HC Quashed ITC disallowance; Purchaser Cannot Be Penalised for Seller’s Default

A registered GST dealer purchased mobile recharge coupons from M/s Bharti Airtel Ltd. during the financial year 2017–18. The petitioner availed input tax credit (ITC) of Rs. 28.52 lakh against seven tax invoices amounting to Rs. 1.58 crore. Later, a discrepancy was raised under Section 70 by the tax department on the ground that the ITC claimed did not match the supplier’s return. Despite the petitioner’s explanation that payment was made through banking channels and that the seller alone should be proceeded against for non-compliance, the department rejected the ITC under Section 73, imposed interest and penalty, and this order of the department was upheld by the appellate authority.

Issue Raised: Whether a legitimate buyer who has paid taxes using legitimate invoices and banking channels can be denied an ITC just because the selling dealer neglected to file returns or deposit taxes.

HC Held: The High Court allowed the writ petition, thereby overturning the decision of the adjudicating and appellate authorities. The Court decided that the petitioner could not be held accountable for the seller’s non-compliance after they had fulfilled their responsibilities, which included receiving tax invoices and paying taxes through RTGS. It highlighted that action should be taken against the seller and not just the buyer, citing the Supreme Court’s ruling in Suncraft Energy Pvt. Ltd. and the Madras High Court’s decision in D.Y. Beathel Enterprises. After hearing all parties involved, the case was remanded for further consideration with instructions to issue a reasoned order.

To Read Judgment, Check PDF Given Below