2025 (4) TMI 1055 - HC - GST

Rejection of ITC claim of the petitioner on the sole issue that whatever purchases of goods made from the supplier by the petitioner there is no actual movement of goods in terms of Section 16 (2) (b) (i) of CGST Act / BGST Act - HELD THAT - On purchase of goods from the supplier supplier was requested to deliver the goods to the end consumer directly resultantly there is no physical movement of goods to the petitioner from the supplier. This has not been appreciated by both the authorities in their impugned orders. In fact respective contentions urged by the petitioners have not been appreciated and not dealt with to that extent there is total non-application of mind. Whatever documents demanded by the authorities have been furnished from time to time with reference to their show cause notices and other communications. Refund of accumulated ITC for claiming ITC petitioner has to file form RFD 01 with supporting material information within the time slot under Section 54 of the CGST Act read with Rule 89 of CGST Rules (i) supplier has filed GST returns and (ii) supplier has uploaded the invoice in their GSTR - 1 and GSTR 2B of the recipient or buyer. In terms of CGST Circular No. 241/35/2024-GST dated 31.12.2024 in cases where goods are delivered by the supplier to the registered person (dealer) either directly or to any other person on the instruction of the said registered person. In view of these facts and circumstances receipt of goods by the dealer from supplier need not be in physical mode. On the other hand if the dealer apprise the competent authority to the extent that there is an agreement / memorandum of understanding among the supplier dealer and intimation to the end consumer insofar as transactions of purchase of goods and its delivery to the end consumer. In the present case the petitioner submitted that he had produced all necessary material information to the concerned authority to the extent that he is in receipt of goods from the supplier. On the other hand he had given instruction to the supplier to supply the purchased goods to the end consumer - To this extent the concerned authority is required to examine relevant material information like papers of memorandum of understanding / agreement among the petitioner dealer and supplier and intimation to the end consumer so as to complete the transactions relating to purchase of goods by the dealer from the supplier and further selling the goods to the end consumer and receipt of goods or not? Conclusion - The petitioner has made out a case so as to interfere with the impugned orders dated 14.01.2023 (Annexure P 14) and 07.10.2023 (Annexure P 1) and they are set aside. Matter is remanded to the second respondent the Deputy Commissioner of State Tax Patliputra Circle Central Division Pant Bhawan Bailey Road Patna to undertake fresh exercise insofar as compliance to Rule 16 (2) (b) of the CGST Act only to the extent that whether is there any memorandum of understanding between the petitioner - dealer with the supplier and further materials relating to informing the end consumer to the extent of receipt of goods (delivery of goods by the supplier directly or through transporter or not?) Petition disposed off by way of remand.

Summary

The core legal questions considered by the Court in this batch of petitions relate primarily to the eligibility and conditions for claiming Input Tax Credit (ITC) under Section 16(2)(b) of the Central Goods and Services Tax Act, 2017 (CGST Act) and the corresponding provisions of the Bihar Goods and Services Tax Act, 2017 (BGST Act). Specifically, the issues are:

1. Whether the physical receipt of goods by the registered dealer (petitioner) from the supplier is mandatory for claiming ITC under Section 16(2)(b) of the CGST Act.

2. Whether the delivery of goods directly by the supplier to the end consumer on the instruction of the dealer qualifies as "receipt of goods" by the dealer for the purpose of ITC claim under Section 16(2)(b).

3. The applicability and interpretation of the deeming provisions under Section 16(2)(b) and related explanations, including the effect of relevant circulars and rules, on the question of receipt of goods.

4. The burden of proof on the dealer to establish eligibility for ITC, including the sufficiency of documents such as agreements, invoices, payment proofs, and delivery details.

5. The relevance and applicability of precedents cited by both parties, including decisions in Aastha Enterprises, State of Karnataka vs. M/s Ecom Gill Trading Pvt. Ltd., and SAJ Food Products Pvt. Ltd.

Detailed Analysis of Issues:

Issue 1: Mandatory Physical Receipt of Goods for ITC Claim under Section 16(2)(b)

The legal framework centers on Section 16 of the CGST Act, which governs eligibility for ITC. Section 16(2)(b) stipulates that the registered person must have "received the goods or services or both" to claim ITC. The explanation to this clause expands the meaning of "received" to include scenarios where goods are delivered to a recipient or any other person on the direction of the registered person, whether acting as an agent or otherwise, before or during movement of goods.

The Court examined the literal and purposive interpretation of the term "received" and the implications of the explanation clause. It observed that the CGST Act does not mandate physical receipt of goods at the dealer's premises as a precondition for ITC. Instead, the notion of receipt can be satisfied by the delivery of goods to a third party (such as the end consumer) on the dealer's instruction. This interpretation aligns with the objective of GST to reduce multiplicity in transportation and avoid cascading tax effects.

The Court noted that older tax regimes like Central Excise required physical receipt at the manufacturer's premises, but the CGST Act represents a departure from this, allowing for "deemed receipt" in specified cases. The Court relied on Circular No. 241/35/2024-GST dated 31.12.2024, which clarifies that goods delivered by the supplier to any person on the direction of the registered person shall be deemed to have been received by the registered person for the purposes of Section 16(2)(b).

Thus, the Court concluded that physical receipt of goods by the dealer is not mandatory under the CGST Act for claiming ITC, provided the conditions of the explanation clause are met.

Issue 2: Delivery of Goods Directly to End Consumer on Dealer's Instruction as Receipt

The petitioners contended that their business model involves instructing the supplier to deliver goods directly to the end consumer, bypassing physical receipt by the dealer. They argued that since the supplier has charged and paid GST to the government and the dealer has borne the tax cost, they are entitled to ITC despite the absence of physical receipt.

The Court analyzed the factual matrix, including the existence of agreements or memoranda of understanding between the dealer and supplier, and communications to the end consumer regarding delivery. It emphasized that the "deemed receipt" provision under Section 16(2)(b) covers such "bill to ship" or "direct delivery" models where goods move from supplier to end consumer on the dealer's direction.

The Court found that the authorities below failed to appreciate or examine these material facts and documents adequately. The impugned orders rejected ITC claims solely on the ground of non-physical receipt by the dealer, without considering the effect of the explanation to Section 16(2)(b) or the circulars.

The Court held that if the petitioner can establish the existence of such arrangements and documentary proof of delivery to the end consumer on their instruction, the goods must be deemed to have been received by the dealer for ITC purposes.

Issue 3: Applicability and Interpretation of Deeming Provisions and Circulars

The Court examined the statutory provisions in conjunction with Rule 36 of the CGST Rules and relevant circulars, especially Circular No. 241/35/2024-GST dated 31.12.2024. These circulars clarify that ITC can be claimed even if goods are not physically received by the dealer, provided the goods are delivered by the supplier to a recipient or any other person on the dealer's direction.

The Court distinguished the facts of the present case from those in precedents cited by the respondents, where the supplier had failed to remit tax or other procedural lapses existed. The circulars and rules support the petitioners' case that direct delivery to the end consumer on dealer's instructions is permissible and does not negate the right to ITC.

Issue 4: Burden of Proof on Dealer and Sufficiency of Documents

Section 155 of the CGST Act places the burden of proof on the person claiming ITC to establish eligibility. The Court acknowledged this principle and noted the respondents' reliance on precedents emphasizing the need for detailed evidence such as vehicle details, delivery acknowledgments, and payment proofs.

However, the Court found that the petitioners had furnished all necessary documents, including invoices, payment proofs, agreements, and communications with the end consumer and supplier. The authorities did not conduct a detailed examination of these materials or issue speaking orders addressing these documents.

The Court directed a fresh exercise by the Deputy Commissioner to examine the existence and sufficiency of documentary evidence regarding the dealer's receipt of goods (physical or deemed) and delivery to the end consumer, with the petitioner's cooperation.

Issue 5: Applicability of Precedents Cited by Parties

The Court analyzed the decisions cited by both parties:

• Aastha Enterprises: The Court noted that in that case, the supplier had not remitted tax to the government, which was a critical factor. In contrast, in the present case, the supplier is undisputedly compliant in tax remittance.
• State of Karnataka vs. M/s Ecom Gill Trading Pvt. Ltd.: This decision emphasized the burden of proof on the dealer and the need for physical receipt evidence. The Court distinguished it on facts and noted that it did not interpret Section 16(2)(b) in the context of deemed receipt or direct delivery models.
• SAJ Food Products Pvt. Ltd: This case concerned alternative remedies and deposit conditions before the GST Tribunal, which is not applicable here as no GST Tribunal is constituted in Bihar and the issue is different.

The Court held that these precedents do not apply to the facts and legal issues in the present petitions and thus do not support the respondents' rejection of ITC claims.

Conclusions and Directions:

The Court set aside the impugned orders rejecting ITC claims and remanded the matters to the Deputy Commissioner of State Tax for fresh consideration. The Deputy Commissioner is directed to:

• Examine whether there exists a memorandum of understanding or agreement between the dealer and supplier regarding direct delivery of goods to the end consumer on the dealer's instruction.
• Scrutinize documentary evidence relating to the receipt of goods by the dealer, including deemed receipt under Section 16(2)(b), and communications with the end consumer.
• Issue detailed, speaking orders after providing the petitioner an opportunity to furnish explanations or additional evidence.
• Complete this exercise within six months from receipt of the Court's order, ensuring compliance with the CGST Act and Rules.

The Court emphasized that if the petitioner satisfies the conditions of Section 16(2)(b) and other relevant provisions, ITC must be allowed. Conversely, if the petitioner fails to demonstrate receipt of goods (physical or deemed) and compliance with statutory conditions, a reasoned order rejecting ITC must be passed.

Significant Holdings:

"The CGST Act does not require that goods must be physically received at a specific location for ITC eligibility. This is a significant departure from older laws such as Central Excise, which required physical receipt on the manufacturer's premises for claiming CENVAT credit. Under the CGST Act, ITC can be claimed based on deemed receipt, even if the goods are physically received at a later stage or at a different location."

"Goods are deemed to be 'received' under the following conditions: (a) when the supplier delivers the goods to a transporter or another person on the registered person's instructions, either before or during the movement of goods; (b) when delivery of goods is confirmed through the transfer of documents of title or physical handover. This clarification ensures that physical possession is not the sole criteria for deeming goods 'received'."

"The burden of proving the correctness of ITC remains upon the dealer claiming such ITC. Mere production of invoices or payment made by cheques is not enough; the dealer must prove beyond doubt the actual transaction, including details of delivery and receipt."

"The impugned orders suffer from non-application of mind as they reject ITC claims solely on the ground of non-physical receipt of goods by the dealer without appreciating the effect of the explanation to Section 16(2)(b) and relevant circulars."

"Where the petitioner produces material information indicating an agreement between the dealer and supplier and evidence of delivery to the end consumer on dealer's instructions, the goods shall be deemed to have been received by the dealer for ITC purposes."