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

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

Date of Judgment: 11 April, 2025
Bench: Hon’ble Mr. Justice P. B. Bajanthri and Hon’ble Mr. Justice Alok Kumar Sinha
Court: High Court of Judicature at Patna

1. Outcome

The writ petitions were allowed. The impugned orders passed by the Deputy Commissioner of State Tax (Order-in-Original) and the Additional Commissioner of State Tax, Appeal (Order-in-Appeal), which rejected the petitioner's claim for Input Tax Credit (ITC), were set aside.

The matter was remanded back to the Deputy Commissioner of State Tax for a fresh adjudication with the following directions:
* To re-examine the petitioner's ITC claim specifically in light of the 'deemed receipt' provision under the Explanation to Section 16(2)(b) of the CGST Act.
* To verify documentary evidence, such as any Memorandum of Understanding (MOU) or agreement between the petitioner (dealer) and the supplier, which substantiates the instruction for direct delivery of goods to the end consumer.
* The entire exercise is to be completed within six months from the receipt of the court's order.

2. Core Issue

The central legal question was the interpretation of the condition "he has received the goods" under Section 16(2)(b) of the CGST/BGST Act, 2017, for the purpose of claiming ITC.

Specifically, the issue was whether this condition mandates the physical receipt of goods at the registered person's (dealer's) premises, or if it can be satisfied by a 'deemed receipt' in a "bill to ship to" model, where the supplier delivers goods directly to the end consumer on the dealer's direction.

3. Key Facts

• The petitioners are registered dealers engaged in trading consumer goods.
• They claimed ITC for the relevant period under the CGST/BGST Act.
• Their business model involved purchasing goods from a supplier and instructing the supplier to deliver them directly to the end customer. The goods did not physically arrive at the petitioners' place of business.
• The tax authorities denied the ITC claim on the sole ground that the petitioners had not physically received the goods, thereby failing to meet the condition under Section 16(2)(b).
• The Adjudicating Authority confirmed the demand, and the Appellate Authority upheld this decision, leading the petitioners to file a writ petition before the High Court.
• Crucially, it was not disputed by the tax authorities that the petitioners had paid the tax to their suppliers, who in turn had deposited the tax with the Government.

4. Arguments

Petitioner's Arguments:
* The denial of ITC is based on an overly narrow interpretation of "received the goods". Physical receipt is not a prerequisite where the law provides for 'deemed receipt'.
* The Explanation to Section 16(2)(b) of the CGST Act explicitly covers their business model, stating that a registered person is deemed to have received goods if they are delivered to a third party on their direction.
* This business model is a standard commercial practice designed to reduce logistics costs and transit time.
* All other conditions for claiming ITC under Section 16 were fulfilled, including possession of tax invoices and the fact that the tax was paid to the government by the supplier.
* The precedents cited by the department were factually distinguishable.

Respondent's (State's) Arguments:
* The movement of goods from the supplier to the dealer is mandatory to claim ITC, as per Section 16(2)(b) read with Section 31 (Tax Invoice).
* The burden of proof to substantiate an ITC claim lies squarely on the assessee under Section 155 of the CGST Act.
* The petitioners failed to provide sufficient documentary evidence, such as a formal work contract or agreement, to prove their "bill to ship to" arrangement, making the transactions appear to be only on paper.
* The claim was rightly rejected as the condition of "receipt of goods" was not satisfied.

5. Court’s Reasoning

• The Court held that the core of the dispute lies in the interpretation of 'received' under Section 16(2)(b).
• It clarified that the CGST Act does not mandate physical receipt of goods at the registered person's premises as the sole criterion for ITC eligibility. This is a departure from previous tax regimes like Central Excise.
• The Court gave significant weight to the Explanation to Section 16(2)(b), which introduces the legal fiction of 'deemed receipt'. It held that if a supplier delivers goods to a third party (the end consumer) on the direction of the registered person (the dealer), the dealer is deemed to have received the goods for ITC purposes.
• The lower authorities committed an error by failing to apply this 'deemed receipt' provision and rejecting the claim solely based on the absence of physical delivery. This amounted to a non-application of mind.
• The Court distinguished the precedents relied upon by the respondents. The case of Aastha Enterprises was inapplicable as it involved a defaulting supplier who had not paid tax to the government, which was not the situation here. The Supreme Court's ruling in Ecom Gill Trading was about the general burden of proof and did not interpret the specific 'deemed receipt' clause.
• While affirming the principle of deemed receipt, the Court emphasized that the petitioner must prove such an arrangement through documentary evidence (e.g., MOU, agreement, delivery instructions).
• Since the lower authorities had not examined the case from this correct legal perspective, the matter was remanded for a fresh evaluation of the evidence provided by the petitioner.

6. Statutory References

• Central Goods and Services Tax Act, 2017 (CGST Act):
  • Section 16(2)(b): Core provision regarding the receipt of goods for ITC eligibility.
  • Explanation to Section 16(2)(b): Defines 'deemed receipt' in "bill to ship to" scenarios.
  • Sections 16, 17, 31, 35, 54, 67, 70, 73, 79, 107, 155.
• Central Goods and Services Tax Rules, 2017 (CGST Rules):
  • Rules 36, 89, 142.
• Circulars:
  • Circular No. 241/35/2024-GST dated 31.12.2024.

7. Precedents Cited

• Aastha Enterprises vs. The State of Bihar (CWJC No. 10359 of 2023): Distinguished by the Court on the ground that the supplier in that case had failed to deposit tax with the government, unlike in the present case.
• State of Karnataka vs. M/s Ecom Gill Trading Private Limited (2023 SCC OnLine SC 248): Distinguished as dealing with the general burden of proof on the assessee to prove a transaction's genuineness, without specifically interpreting the 'deemed receipt' provision of Section 16(2)(b).
• SAJ Food Products Pvt. Ltd vs. The State of Bihar (CWJC No. 15465 of 2022): Distinguished as being related to the issue of alternative remedy and not relevant to the core issue of the present case.