- Simplified Explanation of the Judgment
This Patna High Court judgment deals with a batch of writ petitions filed by several registered dealers in Bihar, all facing a common problem: denial of Input Tax Credit (ITC) under the GST regime by the State tax authorities. The petitions were heard together, with one case treated as the lead matter.
The petitioners are dealers trading in consumer goods, electronics, lifestyle products and similar items across India, including Bihar. They purchase goods from suppliers, pay the value of the goods plus GST, and then claim ITC on that GST while discharging their output tax on onward supplies. Their entire output tax liability for the relevant periods was discharged through ITC and not in cash, which triggered suspicion and inspection by the tax department.
During inspection and subsequent proceedings, the Deputy Commissioner of State Tax (Patliputra Circle, Central Division, Patna) took the view that there was no actual physical movement of goods from suppliers to the dealers. On that basis, he held that the dealers had not “received” the goods as required by Section 16(2)(b) of the Central Goods and Services Tax Act, 2017 (CGST Act) / Bihar Goods and Services Tax Act, 2017 (BGST Act), and therefore could not claim ITC. Demands of tax, interest and recovery proceedings followed.
The dealers appealed before the Additional Commissioner of State Tax (Appeal), but the appellate authority affirmed the denial of ITC. Aggrieved, the dealers invoked the writ jurisdiction of the Patna High Court.
Business model explained
The dealers explained that they follow a “direct delivery” or “drop shipment” type model. They purchase goods from suppliers but instruct those suppliers to deliver the goods directly to the final customer/end consumer, rather than first sending them to the dealer’s own godown or office. This is done to avoid unnecessary double transportation, cost and logistical complexity.
They stressed that:
- Tax invoices were properly issued.
- GST was actually paid by the dealers to the suppliers.
- The suppliers in turn deposited the GST with the Government.
- The only dispute was about physical receipt of goods by the dealer at its premises.
The dealers relied on:
- Section 16 of the CGST Act (eligibility and conditions for ITC).
- The Explanation to Section 16(2)(b), which creates a deeming fiction of “receipt” where goods are delivered to a third person on the direction of the registered person.
- Rule 36 of the CGST Rules, 2017.
- GST Circulars, especially Circular No. 241/35/2024-GST dated 31.12.2024, which clarifies that a registered person shall be considered to have received goods where the supplier delivers the goods either to the registered person directly or to any other person on the registered person’s instruction.
On this basis, they argued that physical delivery to the dealer’s premises is not mandatory if the documentation and tax trail are otherwise proper, and goods are delivered to end customers on the dealer’s instructions.
State’s stand
The State argued that:
- Section 16(2)(b) read with Section 31 of the CGST Act requires physical movement of goods from supplier to the dealer, and this is mandatory for ITC.
- There was allegedly no proper agreement or memorandum of understanding (MoU) among the supplier, dealer, and end consumer, and hence the transactions were only “on paper”.
- The State relied on decisions such as Aastha Enterprises v. State of Bihar, State of Karnataka v. Ecom Gill Trading Pvt. Ltd., and SAJ Food Products Pvt. Ltd. v. State of Bihar.
Court’s interpretation of “received” under Section 16(2)(b)
The Court first outlined the basic scheme of GST and ITC – ITC is designed to avoid cascading of taxes, and businesses are allowed to claim credit of GST they have paid on inputs, subject to conditions.
It then examined Section 16, Section 31 (tax invoice), Section 35 (accounts and records) and Section 155 (burden of proof) of the CGST Act.
The Court highlighted several key points:
- For ITC, it is necessary that the registered person has proper invoices, that the supplier is registered and has uploaded returns (GSTR 1), and that the transactions reflect in GSTR 2A/2B of the recipient.
- Receipt of goods is mandatory, but “receipt” does not necessarily mean physical possession at a specific godown.
- The Explanation to Section 16(2)(b) and the 31.12.2024 GST Circular expressly cover situations where goods are delivered by the supplier to another person on the instruction of the registered person – in those situations, the registered person is deemed to have received the goods.
The Court noted that under GST, unlike older laws (like Central Excise), physical receipt at the dealer’s own premises is not the sole criterion for ITC, so long as the goods are used in the course or furtherance of business, and the chain of supply and tax payment is proved.
Burden of proof and role of documents
Relying on the Supreme Court judgment in State of Karnataka v. Ecom Gill Trading Pvt. Ltd., the Patna High Court reiterated that the burden of proving correctness of ITC claim lies on the dealer. The dealer must produce full details of transactions – including selling dealer details, transport particulars, delivery acknowledgment etc. – and cannot rely only on invoices and bank payments.
However, in the present batch, the dealers asserted that they had produced all necessary documents, including materials showing an understanding with suppliers and the fact that the supplier directly delivered goods to end customers on the dealer’s instructions.
Findings and final directions
The Court held that:
- The authorities had not properly appreciated the business model and the documents produced. There was non-application of mind to the effect of the Explanation to Section 16(2)(b) and the latest GST Circular dated 31.12.2024.
- The case law relied on by the Department (Aastha Enterprises, SAJ Food Products) was factually distinguishable, particularly because in those cases there were issues like non-payment of tax by suppliers or alternative remedy, which were not the dispute here.
Crucially, the Court clarified that receipt of goods need not be in “physical mode” by the dealer, if the dealer can show:
- An agreement/MoU or clear understanding between supplier and dealer; and
- Evidence that the supplier delivered goods directly to the end consumer on the dealer’s instructions, with proper documentation.
On that basis, the Court set aside the adjudication and appellate orders in the lead case and all connected writ petitions, and remanded the matters to the Deputy Commissioner of State Tax, Patliputra Circle, Central Division, Patna.
The assessing authority has been directed to:
- Re-examine compliance with Section 16(2)(b) only on the limited question of receipt/deemed receipt of goods.
- Specifically look for any MoU or agreement between dealer and supplier and materials showing delivery to end consumers.
- If such material supports the dealer, redress the grievance and allow ITC in accordance with law; if not, pass a detailed speaking order after issuing notice and considering the dealer’s reply.
- Complete this exercise within six months.
- Significance or Implication of the Judgment
For the general public and the business community in Bihar, this judgment is important because it recognises modern supply chains, especially e-commerce, drop shipments and direct-to-customer models. The Court has clearly signalled that:
- ITC cannot be denied merely because goods did not physically reach the dealer’s own godown, if the law’s conditions on “deemed receipt” are otherwise satisfied.
- At the same time, dealers must maintain robust documentation: agreements/MoUs, delivery proofs, transport details, and GST return trail.
For the Government and tax administration, the judgment:
- Upholds the principle that the burden of proof to justify ITC lies on the dealer, as stressed by the Supreme Court.
- But also restricts arbitrary denial of ITC on narrow, overly literal grounds about physical receipt, where the statutory Explanation and circulars clearly recognise indirect delivery models.
Overall, this decision is likely to guide assessments and audits in Bihar where goods are shipped directly from suppliers to customers on the instructions of registered dealers. It encourages a documentation-based, rather than purely location-based, view of ITC eligibility.
- Legal Issue(s) Decided and the Court’s Decision with Reasoning
- Whether Section 16(2)(b) requires physical receipt of goods by the dealer for ITC.
- Court held that “receipt” under Section 16(2)(b) includes deemed receipt as per its Explanation and Circular No. 241/35/2024-GST.
- Physical possession at the dealer’s premises is not mandatory, if goods are delivered to another person (end consumer) on the dealer’s instructions and the transaction is properly documented.
- Whether denial of ITC solely because goods did not move from supplier to dealer’s premises is legally sustainable.
- Court answered No. The authorities erred in treating physical movement to the dealer as compulsory and ignoring the deeming fiction and circulars.
- Impugned orders were set aside and matters remanded for fresh consideration limited to Section 16(2)(b) compliance, with emphasis on MoU/agreements and actual delivery evidence.
- How the burden of proof for ITC claims is to be applied.
- Court reaffirmed that the burden to prove correctness of ITC lies on the dealer, drawing from the Supreme Court in Ecom Gill Trading.
- Dealers must provide comprehensive material – beyond mere invoices and payments – to demonstrate genuine transactions and delivery of goods.
- Whether case law like Aastha Enterprises and SAJ Food Products governs the present controversy.
- Court held these decisions are distinguishable: Aastha Enterprises involved non-payment of tax by the supplier; SAJ Food Products was about alternative remedy and pre-deposit, not interpretation of “receipt” under Section 16(2)(b).
- Judgments Referred by Parties
- Aastha Enterprises v. State of Bihar & Anr., CWJC No. 10359 of 2023 (Patna High Court).
- State of Karnataka v. Ecom Gill Trading Private Limited, 2023 SCC OnLine SC 248 (Supreme Court of India).
- SAJ Food Products Pvt. Ltd. v. State of Bihar & Ors., CWJC No. 15465 of 2022 (Patna High Court).
- Judgments Relied Upon or Cited by Court
- State of Karnataka v. Ecom Gill Trading Private Limited, 2023 SCC OnLine SC 248 – relied upon for the principle that the burden of proving ITC lies on the dealer and mere invoices/bank payments are not sufficient.
- Aastha Enterprises v. State of Bihar & Anr., CWJC No. 10359 of 2023 – discussed and distinguished, as that case involved non-deposit of tax by the supplier.
- SAJ Food Products Pvt. Ltd. v. State of Bihar & Ors., CWJC No. 15465 of 2022 – discussed and distinguished; related primarily to alternative remedy and pre-deposit.
- Case Title
M/s Shreyash Retail Private Limited Vs. The State of Bihar
- Case Number
- Lead case: CWJC No. 17914 of 2023
- Coram and Names of Judges
- Hon’ble Mr. Justice P. B. Bajanthri
- Hon’ble Mr. Justice Alok Kumar Sinha
- Names of Advocates and Who They Appeared For
- For the petitioners (various writs in the batch):
- Mr. Tarun Gulati, Sr. Advocate – for petitioner in the lead UT-type dealer matter.
- Mr. Mrigank Mauli, Sr. Advocate.
- Mr. Brisketu Sharan Pandey, Advocate.
- Mr. Abhishek Kumar, Advocate.
- Mr. Madan Kumar, Advocate.
- For the State of Bihar:
- Mr. P. K. Shahi, Advocate General.
- Mr. Vivek Prasad, Government Pleader 7 (GP 7).
- Mr. Vikash Kumar, Standing Counsel 11 (SC 11).
- Mr. Raghwanand, Government Advocate 11 (GA 11).
- For the Union of India:
- Dr. K. N. Singh, Assistant Solicitor General (ASG).
- Mr. Anshuman Singh, Advocate.
- Link to Judgment
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