Battle Over ITC: The Conflict Between Courts And Tax Authorities

Introduction 

One of the objectives in the implementation of Goods and Services Tax (‘GST’) was to eliminate the cascading effect of taxes and create a seamless flow of credit across the supply chain. The Input Tax Credit (‘ITC’) mechanism under the GST framework ensures that tax is levied only on the value added at each stage of a transaction, thereby reducing the overall tax burden on businesses and enhancing economic efficiency. 

Over the past nine years of GST regime, we have seen a sharp disconnect between the approach of tax departments and courts towards ITC. Revenue authorities continue to stick to a rigid, literal reading of the given pre-requisites under the GST laws governing ITC. Conversely, the judiciary consistently prioritizes commercial actuality, fairness, and the rights of genuine buyers. These diverse views of the GST authorities and judiciary have led to litigation dominated by disputes over ITC, defaults of supplier in GST compliances, retrospective registration