M/S Utkrisht Trade Solution Pvt. Ltd vs The State Of Bihar on 11 April, 2025

GST Judgment Summary: M/S Utkrisht Trade Solution Pvt. Ltd vs The State Of Bihar

1. Outcome

The writ petitions were allowed. The impugned orders passed by the Adjudicating Authority (Deputy Commissioner of State Tax) and the Appellate Authority, which had rejected the petitioners' claim for Input Tax Credit (ITC), were set aside.

The matter has been remanded to the Deputy Commissioner of State Tax for a fresh examination. The authority is directed to specifically assess the petitioner's compliance with Section 16(2)(b) of the CGST Act, focusing on whether a 'deemed receipt' of goods occurred through documentary evidence (like MOUs/agreements) proving a 'bill to ship to' arrangement. This fresh exercise must be completed within six months.

2. Core Issue

The central legal question before the High Court was whether the condition of "receipt of goods" under Section 16(2)(b) of the CGST/BGST Act, 2017, for claiming Input Tax Credit, mandates the physical delivery of goods to the registered person (the dealer). Alternatively, can this condition be satisfied through 'deemed receipt' in a business model where goods are delivered directly from the supplier to the end-consumer on the dealer's instruction?

3. Key Facts

• The petitioners are registered dealers who were denied ITC by the GST authorities for various tax periods.
• The primary ground for rejection was the allegation that the petitioners had not physically received the goods from their suppliers, thereby violating the condition under Section 16(2)(b) of the CGST Act.
• The petitioners operate on a business model where they purchase goods from a supplier and instruct the supplier to ship the goods directly to their end-customers ("bill to ship to" model). This is done to improve logistical efficiency.
• The petitioners paid the applicable GST to their suppliers, and it was undisputed that the suppliers, in turn, remitted this tax to the government.
• The Adjudicating Authority rejected the ITC claims, and this decision was upheld by the first Appellate Authority, leading the petitioners to file writ petitions before the High Court.

4. Arguments

• Petitioner's Arguments (M/s Utkrisht Trade Solution Pvt. Ltd.):

  • The term "received the goods" in Section 16(2)(b) does not necessitate physical receipt by the dealer.
  • The Explanation to Section 16(2)(b) creates a legal fiction of 'deemed receipt', which explicitly covers situations where goods are delivered to a third party on the direction of the registered person.
  • Their business model is a legitimate 'bill to ship to' arrangement, supported by invoices, payment proofs, and tax remittances by the supplier.
  • The authorities' reliance on precedents like Aastha Enterprises was incorrect, as that case involved a supplier who had defaulted on tax payments, which is not the situation here.

• Respondent's Arguments (The State of Bihar):

  • Section 16(2)(b), read with Section 31 (Tax Invoice), implies that physical movement of goods to the dealer is mandatory for claiming ITC.
  • The burden of proof to establish the genuineness of the transaction, including the actual movement of goods, lies entirely on the assessee claiming the ITC, as held in State of Karnataka vs. M/s Ecom Gill Trading Pvt. Ltd.
  • The petitioners failed to provide sufficient documentary evidence, such as a formal work contract or agreement between the supplier, dealer, and end-customer, to substantiate their 'bill to ship to' claim.

5. Court’s Reasoning

• The Court held that physical receipt of goods is not the sole criterion for satisfying the condition under Section 16(2)(b) of the CGST Act.
• The Court gave significant weight to the Explanation to Section 16(2)(b), interpreting it as a clear statutory provision for 'deemed receipt'. It clarified that when a supplier delivers goods to a third party on the direction of the registered person (the dealer), the dealer is deemed to have received the goods for the purpose of claiming ITC.
• The Court observed that the GST regime is a departure from older tax laws (like Central Excise) where physical receipt on the premises was often a prerequisite for credit.
• The lower authorities had failed to apply their minds to this legal fiction of 'deemed receipt' and had mechanically rejected the ITC claim based on the absence of physical delivery.
• The Court distinguished the precedents cited by the State. It noted that Aastha Enterprises dealt with a defaulting supplier, and Ecom Gill Trading pertained to the burden of proving the transaction's authenticity, which is a factual matter.
• Since the verification of documents like agreements, instructions to the supplier, and proof of delivery to the end-consumer is a factual exercise, the Court deemed it appropriate to remand the matter to the primary authority for a fresh look based on the correct legal interpretation.

6. Statutory References

• Central Goods and Services Tax Act, 2017 (CGST Act):
  • Section 16(2)(b) & its Explanation: Core provision regarding the condition of "receipt of goods" for ITC eligibility.
  • Sections 16(1), 17, 31, 35, 67, 70, 73, 79, 107, and 155.
• Central Goods and Services Tax Rules, 2017 (CGST Rules):
  • Rules 36, 89, and 142.
• Circulars:
  • Circular No. 241/35/2024-GST dated 31.12.2024.

7. Precedents Cited

• Aastha Enterprises vs. The State of Bihar and Another (CWJC No. 10359 of 2023): Cited by the Respondents, but distinguished by the Court as the facts involved a tax-defaulting supplier.
• State of Karnataka vs. M/s Ecom Gill Trading Private Limited (2023 SCC OnLine SC 248): Cited by the Respondents, but distinguished by the Court as relating to the general burden of proof for transaction genuineness, not the specific interpretation of 'deemed receipt'.
• SAJ Food Products Pvt. Ltd vs. The State of Bihar and Others (CWJC No. 15465 of 2022): Cited by the Respondents and distinguished by the Court.