Bonafide purchasing dealers should not be denied ITC for non compliance of selling dealers
Here is an interest case before the Gauhati High Court “National Plasto Moulding Pvt. LTd. Vs. State of Assam & Ors.[WP(C)/2863/2022 dated August 05, 2024]” wherein it has been held that bonafide purchasing dealers should not be denied ITC for non – compliance of selling dealers Let us have a short overview of the case:
The primary issue in this case was whether the Input Tax Credit (ITC) claimed by a purchasing dealer can be denied if the selling dealer fails to deposit the collected tax with the government. This raised questions about the fairness and responsibility in the GST framework, particularly concerning the rights of bona fide purchasers. In this case, National Plasto Moulding purchased goods from a supplier and claimed ITC based on the tax invoices provided by the supplier.
The tax authorities denied the ITC claim, stating that the supplier had not deposited the tax collected from National Plasto Moulding. National Plasto Moulding argued that they had fulfilled their obligation by paying the tax to the supplier and should not be penalized for the supplier’s failure to remit the tax to the government.
After hearing the either side, the Gauhati High Court ruled in favor of National Plasto Moulding, stating that:
1. Bona fide purchasing dealers should not be denied ITC due to the selling dealer’s failure to deposit the tax.
2. The tax authorities should take recovery actions against the defaulting selling dealer rather than penalizing the purchasing dealer who has acted in good faith.
3. This ruling aligns with the Delhi High Court’s decision in the case of On Quest Merchandising India Private Limited vs. Government of NCT of Delhi, reinforcing the principle that genuine purchasers should not suffer due to the non-compliance of the sellers.
In short, the ruling can be summarized as under:
1. Protectionof Bona Fide Purchasers: The ruling emphasizes that genuine purchasers who have paid the tax to the supplier should not be penalized for the supplier’s failure to deposit the tax.
2. Fairnessin GST Compliance: This judgment promotes fairness in the GST regime, ensuring that honest taxpayers are not unduly burdened by the non-compliance of others.
3. RecoveryActions: Tax authorities are encouraged to pursue recovery actions against defaulting sellers rather than denying ITC to bona fide purchasers.
4. LegalPrecedent: The case sets a significant legal precedent, reinforcing similar rulings from other high courts, and contributes to a more just and efficient tax system.
This case is a pivotal moment in GST law, highlighting the importance of protecting the rights of honest taxpayers and ensuring a fair and equitable tax system.
The copy of the order is as under:
