M/S Sane Retails Private Limited vs The State Of Bihar on 11 April, 2025

Judgment Summary: M/S Sane Retails Private Limited & Ors. vs The State Of Bihar

1. Outcome

The writ petitions were allowed. The impugned orders of 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 Adjudicating Authority for a fresh examination. The authority has been directed to re-evaluate the petitioners' ITC claims specifically on the issue of compliance with Section 16(2)(b) of the CGST Act, considering the concept of "deemed receipt" of goods. This exercise must be completed within six months.

2. Core Issue

The central legal question before the High Court was:

Whether a registered person (the dealer) is required to physically receive goods at their premises to be eligible for Input Tax Credit (ITC) under Section 16(2)(b) of the CGST/BGST Act, or does the condition of 'receipt of goods' also include constructive or deemed receipt, such as in a "bill to ship to" transaction where the supplier delivers goods directly to the end customer on the dealer's instruction?

3. Key Facts

• The petitioners are registered dealers engaged in the trading of consumer goods.
• They claimed Input Tax Credit (ITC) on goods they purchased from their suppliers.
• Their business model involved a "bill to ship to" arrangement: they would purchase goods from a supplier and instruct the supplier to deliver them directly to the end customer, thereby avoiding multiple stages of transportation and handling.
• The GST authorities initiated proceedings, alleging that since the petitioners never physically received the goods at their place of business, they failed to satisfy the condition under Section 16(2)(b) of the CGST Act.
• The Adjudicating Authority denied the ITC claims and raised demands for tax, interest, and penalty.
• The petitioners' appeals were dismissed by the First Appellate Authority, which upheld the original order.
• Aggrieved by these orders, the petitioners filed a series of writ petitions before the Patna High Court.

4. Arguments

Petitioner's Arguments:

• They fulfilled all conditions for claiming ITC under Section 16, including possessing valid tax invoices and ensuring that their supplier had paid the corresponding tax to the government.
• The "bill to ship to" model is a legitimate and efficient business practice.
• The term "received the goods" in Section 16(2)(b) should not be interpreted to mean only physical receipt.
• The Explanation to Section 16(2)(b) creates a legal fiction of "deemed receipt," which explicitly covers scenarios where goods are delivered to a third party on the direction of the registered person (the dealer).
• The precedents cited by the department were distinguishable: Aastha Enterprises concerned a supplier who had not paid tax, and Ecom Gill Trading was on the general burden of proof, not the specific interpretation of "receipt of goods."

Respondent's (State's) Arguments:

• Physical movement and receipt of goods by the dealer are mandatory conditions for availing ITC under Section 16(2)(b).
• The burden of proof to substantiate an ITC claim, as per Section 155 of the CGST Act, lies squarely on the assessee, which they failed to discharge.
• In the absence of physical receipt, the transactions are merely on paper, and ITC cannot be granted.
• They relied on the Supreme Court's decision in Ecom Gill Trading to argue that the dealer must prove the actual transaction beyond doubt.

5. Court’s Reasoning

• The Court identified that the core of the dispute was the interpretation of "he has received the goods" under Section 16(2)(b).
• It gave significant weight to the Explanation to Section 16(2)(b), which clarifies that a registered person is "deemed" to have received the goods if the supplier delivers them to any other person on their direction.
• The Court held that this Explanation was specifically introduced to facilitate modern business models like "bill to ship to." It ensures that physical possession by the dealer is not the sole criterion for deeming goods as 'received'.
• The CGST Act represents a departure from older tax regimes (like Central Excise) where physical receipt of goods at the factory premises was often a pre-requisite for credit.
• The Court distinguished the precedents relied upon by the Revenue. It noted that in the present cases, it was not disputed that the supplier had deposited the tax with the government, making the Aastha Enterprises case inapplicable.
• The Court concluded that the lower authorities had erred by adopting an overly restrictive interpretation of Section 16(2)(b) and had failed to apply the deeming fiction created by its Explanation. They did not properly examine the documentary evidence of the business model.
• Therefore, the matter required re-examination to verify the existence of agreements or instructions between the supplier and the dealer for direct delivery to the end consumer, along with other supporting documents.

6. Statutory References

• Central Goods and Services Tax Act, 2017 (CGST Act) / Bihar Goods and Services Tax Act, 2017 (BGST Act):
  • Section 16(1) & 16(2): Eligibility and conditions for taking Input Tax Credit.
  • Section 16(2)(b): The specific condition that the registered person "has received the goods or services or both."
  • Explanation to Section 16(2)(b): The deeming provision for receipt of goods in "bill to ship to" scenarios.
  • Section 31: Provisions related to Tax Invoices.
  • Section 35: Requirement to maintain accounts and records.
  • Section 155: Burden of proof for ITC claims lies on the claimant.
  • Other procedural sections cited: Section 67 (Inspection), Section 70 (Summons), Section 73 (Adjudication), Section 79 (Recovery), Section 107 (Appeals).
• Central Goods and Services Tax Rules, 2017:
  • Rule 36: Documentary requirements for claiming ITC.

7. Precedents Cited

• Aastha Enterprises vs. The State of Bihar: Cited by the Revenue. Distinguished by the Court because the issue in that case was the non-payment of tax by the supplier, which was not the situation here.
• State of Karnataka vs. M/s Ecom Gill Trading Private Limited: Cited by the Revenue. Distinguished by the Court as it dealt with the general principle of the burden of proof on the assessee to prove a transaction's genuineness, but it did not specifically interpret the deeming provision for 'receipt of goods' under Section 16(2)(b).
• SAJ Food Products Pvt. Ltd vs. The State of Bihar: Cited by the Revenue. The Court found it irrelevant as it pertained to the issue of alternative remedy and pre-deposit for appeal, not the substantive question of ITC eligibility.