Order denying ITC u/s 16(2) for non payment of GST by seller quashed by High Court

Order denying ITC u/s 16(2) for non payment of GST by seller quashed by High Court holding that purchasing dealer cannot be left at the mercy of the selling dealer. 

Ina recent judgment, Allahabad High Court has quashed order denying ITC u/s 16(2) for non payment of GST by seller holding that purchasing dealer cannot be left at the mercy of the selling dealer when he has discharged his duties diligently.

ABCAUS Case Law Citation:
4595 (2025) (06) abcaus.in HC

In the instant case, the assessee/Petitioner had filed a writ petition challenging the order passed by the Additional Commissioner (Appeals), commercial Tax, and the order passed by the Deputy Commissioner, State Tax.

The petitioner was a registered supplier having GSTIN and was authorized user of services of mobile recharge of M/s Bharti Airtel Ltd. Lucknow for the period of 2017-18. The petitioner used services of recharged coupons from M/s Bharti Airtel Ltd., against 7 tax invoices wherein the petitioner claimed ITC of GST paid thereon.

A notice was issued by the GST Department in form GST ASMT-10 under Section 70 of the Act, intimating discrepancy in the return of the petitioner after scrutiny.

The petitioner submitted reply in form of ASMT-11 clearly stating therein that the difference of ITC claimed and credit appearing in GSTR-2A was of the bills of M/s Bharti Airtel Ltd. and the payment had been made on the above seven bills through R.T.G.S. It was further submitted that the liability of tax had duly been discharged by the petitioner and no inaction on the part of the petitioner and therefore, the petitioner cannot be held responsible.

However, not being satisfied with the same, the Department issued a show cause notice to the petitioner under Section 73 of the Act in GST DRC-01, stating that the ITC has wrongly been claimed as per Section 16 (2) (C) of the Act to which the petitioner had submitted a detailed reply stating that the recovery proceedings may be initiated against the M/s Bharti Airtel Ltd., the seller, rather against the petitioner, but not being satisfied with the same, the State authorities passed an order under Section 73 of the Act whereby directing to deposit the difference and in addition to it, 10% penalty was also imposed as well as on reverse ITC, an interest was also calculated.

Against the said order, the petitioner preferred an appeal, which had also been dismissed by the impugned order.

Before the Hon’ble High Court, the Petitioner submitted that he had no control over the seller either to file the return on time or compel the selling dealer to deposit the amount to be paid by the petitioner with government authorities. Therefore, the petitioner cannot left to suffer for fault on the part of the selling dealer. In support of his submission, the Petitioner relied upon the judgment the Hon’ble Supreme Court.

Per contra, the Department contended that once the tax has not been deposited with the government treasury, the benefit of reversal of ITC of the petitioner cannot be said to be bad or illegal. It was further submitted that Section 16(2) of the GST Act contemplates that the benefit of ITC can be made available only on deposit of amount with the government treasury.

The Hon’ble High Court observed that it was not in dispute that the recharge coupons were purchased by the seven bills and CGST and SGST were charged. The record showed that the amount of GST charged over the said tax invoices, were paid through banking channel i.e. by R.T.G.S. Also, for non discharge of their duties by the selling dealer, the proceedings were initiated against the selling dealer.

The Hon’ble High Court stated that it is a matter of common knowledge that under the provision of the GST Act, the purchaser cannot compel the selling dealer to deposit the amount of tax realized from the petitioner with the government treasury. Also, the purchasing dealer can also not compel the selling dealer to file the return within stipulated time and deposit the tax collected.

The Hon’ble High Court opined that the purchasing dealer cannot be left at the mercy of the selling dealer. When the petitioner has discharged his duties diligently, it is the onus upon the assessing authority to duly communicate about the said fact i.e. the purchase has been made through tax invoices and payments have been made through banking channel and therefore, the authority ought to have counterpart of the selling dealer have initiated action and action has been taken with the benefit ought to have given to the petitioner.

The Hon’ble High Court noted that the Hon’ble Apex Court had occasioned to consider that the party who has paid the tax on invoices being raised and non-discharge of duties by the counterpart of the seller, the Court was pleased to remand the matter for making due inquiry from the supplier. Similarly, the Madaras High Court had taken a view that in absence of non performance of duty by the supplier, action must be taken against the supplier simultaneously and the purchaser alone shall not be suffered.

Accordingly, the Hon’ble High Court held that the impugned order cannot be sustained in the eyes of law and was quashed.

The writ petition was allowed. The matter was remanded for deciding afresh by passing a reasoned and speaking order, after hearing all the stakeholder.

Download Full Judgment Click Here >>

• ITAT allows exemption u/s 54EC for delayed investment in REC Bonds
• PNB invites application for empanelment of CA/CMA/CS for preparation of Due Diligence Report
• EOI invited for empanelment of CA Firms in Transport Commissioner Office Lucknow
• Separate Filing of e-form CSR-2 after transition from MCA21 V2 to V3 Portal
• MCA gives relaxation of additional fees for filing of 13 e-forms during transition to V3 Portal