VAT Credit Must be Given to Genuine Purchaser Even if Supplier Does Not Pay Tax: Supreme Court Upholds High Court’s Order

The Supreme Court in the case of The Commissioner of Trade and Tax, Delhi Vs M/s Shanti Kiran India (P) Ltd, has recently agreed with the High Court Order and provided relief to the purchaser, who was denied VAT Credit due to the supplier’s fault. The case was related to the VAT regime, but it is still equal to the current GST Act as well.

The purchaser, Shanti Kiran India Pvt. Ltd., purchased goods from a seller and paid VAT on them. The selling dealer was registered at the time of the transaction and gave a valid tax invoice. However, the seller did not deposit the tax collected from the purchaser and their registration was cancelled. The tax department denied the VAT credit to the purchaser as the seller defaulted.

Therefore, the purchasing dealer approached the Delhi High Court, where the court held that if the purchasing dealer has a valid invoice and the selling dealer was registered at the time of the transaction, then ITC cannot be denied just because the seller did not deposit the tax. The High Court held that if the selling dealer fails to deposit the tax collected from the purchasing dealer, the department will recover it from the defaulting seller and not the purchaser. It held that the purchaser cannot be denied the credit due to the seller’s default.

Being aggrieved by this order, the Tax Department filed an appeal before the Supreme Court.

The Supreme Court rejected the appeal filed by the revenue and upheld the decision of the High Court. It said that since the selling dealer was registered on the date of the transaction and there is no doubt about the invoices, there is no need to interfere in the High Court’s decision.