Supreme Court Relief: Buyer Not Liable for Seller’s Default on ITC

Supreme Court Relief: Buyer Not Liable for Seller’s Default on ITC

Case: Commissioner Trade & Tax Delhi vs. Shanti Kiran India Pvt. Ltd. (CA Nos. 2042-2047/2015 & 9902/2017)

1. Background

Shanti Kiran India Pvt. Ltd. claimed Input Tax Credit (ITC) under Delhi VAT.

Their sellers, however, did not deposit the tax with the Government.

Because of this, the Department denied ITC to Shanti Kiran.

2. The Big Question

Should a buyer lose ITC just because the seller failed to deposit tax, even when:

• The purchase is genuine
• A valid tax invoice exists

3. Delhi High Court’s View

If the buyer has made genuine purchases and paid tax to the seller, ITC cannot be denied.

A buyer cannot be forced to chase or monitor whether the seller deposited tax.

4. Supreme Court’s Observations

The Supreme Court agreed that a bona fide buyer should not suffer. But it also added:

The Department must carefully check the facts before granting ITC.

5. Supreme Court’s Order

The case was sent back to the Assessing Authority.

The Department must verify:

• If purchases are genuine
• If payments were made through bank channels
• If tax invoices are valid

If all these conditions are met, ITC cannot be denied.

6. Core Principle Established

A purchasing dealer cannot be treated as a defaulter if:

• Purchases are genuine
• Tax invoice is available
• Payment is made through bank
• No evidence of collusion with the seller

7. Why This Matters

• Protects taxpayer rights
• Supports genuine business transactions
• Stops automatic denial of ITC
• Shifts the burden on the Department to prove fake supply or mismatch

8. Practical Takeaway (Even Under GST)

If ITC is denied because the seller defaulted, the buyer should show:

• Invoice
• E‑way bill / transport proof
• Bank payment records
• Supplier’s GST details at the time of supply

Once these are shown, the burden shifts back to the Department.

. Conclusion

A genuine buyer is not a tax evader. Tax law cannot punish the innocent for someone else’s fault.

This case is a big relief for honest taxpayers and sets a strong precedent: focus on genuineness, not on chasing the seller’s compliance.

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