ITC Cannot Be Denied To Bona Fide Purchasers If Seller Defaults On Tax Payment : Supreme Court
The Supreme Court recently held that the Input Tax Credit (ITC) on goods purchased from registered dealers cannot be denied to bona fide purchasers merely because the seller failed to deposit the Value Added Tax (VAT) with the government.A bench of Justice Manoj Misra and Justice Nongmeikapam Kotiswar Singh observed that there was no infirmity in the order of Delhi High Court granting credit...
The Supreme Court recently held that the Input Tax Credit (ITC) on goods purchased from registered dealers cannot be denied to bona fide purchasers merely because the seller failed to deposit the Value Added Tax (VAT) with the government.
A bench of Justice Manoj Misra and Justice Nongmeikapam Kotiswar Singh observed that there was no infirmity in the order of Delhi High Court granting credit to the respondent, a bonafide purchaser.
“We do not find a good reason to interfere with the order of the High Court directing for grant of ITC benefit after due verification.,” while dismissing a batch of appeals filed by the Delhi Trade and Tax Department.
The case arose from transactions between one Shanti Kiran India (P) Ltd., a registered purchaser, and certain sellers who were also registered with the department at the time of sale. After the transactions, the sellers' registrations were cancelled for defaulting on tax deposits. However, Shanti Kiran had paid the Value Added Tax in full as per invoices raised by the sellers.
The Department argued that under Section 9(2)(g) of the Delhi Value Added Tax (DVAT) Act, 2004, ITC could only be allowed if the selling dealer had actually deposited the tax. Since the sellers in this case had failed to do so, the Department claimed that the purchasers could not claim ITC benefits.
The Court rejected this argument, upholding the Delhi High Court's interpretation in Quest Merchandising India Pvt. Ltd. v. Government of NCT of Delhi, where it was held that denying ITC to bona fide purchasers would violate Article 14 of the Constitution.
Finding no evidence of collusion or fraud, the apex court dismissed the pleas.
Case Title: THE COMMISSIONER TRADE AND TAX DELHI vs M/S SHANTI KIRAN INDIA (P) LTD
Case Number: CIVIL APPEAL NO(S).2042-2047/2015
For Petitioner: Additional Solicitor General N Venkataraman, Advocates Mukesh Kumar Maroria, Udai Khanna, V C Bharathi, B K Satija, Gaurang Bhushan
For Respondent : Advocate Varinder Kumar Sharma
Citation : 2025 LiveLaw (SC) 1008