Gauhati High Court Quashes GST Demand Against Bona Fide Purchaser Because of Supplier’s Default

The Gauhati High Court has quashed an Order-in-Original passed by the Assistant Commissioner, Central Goods and Services Tax and Central Excise Division, Silchar, whereby a tax demand of Rs 15.5 lakh along with interest under Section 50 and an equivalent penalty under Section 74(1) read with Section 122 of the CGST Act, 2017, and Section 20 of the IGST Act, 2017, had been imposed for the period from July 2017 to March 2019.

The petitioner is the proprietor of M/s S.K. Traders and had purchased goods from registered suppliers and made payments, including GST, through banking channels supported by valid invoices. The authorities doubted that the petitioner had wrongly availed ITC in violation of Sections 16(2)(a) and 16(2)(b) of the CGST Act on the ground that the suppliers had not actually supplied goods.

Petitioner contended that he fulfilled all statutory conditions prescribed under Section 16(2) of the CGST Act and the purchases were genuine. It was further contended that no effective opportunity of hearing was provided. After considering the submissions, the Division Bench had categorically held that where a purchasing dealer has entered into transactions in a bona fide manner along with a registered supplier and has complied with all statutory requirements, denial of input tax credit solely on account of the supplier’s failure to deposit tax is not permissible under the law.

The Court held that the proper remedy available to the department is to proceed against the defaulting supplier and not against a genuine purchaser, and accordingly, the Court set aside and quashed Order-in-Original No. 38/GST/AC/SIL/2023-24 dated 28 March 2024 and disposed of the writ petition. However, if there are materials suggesting collusion or absence of bona fide, the authorities are free to initiate proceedings in accordance with law.