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

Judgment Summary: M/S Shreyash Retail Private Limited vs The State Of Bihar

Case Reference: The judgment adjudicates a batch of petitions, with the lead case being CWJC No. 17914 of 2023 (M/s Utkrisht Trade Solutions Pvt. Ltd. vs. The State of Bihar and Others).

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 the petitioners' claims for Input Tax Credit (ITC), were set aside.

The matter was remanded back to the Deputy Commissioner of State Tax for a fresh examination. The authority was 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 documentary evidence of the business model ("bill to ship to"). This exercise is to be completed within six months.

2. Core Issue

The central legal question before the High Court was:

Whether a registered person (dealer) is entitled to claim Input Tax Credit (ITC) on goods that were not physically delivered to their premises, but were directly delivered by the supplier to the end customer on the direction of the said registered person, in the context of the condition "he has received the goods" under Section 16(2)(b) of the CGST/BGST Act, 2017.

3. Key Facts

• The petitioners are registered dealers engaged in the trading of various goods.
• They claimed ITC for the relevant tax periods on purchases made from their suppliers.
• The business model involved the petitioners placing purchase orders on their suppliers and, in turn, directing the suppliers to ship the goods directly to the end customers. This is commonly known as a "bill to ship to" model.
• The GST authorities 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 at their registered place of business, thus failing the condition under Section 16(2)(b) of the CGST Act.
• The petitioners' appeals to the first appellate authority were also rejected, upholding the original orders.
• Aggrieved by these concurrent rejections, the petitioners filed writ petitions before the Patna High Court.

4. Arguments

Petitioner's Arguments:

• The denial of ITC is based on an incorrect interpretation of "receipt of goods" under Section 16(2)(b). The provision does not mandate physical delivery to the dealer's premises.
• The Explanation to Section 16(2)(b) explicitly creates a legal fiction ("deemed receipt") which covers situations where goods are delivered to a third party upon the direction of the registered person. Their business model falls squarely within this explanation.
• This model is a standard business practice adopted to enhance logistical efficiency and reduce costs.
• All other conditions for claiming ITC under Section 16 were fulfilled: they possessed valid tax invoices, had made payments to suppliers (including tax), and the suppliers had remitted the tax to the government, a fact not disputed by the department.
• The precedents relied upon by the department, such as Aastha Enterprises and Ecom Gill Trading, were distinguishable as they dealt with defaulting suppliers or the general burden of proof for fraudulent transactions, not the specific interpretation of "deemed receipt".

Respondent's (State GST Department) Arguments:

• The condition of "receipt of goods" under Section 16(2)(b) is mandatory and implies physical receipt by the purchasing dealer.
• The burden of proof to substantiate an ITC claim lies on the assessee, as established in the Supreme Court case of Ecom Gill Trading.
• The petitioners failed to provide sufficient documentary evidence, such as a formal tripartite agreement, to prove the "bill to ship to" arrangement, making the transactions appear to be only on paper.
• Without physical movement of goods to the dealer, the genuineness of the transaction is questionable.

5. Court’s Reasoning

• The Court identified the core of the dispute as the interpretation of "received the goods" under Section 16(2)(b).
• It held that physical receipt of goods by the dealer is not mandatory for claiming ITC. The Court gave significant weight to the Explanation to Section 16(2)(b), which introduces the concept of "deemed receipt".
• The Court reasoned that the Explanation clearly states that if a supplier delivers goods to a third person on the direction of the registered person (the dealer), it shall be deemed that the registered person has received the goods.
• This provision in the CGST Act marks a departure from earlier tax regimes (like Central Excise) where physical receipt at the assessee's premises was often a prerequisite.
• The Court found that the authorities below had erred by not considering this legal fiction and had failed to apply their minds to the petitioners' specific business model and the documentary evidence submitted.
• The precedents cited by the respondents were held to be inapplicable to the present facts. The Court noted that in Aastha Enterprises, the supplier had failed to deposit tax, which is not the case here.
• The Court concluded that while physical receipt is not necessary, the dealer must be able to substantiate the transaction with documentary proof, such as agreements with the supplier, instructions for delivery, and evidence of delivery to the end customer.
• Since the lower authorities had not examined the claim from this correct legal perspective, the matter was remanded for a fresh examination of the evidence provided by the petitioners to prove the "bill to ship to" transactions.

6. Statutory References

• Central Goods and Services Tax Act, 2017 (CGST Act): Sections 16, 16(2)(b) and its Explanation, 17, 31, 35, 67, 70, 73, 79, 107, 155.
• Bihar Goods and Services Tax Act, 2017 (BGST Act): Parallel provisions to the CGST Act.
• Central Goods and Services Tax Rules, 2017: Rule 36, Rule 89, Rule 142(2A).

7. Precedents Cited

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