Buyer Not Liable for Supplier’s Tax Default, Rules Allahabad High Court
Thank you for reading this post, don't forget to subscribe!In a significant decision, the Allahabad High Court has provided much-needed relief to buyers, ruling that they cannot be forced to reverse Input Tax Credit (ITC) even if their supplier defaults on filing returns or depositing tax. This judgment, delivered in the case of R.T. Infotech v. Additional Commissioner Grade 2 & Ors., emphasizes that genuine purchasers who have fulfilled their obligations should not be penalized for the supplier’s failures.
The case involved M/s R.T. Infotech (the Petitioner), a registered GST dealer, who claimed ITC on seven tax invoices for recharge coupons from M/s Bharti Airtel Ltd. The Petitioner had properly paid both CGST and SGST totaling Rs. 28.52 lakhs through banking channels. However, the tax authorities denied the ITC, citing discrepancies in the supplier’s returns and alleging a wrongful claim under Section 16(2)(c) of the Central Goods and Services Tax Act, 2017.
The Court’s Stance
The Hon’ble High Court squarely sided with the Petitioner, setting aside the orders that denied the ITC. The Court highlighted a crucial point: the purchaser has no means to compel the selling dealer to file returns or deposit tax on time. Therefore, the buyer shouldn’t be left at the mercy of the seller.
The judgment firmly stated that if the purchasing dealer has acted diligently—making purchases with valid tax invoices and paying via banking channels—they cannot be held liable for the selling dealer’s non-compliance. Instead, it’s the assessing authority’s responsibility to verify compliance and initiate action against the defaulting seller, rather than denying legitimate credit to the buyer.
Precedents and Implications
The Allahabad High Court’s decision aligns with previous rulings from higher courts:
- Assistant Commissioner of State Tax v. Suncraft Energy Pvt. Ltd. (Supreme Court): This case held that if a purchaser has paid tax on valid invoices and the supplier fails to discharge their tax liability, the matter should be remanded for an inquiry from the supplier.
- D.Y. Beathel Enterprises v. State Tax Officer (Madras High Court): This ruling stressed that action must be taken against the defaulting supplier simultaneously, ensuring the purchaser isn’t the sole party to suffer.
- Sri Vinayaga Agencies v. Assistant Commissioner (CT) (Madras High Court): In an earlier precedent, this court had also set aside orders denying ITC when the purchasing dealer had duly paid tax and complied with all conditions, despite the selling dealer’s failure to pay tax.
Our Take
This ruling is a welcome move by the judiciary. It underscores the importance of departmental accountability and the need for tax authorities to pursue defaulting suppliers directly, rather than placing an unfair burden on innocent buyers. This approach fosters a more equitable tax environment and ensures that genuine transactions are not penalized due to third-party non-compliance.
Do you have any thoughts on how this might impact businesses, or perhaps specific challenges you’ve faced with ITC claims?
