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In today's business landscape, Section 16(2)(c) has become a central point of debate. Businesses often face challenges when their ITC claims are rejected due to vendors' failure to remit collected taxes. While the tax department's position, which considers ITC a concession requiring strict compliance, holds merit, many experts advocate for a more practical and enforceable approach to the law.

From a business standpoint, companies conduct transactions with registered and verified vendors on the GST portal, trusting that these vendors will fulfil their statutory obligations by paying the collected taxes. These transactions are carried out through secure banking channels and are accurately documented in GSTR 2A / GSTR 2B records. Additionally, businesses receive the agreed-upon goods and services in good faith. Since these operations are carried out in good faith and without collusion, companies should be eligible to claim ITC. It is unrealistic and beyond businesses' capacity to monitor and control vendors' internal compliance practices.

Recent Judicial Interpretations

In a recent ruling on 05/08/2024 by the Guwahati High Court in the case of National Plasto Moulding [WP(C)/2863/2022], the following critical guidance has been provided:

1. Purchasing Dealer's Protection: The purchasing dealer should not face penalties for the actions of the selling dealer in the event of the latter's failure to remit the collected tax. This ruling aligns with the precedent established by the Honourable Delhi High Court in the case of On Quest Merchandising India Private Limited.

2. Analogous Provisions: Sections 16(2)(c) and 16(2)(d) of the AGST/CGST Act 2017 are deemed analogous to Section 9(2)(g) of the Delhi Value Added Tax Act, 2004. The Court has recommended that these provisions not be applied to bona fide purchasing dealers engaged in legitimate transactions with registered selling dealers. It has been emphasized that the tax department cannot withhold Input Tax Credit (ITC) from a purchasing dealer in such instances.

3. Remedy Against Defaulting Dealer: In cases where the selling dealer fails to remit the collected tax, the tax department's recourse is to take action against the defaulting selling dealer rather than withhold ITC from the purchasing dealer.

The Real Challenge
In legal proceedings, it is imperative to acknowledge that while the specific ruling pertains to lawful transactions, its scope may not encompass fraudulent transactions or instances where there is clear evidence of collusion between the buyer and the seller. The Court has affirmed the tax department's jurisdiction to intervene in cases of non-genuine purchase transactions as per the law.

Complexity arises when defence arguments allude to dissimilar cases. The citation of the National Plasto Moulding decision may present potential complications when the circumstances are divergent. For example, in the On Quest Merchandising India Private Limited case, allusions were made to two scenarios: Suvasini Charitable Trust, where a fire incident hindered tax payment, and Arun Jain (HUF), where a portal discrepancy went unnoticed.

Hence, it is advisable to refrain from referencing the On Quest Merchandising India Private Limited judgment in cases where Input Tax Credit (ITC) is not reflected in GSTR 2A/ GSTR 2B and the party defaults on tax payments.

The Art of Applying Legal Judgments: Insights from CA Vikash Dhanania

Not All Judgments Fit Everywhere: A Cautionary Tale

DOST CA Vikash Dhanania presents a compelling perspective on applying legal decisions in the complex domain of tax law and legal analysis. Drawing on his extensive expertise, he cautions against the indiscriminate reliance on legal precedents.

DOST CA Vikash Dhanania elucidates, "Let's consider a situation where goods are purchased from an unfamiliar vendor whose physical premises and warehouse remain unvisited. Attempts to locate them may prove fruitless. Discrepancies between the HSN codes on the GST Portal and the received goods, combined with missing transport documentation, may become evident. In such circumstances, can we unthinkingly apply a ruling favourable to legitimate transactions? Certainly not."

To emphasize his stance, DOST CA Vikash Dhanania employs a thought-provoking analogy: "Imagine the scenario of prescribing paracetamol," he illustrates. "A Doctor meticulously evaluates the patient's age, weight, current medications, and overall health before recommending a specific dosage. Imagine an individual purchasing paracetamol over the counter and consuming it without caution. The potential for adverse effects is considerable. Similarly, applying legal judgments without carefully considering all pertinent factors echoes self-medicating without understanding the underlying complexities."

The Wisdom in Careful Application

"You are requested to avoid treating every judgment as if it were water, capable of assuming the shape of any vessel it is poured into. Judgments are not water; they require careful consideration and judicious referencing. Not every case is a perfect fit for any given precedent.

The recent ruling by the Guwahati High Court provides optimism for genuine purchasing dealers. Nonetheless, as highlighted by DOST CA Vikash Dhanania, it is essential to assess each case based on its distinct facts and circumstances. This meticulous scrutiny bolsters legal contentions and shields businesses and their legal representatives from the perils associated with the misapplication of legal precedents.

Conclusion
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