Purchaser Cannot Be Penalized for Seller’s Default in GST Deposit
Recently, Allahabad HC has held that Purchaser Cannot Be Penalized for Seller’s Default in GST Deposit
Let us have a Short Overview of the case:
Case: M/s R.T. Infotech vs. State Tax Authorities
Writ Tax No. 1330 of 2022 | Order Date: 30.05.2025 | Allahabad High Court
Background:
The petitioner purchased mobile recharge services from M/s Bharti Airtel Ltd. (FY 2017–18) and availed Input Tax Credit (ITC) of ₹28.52 lakhs on 7 tax invoices. Although tax was paid via RTGS, the supplier failed to reflect the tax in returns.
Department issued a show cause notice alleging wrongful ITC claim under Section 16(2)(c) and passed an order demanding reversal with interest and 10% penalty, which was upheld in appeal.
High Court Observations:
ITC was claimed on genuine tax invoices.
Payment was made through banking channel.
Action had already been initiated against the defaulting supplier (as evident from departmental correspondence).
The petitioner cannot be expected to ensure supplier’s return filing or tax deposit.
Key Legal References:
Suncraft Energy Pvt. Ltd. – Supreme Court (2023)
D.Y. Beathel Enterprises – Madras High Court (2022)
Verdict:
In a significant decision, the Hon’ble Allahabad High Court has quashed demand and penalty orders against M/s R.T. Infotech, providing critical clarity on Section 16(2)(c) of the CGST Act—concerning denial of ITC where the supplier fails to deposit tax.
The Court set aside both the original and appellate orders, remanding the matter for fresh consideration after due inquiry and hearing. Importantly, it emphasized that purchasers who act in good faith should not be penalized for supplier’s lapses.
Takeaway:
This ruling strengthens the jurisprudence protecting bona fide recipients of goods/services and narrows the aggressive application of Section 16(2)(c).
