M/S Shreyash Retail Private Limited vs The State Of Bihar on 11 April, 2025

1. Outcome

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

The matter was remanded back to the Deputy Commissioner of State Tax for a fresh examination of the petitioners' ITC claims. The authority was directed to specifically verify if the conditions for "deemed receipt" of goods were met, based on documentary evidence of any agreement or understanding between the petitioner-dealer, the supplier, and the end customer.

2. Core Issue

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

Specifically, the issue was whether the law mandates the physical receipt of goods by the purchasing dealer, or if ITC can be claimed in a "bill to ship to" business model where the supplier, on the dealer's instruction, ships the goods directly to the dealer's end customer.

3. Key Facts

(Based on the lead case of M/s Utkrisht Trade Solutions Pvt. Ltd.)

• The petitioners are registered dealers engaged in the trading of various goods.
• They availed ITC on purchases made from their suppliers for the relevant tax periods.
• Their business model involved instructing their suppliers to deliver the goods directly to their end customers, bypassing physical delivery to the petitioners' premises.
• The GST authorities initiated proceedings, alleging that since the petitioners had not physically received the goods, they were not eligible for ITC as per Section 16(2)(b).
• The Adjudicating Authority passed an order denying the ITC and raising a demand for tax, interest, and penalty.
• The petitioners' statutory appeal was dismissed by the Appellate Authority, which upheld the original order.
• Aggrieved by these concurrent findings, the petitioners filed a batch of writ petitions before the High Court.

4. Arguments

Petitioner's Arguments:

• They fulfilled all primary conditions for availing ITC under Section 16: they possessed valid tax invoices, made payments to the supplier (including tax), and the supplier had deposited the tax with the government.
• Physical receipt of goods is not a mandatory condition. The Explanation to Section 16(2)(b) creates a legal fiction of "deemed receipt" where goods are delivered to a third person on the direction of the registered person (the dealer).
• Their business model is a standard industry practice designed for logistical efficiency and is explicitly covered by the "deemed receipt" provision.
• The precedents relied upon by the authorities, Aastha Enterprises and State of Karnataka vs. M/s Ecom Gill Trading, were distinguishable. Aastha dealt with a defaulting supplier who had not paid tax, and Ecom Gill Trading concerned the burden of proof under a different statute (KVAT Act) without interpreting the specific "deemed receipt" clause of the CGST Act.

Respondent's (State's) Arguments:

• Section 16(2)(b) read with Section 31 (Tax Invoice) implies that the movement of goods from the supplier to the dealer is mandatory.
• The burden of proof under Section 155 of the CGST Act lies squarely on the assessee to prove the correctness of the ITC claim, including the actual receipt of goods.
• Mere production of invoices is insufficient; the assessee must prove the actual transaction, including delivery details.
• The "deemed receipt" provision is for specific 'bill to ship' transactions, which they argued the petitioners failed to substantiate with necessary agreements or contracts.

5. Court’s Reasoning

• The Court found that the core of the dispute was the interpretation of "receipt of goods" under Section 16(2)(b).
• It emphasized that the Explanation to Section 16(2)(b) is crucial. This provision creates a "deemed receipt," clarifying that physical possession by the dealer is not the sole criterion. If the supplier delivers goods to any other person on the direction of the registered person (dealer), the dealer is deemed to have received the goods.
• The Court noted that the CGST Act marks a departure from earlier tax regimes (like Central Excise) which often required physical receipt of goods at the assessee's premises. The CGST Act allows for flexibility through the "deemed receipt" mechanism.
• The authorities below committed an error by insisting on physical receipt and failed to apply their minds to the legal fiction created by the Explanation. They did not properly examine the petitioners' claims and documentary evidence regarding the "bill to ship to" transactions.
• The Court distinguished the precedents cited by the State, holding that they were not applicable to the specific legal issue of "deemed receipt" under the CGST Act.
• Consequently, the Court concluded that the matter required re-examination. The Adjudicating Authority must assess the evidence, including any agreements or communications, to determine if the goods were delivered to end customers on the direction of the petitioners, thereby satisfying the "deemed receipt" condition.

6. Statutory References

• Central Goods and Services Tax Act, 2017 (CGST Act):
  • 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 67: Power of inspection, search, and seizure.
  • Section 70: Power to summon persons to give evidence and produce documents.
  • Section 73: Determination of tax not paid or short paid.
  • Section 79: Recovery of tax.
  • Section 107: Appeals to Appellate Authority.
  • Section 155: Burden of proof.
• Bihar Goods and Services Tax Act, 2017 (BGST Act): Section 16(2).

7. Precedents Cited

• Cited by the Tax Authorities/Respondents:

  1. Aastha Enterprises vs. The State of Bihar and Another (CWJC No. 10359 of 2023)
  2. State of Karnataka vs. M/s Ecom Gill Trading Private Limited (2023 SCC OnLine SC 248)
  3. SAJ Food Products Pvt. Ltd vs. The State of Bihar and Others (CWJC No. 15465 of 2022)

• Cited by the Petitioners:

  1. Circular No. 3/1/2018-IGST dated 25.05.2018
  2. Circular No. 61/35/2018-GST dated 04.09.2018
  3. Circular No. 241/35/2024-GST dated 31.12.2024