Supreme Court ruled that bona fide buyers can claim ITC even if the seller doesn’t deposit tax, provided transactions are genuine and there’s no collusion. { Commissioner Trade and Tax Delhi vs. M/s Shanti Kiran India (P) Ltd. (CA Nos. 2042-2047/2015 & 9902/2017)}
Facts:
- The purchasing dealer (Shanti Kiran India Pvt. Ltd.) had purchased goods from registered selling dealers and claimed ITC under the Delhi VAT Act.
- Later, it was found that the selling dealers had not deposited the collected tax with the government.
- The Department denied ITC to the purchaser under Section 9(2)(g) of the DVAT Act.
Issue:
Whether ITC can be denied to a bona fide purchasing dealer when the selling dealer, though registered, fails to deposit the tax with the government.
Held:
- ITC cannot be denied to a bona fide purchaser if:
- the seller was registered at the time of sale,
- genuine transactions took place with valid tax invoices,
- there was no mismatch or collusion.
- The Court held that denying ITC in such cases is arbitrary and violates Article 14 of the Constitution.
- The department’s remedy lies in recovering tax from the defaulting seller, not penalizing the genuine buyer.
