Bona Fide Purchasers and Input Tax Credit: What the Supreme Court’s Ruling Means for You

The Issue

Can a genuine buyer lose Input Tax Credit (ITC) just because the seller didn’t pay tax to the government or had their registration cancelled later?

This was the key question in the case Commissioner of Trade and Tax, Delhi v. M/s Shanti Kiran India (P) Ltd. decided by the Supreme Court on 9 October 2025.

Background

Under Section 9(2)(g) of the Delhi Value Added Tax Act, 2004 (DVAT), ITC can be denied if the selling dealer hasn’t deposited the tax. Tax officers often used this to reject ITC even when the buyer had done everything right.

What the Court Found

• The sellers were registered when the sale happened.
• The invoices and purchases were genuine and properly recorded.
• There was no fraud or collusion between buyer and seller.

The Supreme Court said that ITC cannot be denied to a genuine buyer just because the seller defaulted later. The buyer followed the law and should not be punished for someone else’s mistake.

Why This Matters

This ruling protects honest businesses and supports fair taxation. It also upholds Article 14 of the Constitution, which guarantees equality before the law.

Impact on GST

Even though this case was under DVAT, the logic applies to GST too. Under GST, ITC is sometimes denied due to supplier-side issues like mismatches in GSTR-2A or GSTR-2B.

Key Takeaways for GST:

• ITC should not be denied without proof of fraud or collusion.
• Tax authorities must act fairly and proportionately.
• Buyers should not suffer for procedural lapses by sellers.

Conclusion

The Supreme Court’s decision in the Shanti Kiran case is a big win for taxpayers. It confirms that ITC is a right—not a privilege—and cannot be taken away from genuine buyers due to someone else’s fault.

This sets a strong example for GST cases and helps build trust in the tax system.

Leave a reply