ITC can not be denied to purchaser who had paid due taxes on invoice raised where the seller did not deposit the collected tax with the Government.
In a recent judgment, Hon’ble Supreme Court has held that Input Tax Credit can not be denied to the registered purchaser who had paid due taxes to registered seller as per invoice(s) raised where the seller did not deposit the collected tax with the Government.
ABCAUS Case Law Citation:
4786 (2025) (10) abcaus.in SC
In the instant case in a Civil Appeal, the issue before the Hon’ble Supreme Court was as to whether under DVAT Act, the benefit of Input Tax Credit (ITC) can be denied to the registered purchaser dealers who paid due taxes (VAT) to registered seller dealer(s) in terms of invoice(s) raised by them where the seller dealers did not deposit the collected tax with the Government.
In the instant case, the Hon’ble Supreme Court noted that there was no dispute that on the date of transaction, the seller dealer(s) were registered with the Department. However, after the transaction, the registration of those seller dealer(s) was cancelled, and they defaulted in depositing the tax collected by them from the purchaser dealer(s). The Delhi High Court vide impugned judgment and order(s) found respondent(s) bona fide purchaser dealer(s) who had paid taxes in good faith to registered seller dealer(s) and, therefore, entitled to the benefit of ITC and, accordingly, allowed the benefit of ITC to purchasers after due verification of invoices.
The Hon’ble Supreme Court observed that in another case, this issue had been dealt with by the Delhi High Court and held that in the light of the provisions of DVAT Act, the expression ‘dealer or class of dealers’ occurring in Section 9 (2) (g) of the DVAT Act should be interpreted as not including a purchasing dealer who has bona fide entered into purchase transactions with validly registered selling dealers who have issued tax invoices in accordance with Section 50 of the Act where there is no mismatch of the transactions in Annexures 2A and 2B. Unless the expression ‘dealer or class of dealers’ in Section 9 (2) (g) is ‘read down’ in the above manner, the entire provision would have to be held to be violative of Article 14 of the Constitution.
The Delhi High Court had held that 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 who has issued a tax invoice reflecting the TIN number. In the event that the selling dealer has failed to deposit the tax collected by him from the purchasing dealer, the remedy for the Department would be to proceed against the defaulting selling dealer to recover such tax and not deny the purchasing dealer the ITC. Where, however, the Department is able to come across material to show that the purchasing dealer and the selling dealer acted in collusion then the Department can proceed under Section 40A of the DVAT Act.
The Hon’ble Supreme Court noted that against the said judgment of the Delhi High Court, the GST/VAT Department had challenged it by way of filing a Special Leave Petition (SLP) before the Hon’ble Supreme Court. However, the said SLP was dismissed.
In view of the above, the Supreme Court held that there was no dispute regarding the selling dealer being registered on the date of transaction and neither the transactions nor invoices in questions have been doubted based on any inquiry into their veracity.
The Hon’ble Supreme Court held that there was no good reason to interfere with the order of the High Court directing for grant of ITC benefit after due verification.
Accordingly, the appeals were dismissed as lacking merit.
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