ITC disallowance under sec. 73 quashed as no prior action taken against defaulting supplier and no collusion alleged{ K.V. Joshy & C.K. Paul vs. Assistant Commissioner [2025] 181 taxmann.com 148 (Kerala}
Facts:
The purchasers had availed ITC on goods bought from registered suppliers. They had valid tax invoices, and the tax was paid to the suppliers. Later, the department found that the suppliers had not deposited the tax with the Government. Without taking any action against the suppliers, and without issuing proper notice or alleging any collusion, the department issued a SCN to the purchasers proposing ITC disallowance under Section 73.
Issue:
Whether ITC can be denied to the purchaser under Section 73 when tax was genuinely paid to registered suppliers, no allegation of collusion existed, and no prior proceedings were initiated against the defaulting suppliers.
Held:
The Court held that the purchaser cannot be denied ITC in such circumstances. It observed that the department must first proceed against the defaulting suppliers who failed to remit tax. Without showing collusion or fraud on the part of the purchaser, and without any action against the suppliers, the SCN was contrary to the statutory provisions. Hence, the SCN for ITC disallowance was unsustainable and was quashed.
