The Supreme Court upheld the right of registered purchasers to claim Input Tax Credit (ITC) even if the selling dealer failed to deposit collected taxes. While considering appeals against the Delhi High Court’s order, the Court observed that bona fide purchasers who paid taxes to duly registered sellers cannot be penalized for the seller’s default, and denying ITC in such cases would violate Article 14 of the Constitution.
Registered purchasers paid taxes to dealers who were duly registered at the time of transaction. Later, these sellers defaulted in depositing the collected taxes after their registration was cancelled. The purchasers claimed ITC, but the authorities denied it under the DVAT Act, leading to the Delhi High Court ruling in favor of the purchasers, which prompted appeals to the Supreme Court.
Appellants argued that ITC cannot be claimed if the seller did not deposit the tax, relying on Section 9(2)(g) of the DVAT Act. Respondents contended that they acted in good faith, made payments to registered dealers, and obtained proper invoices, entitling them to ITC.
The Apex Court held that purchasers who acted bona fide and obtained valid invoices cannot be denied ITC due to the seller’s default. Quoting the Delhi High Court in On Quest Merchandising India Pvt. Ltd., the Court noted, “The Department is precluded from invoking Section 9(2)(g) of the DVAT to deny ITC to a purchasing dealer who has bona fide entered into a purchase transaction with a registered selling dealer. The Department’s remedy lies against the defaulting seller, not the purchaser.”
The Court emphasized that ITC denial without evidence of collusion would violate Article 14, and the proper recourse is recovery from the defaulting seller.
The Top Court dismissed the appeals, affirming the Delhi High Court’s order granting ITC to bona fide purchasers after verifying invoices. All pending applications were disposed of.
Case Title: The Commissioner Trade and Tax Delhi vs. M/S Shanti Kiran India (P) Ltd.
Case No.: Civil Appeal No(s).2042-2047/2015
Coram: Justice Manoj Misra, Justice Nongmeikapam Kotiswar Singh
Advocate for Petitioner: Adv. N. Venkataraman Ld. (A.S.G.), Mukesh Kumar Maroria (AOR), Udai Khanna, V.C. Bharathi, B.K. Satija, Gaurang Bhushan
Advocate for Respondent: Adv. Varinder Kumar Sharma (AOR)
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