M/S Consulting Rooms Private Limited vs The State Of Bihar on 11 April, 2025

Judgment Summary: M/s Utkrisht Trade Solutions Pvt. Ltd. vs. The State of Bihar & Others (Lead Case)

Note: The court heard a batch of petitions, with the facts and arguments of CWJC No. 17914 of 2023 (M/s Utkrisht Trade Solutions Pvt. Ltd.) being considered as the lead case.

1. Outcome

The writ petitions were allowed. The impugned orders of the Adjudicating Authority (Deputy Commissioner of State Tax) and the Appellate Authority, which denied Input Tax Credit (ITC) to the petitioners, were set aside.

The matter was remanded back to the Adjudicating Authority for a fresh examination. The authority is directed to re-evaluate the petitioners' ITC claims specifically on the question of "receipt of goods," based on documentary evidence of the business model, and pass a fresh speaking order 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 availing Input Tax Credit, mandates the physical receipt of goods by the registered person (the dealer), or if a "deemed receipt" through a 'bill to ship to' model—where the supplier delivers goods directly to the end customer on the dealer's instruction—is sufficient compliance?

3. Key Facts

• The petitioners are registered dealers who claimed ITC on purchases made from their suppliers for various tax periods.
• The petitioners operate on a business model where they purchase goods from a supplier and instruct the supplier to ship the goods directly to the end customer, without the goods ever being physically delivered to the petitioners' premises.
• The GST department issued show-cause notices and subsequently passed orders denying the ITC claims. The sole ground for denial was that the petitioners had not physically "received the goods" as required under Section 16(2)(b) of the CGST Act.
• The denial was upheld by the first appellate authority, leading the petitioners to file writ petitions before the High Court.

4. Arguments

Petitioner's Arguments:

• All substantive conditions for availing ITC under Section 16 were met: they possessed valid tax invoices, had paid the tax to their suppliers, and the suppliers had remitted the said tax to the government.
• The denial of ITC based on the non-receipt of physical goods is a misinterpretation of the law. The business model is designed for logistical efficiency and is a common commercial practice.
• The Explanation to Section 16(2)(b) creates a legal fiction of "deemed receipt." It explicitly states that a registered person is deemed to have received the goods if the supplier delivers them to a third party on the direction of such registered person.
• The precedents cited by the department were distinguishable. Aastha Enterprises dealt with a situation where the supplier had not paid tax to the government, which is not the case here. State of Karnataka vs. M/s Ecom Gill was on the general burden of proof and did not interpret the specific "deemed receipt" clause.

Respondent's (State's) Arguments:

• Section 16(2)(b) is mandatory and requires the dealer to have received the goods to be eligible for ITC.
• The burden of proof under Section 155 of the CGST Act lies squarely on the assessee to prove the genuineness of the transaction, which includes the movement and receipt of goods.
• Mere production of invoices is insufficient. The petitioners failed to provide conclusive proof of the actual transaction, including the delivery of goods.
• The transactions were merely on paper, and in the absence of physical movement of goods to the petitioner, the ITC claim is invalid.

5. Court’s Reasoning

The High Court reasoned as follows:

• Interpretation of "Received the Goods": The Court held that physical receipt of goods at the registered person's premises is not the sole criterion for satisfying the condition under Section 16(2)(b). The provision must be read along with its Explanation.
• Deemed Receipt is Statutorily Recognized: The Explanation to Section 16(2)(b) clearly carves out a "deemed receipt" scenario. If a supplier delivers goods to a recipient on the direction of the registered person (the dealer), the law deems the dealer to have "received" the goods. This legislative intent is to facilitate modern business models like 'bill to ship to'.
• Departure from Previous Tax Regimes: The Court noted that the CGST Act marks a departure from earlier laws (like Central Excise) that often required physical receipt of inputs at the factory premises. The GST framework is more accommodating of diverse supply chains.
• Burden of Proof: While the dealer is deemed to have received the goods, the burden of proving that such a transaction actually occurred lies with the dealer. This can be discharged by producing documentary evidence, such as:
  • The agreement or understanding with the supplier.
  • Instructions given to the supplier for direct shipment.
  • Proof of delivery to the end customer.
• Non-Application of Mind: The Court found that both the Adjudicating and Appellate authorities failed to apply their minds to the legal fiction created by the Explanation to Section 16(2)(b). They rejected the ITC claims on the sole ground of non-physical receipt without examining the evidence produced by the petitioners to substantiate their business model.
• Precedents Distinguished: The Court agreed with the petitioners that the cases cited by the Revenue were not applicable to the specific legal issue at hand.

Based on this reasoning, the Court concluded that the authorities' orders were unsustainable and remanded the matter for a fresh decision based on a correct interpretation of the law.

6. Statutory References

• Central Goods and Services Tax (CGST) Act, 2017:
  • Section 16: Eligibility and conditions for taking Input Tax Credit (specifically Section 16(2)(b) and its Explanation).
  • Section 31: Tax Invoice.
  • Section 35: Accounts and other records.
  • Section 73: Determination of tax not paid or short paid.
  • Section 107: Appeals to Appellate Authority.
  • Section 155: Burden of proof.
• Bihar Goods and Services Tax (BGST) Act, 2017 (provisions analogous to the CGST Act).

7. Precedents Cited

• Aastha Enterprises vs. The State of Bihar and Another (CWJC No. 10359 of 2023): Cited by the respondents, distinguished by the Court.
• State of Karnataka vs. M/s Ecom Gill Trading Private Limited (2023 SCC OnLine SC 248): Cited by the respondents, distinguished by the Court.
• SAJ Food Products Pvt. Ltd vs. The State of Bihar and Others (CWJC No. 15465 of 2022): Cited by the respondents, distinguished by the Court.