Court upheld the Gujarat High Court's decision that input tax credit can be denied to a recipient if the supplier fails to deposit the corresponding GST with the government, distinguishing the framework from the VAT regime where bona fide transactions were protected.
The actual tax discharge occurs through the GSTR-3B summary return, which lacks invoice-level details, and suppliers can modify their tax liability during filing. Existing technology can only verify GSTR-3B filing status rather than confirm tax payment on a specific invoice.
The judgment may trigger a new wave of litigation on historical ITC mismatches. Tax authorities could potentially argue that the absence of an invoice in GSTR-2A indicates the supplier failed to pay GST, rendering the corresponding credit ineligible.
