Purchaser Not Liable for Supplier’s GST Default Key Insights from the Allahabad High Court Judgment

I. Case Overview

  • Parties Involved:

    • Petitioner: R.T. Infotech

    • Respondents: Additional Commissioner Grade-2 & others

  • Court: Allahabad High Court

  • Judge: Hon’ble Justice Piyush Agrawal

  • Subject Matter: Denial of Input Tax Credit (ITC) to the purchaser due to the seller’s failure to deposit GST

II. Core Legal Issue

  • Whether a bona fide purchaser, who has paid GST on valid tax invoices via banking channels (RTGS), can be denied ITC merely due to the supplier’s default in depositing such tax with the government.

III. Factual Matrix

  • R.T. Infotech, a registered dealer, purchased mobile recharge coupons from M/s Bharti Airtel Ltd. in FY 2017-18 against 7 valid tax invoices totalling ₹1,58,46,502, with claimed ITC of ₹28,52,370.

  • GST component (CGST + SGST = ₹14,26,185 each) was paid via RTGS.

  • ASMT-10 notice was issued under Section 70; the petitioner responded with ASMT-11, asserting payment through banking channels.

  • Despite the reply, a show cause notice (DRC-01) under Section 73 was issued, alleging ineligibility under Section 16(2)(c).

  • Petitioner argued for recovery from the seller; however, the order under Section 73 demanded full reversal of ITC + 10% penalty + interest.

  • Appeal against this order was dismissed on 24.06.2022.

IV. Legal Provisions Involved

  • Section 16(2)(c) of CGST Act: ITC shall be available only if the tax charged has been actually paid to the government.

  • Section 73: Recovery of tax not paid or short paid or erroneously refunded or ITC wrongly availed.

V. Petitioner's Contention

  • Tax was paid in full via RTGS against proper invoices.

  • No control over the supplier’s filing or tax deposit.

  • Reliance placed on:

    • Suncraft Energy Pvt. Ltd. v. ACST – The Supreme Court held that recovery proceedings must first be initiated against the defaulting supplier.

    • D.Y. Beathel Enterprises v. STO (Madras HC) – Denial of ITC to bona fide purchaser is unjust without action against seller.

VI. Respondent’s Contention

  • As per Section 16(2)(c), ITC is allowed only if tax is paid to the government.

  • Non-deposit by the supplier justifies reversal.

VII. Court’s Observations

  • Purchase invoices were genuine, and GST was paid through the banking channel.

  • The letter dated 05.09.2022 confirms that proceedings were already initiated against the seller.

  • The purchaser cannot compel the seller to:

    • File returns on time;

    • Deposit collected tax with the government.

  • Appellate authority ignored this vital fact.

  • Cited:

    • Suncraft Energy (SC) – Matter remanded to check supplier compliance.

    • D.Y. Beathel Enterprises (Madras HC) – The Purchaser should not suffer solely for the supplier’s lapse.

VIII. Judgment

  • Held: ITC denial unjustified where:

    • GST paid via a proper banking channel;

    • Purchase supported by valid invoices.

    • Action was initiated against the supplier.

  • Result: Impugned orders quashed.

  • Direction: Case remanded to authorities for fresh adjudication within 2 months, with all stakeholders heard.

IX. Significance & Key Takeaways

  • Precedent-setting reaffirmation that genuine purchasers who have acted in good faith and paid GST cannot be punished for the supplier’s non-compliance.

  • Reinforces judicial support for equitable treatment under the GST regime.

  • Upholds the buyer’s right to claim ITC if all documentary and payment obligations are fulfilled.

  • Promotes tax certainty and discourages arbitrary denial of credit.


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