Bihar Medical Services & Infrastructure Corporation Ltd. Vs Assessment Unit (ITAT Patna): Rs. 84.92 Crore GST Deduction Sent Back for Fresh Examination
Overview of the Dispute
This case before the Income Tax Appellate Tribunal, Patna, concerns a government-owned procurement corporation that paid GST amounting to approximately Rs. 84.92 crore following an adverse advance ruling under GST law, and thereafter sought to claim this payment as a deductible expenditure under the Income Tax Act, 1961 for Assessment Year 2023-24. Both the Assessing Officer and the CIT(A) rejected the claim on grounds of insufficient documentary evidence and inadequate reconciliation. The Tribunal, however, found it appropriate in the interest of justice to set aside both orders and direct a fresh assessment, leaving the question of actual allowability open.
Important Note: The ITAT order does not finally determine whether the GST payment qualifies as a deductible expenditure. The matter has been remanded for a de novo assessment, and the substantive entitlement of the assessee remains to be adjudicated.
Background: Who Is the Assessee?
Bihar Medical Services & Infrastructure Corporation Ltd. is a wholly owned corporation constituted by the Government of Bihar. Its primary function is to act as a procurement and distribution agency for medical equipment, drugs, services, construction activities, and healthcare infrastructure on behalf of the State's Department of Health. In return for these services, the corporation receives centage charges from the Government of Bihar.
For AY 2023-24, the assessee filed its return of income on 29.09.2023, declaring total income of ₹2,72,02,570.
How the GST Liability Originated
The corporation had originally taken the position that its services rendered to the Government of Bihar were exempt from GST. The basis for this claim was Clause (8) of Notification No. 12/2017 dated 28/06/2017, which provides an exemption for services provided to the Government or a local authority.
However, the Bihar Authority for Advance Ruling, Goods and Service Tax, Commercial Taxes Department, Government of Bihar, vide its order dated 24/03/2022, ruled against the corporation. The advance ruling held that the corporation does not fall within the definition of "Government" or "Local Authority" as contemplated under the said notification. Accordingly, the corporation was held liable for payment of GST on centage receipts from 01/07/2017 onwards.
The corporation accepted this advance ruling and proceeded to pay the GST dues. The GST payment of ₹84,90,34,589 and GST filing fee of ₹2,19,998, aggregating to ₹84,92,54,587, were claimed as expenditure in FY 2022-23, corresponding to AY 2023-24, on an actual payment basis.
Proceedings Before the Assessing Officer
The case was selected for scrutiny under Section 143(3) read with Section 144B of the Income Tax Act, 1961. During assessment proceedings, the Assessing Officer examined the large "other expenses" claimed and specifically focused on the GST-related expenditure totalling ₹84,92,54,587.
Reasons for Disallowance by the AO
The Assessing Officer identified the following key deficiencies:
- The assessee failed to furnish adequate documentary evidence to substantiate the claimed expenditure.
- It was not clearly established whether the centage receipts were inclusive or exclusive of GST.
- There was no satisfactory demonstration that the GST payment was directly linked to the income disclosed by the corporation.
- The accounting treatment adopted for the receipts and the corresponding liability was not adequately explained.
On account of these evidentiary gaps, the Assessing Officer disallowed the entire claim of ₹84,92,54,587 and computed the total assessed income at ₹87,64,57,157 under Section 143(3) r.w.s. Section 144B of the Act.
Appeal Before CIT(A): Disallowance Confirmed
Aggrieved by the assessment order, the assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi. The CIT(A) passed its order dated 14.05.2026 under Section 250 of the Income Tax Act, 1961, upholding the Assessing Officer's disallowance.