The issue is extremely relevant, says Rajat Bose, partner at Shardul Amarchand Mangaldas and Co. Currently, there is no mechanism that enables purchasers to avail ITC outside the mechanism of the GST portal.

The purchaser can claim credit only if the supplier files returns to that effect in the GST portal. But there are times when the GST paid isn't shown on the returns, like when the tax is recovered from the supplier after the returns have been filed. Under such circumstances, the purchaser is often unable to avail of ITC benefits.

Rajat Bose, Partner, Shardul Amarchand Mangaldas and Co. 

To address this, the high court has called for setting up a mechanism to ensure that the purchaser gets input tax credit benefits as long as GST is recovered from the supplier. The revenue department, it said, should use its powers to reverse ITC benefits to a purchaser only as a protective measure. The primary liability, according to the court, should be on the supplier, and the liability of the purchaser should only be a protective one.

The observation was made in a writ petition filed by Pinstar Automotive Pvt. against the revenue department's decision to deny ITC benefits to the company despite fulfilling its tax liability.

The order is merely a reiteration of the principle of restitution, said Ashish Abraham, partner at Lakshmikumaran and Sridharan.

The court has suggested a remedy against the unjust enrichment of the government and has restricted its opinion to the limited issue of restoring ITC benefits to the purchaser. "It has not questioned the strict application of ITC provisions", Abraham said.

The mechanism suggested is a procedural relief based on common law that does not alleviate the pain of bonafide taxpayers in availing of ITC. This is a departure from the past Value Added Tax jurisprudence of various high courts.

Ashish Abraham, Partner, Lakshmikumaran and Sridharan Attorneys

The order can potentially impact several pending writ petitions that challenge the denial of ITC benefits to purchasers based on any non-compliance by the seller, Abraham said.

Bose, however, believes that there is a quick fix to the problem. According to him, the government can issue a circular that enables purchasers to claim ITC on a seller's declaration that he has made good on his tax liabilities. This will enable purchasers to claim a tax credit regardless of any mismatch in the portal, he said.