Tripura HC: Bona Fide Purchaser Not Liable for Supplier’s Default to Deposit GST
M/S. Sahil Enterprises v. Union of India and others
High Court of Tripura
January 06, 2026
Core Issue:
Can a genuine (bona fide) purchaser be denied Input Tax Credit (ITC) under Section 16(2)(c) of the CGST Act simply because the supplier failed to deposit the collected tax with the government?
Key Facts:
The petitioner, a trader, purchased goods and paid the full invoice amount, including Rs. 1.11 crore in GST, to the supplier.
The supplier filed sales returns (GSTR-1) but filed ‘Nil’ GSTR-3B returns, effectively stealing the tax collected and failing to deposit it with the government.
The Tax Department demanded the tax amount from the petitioner (the buyer) and blocked their credit ledger, arguing that ITC cannot be claimed if the tax hasn’t reached the government.
The High Court ruled in favor of the taxpayer and set aside the demand order. The key findings were:
Impossible Burden: The Court held that forcing a buyer to ensure their supplier deposits tax imposes an “impossible burden,” as buyers have no control over the supplier’s actions after payment.
Protection for Honest Buyers: Section 16(2)(c) must be “read down”. It applies only to collusive or fraudulent transactions. Genuine buyers who have paid tax to the supplier cannot be penalized for the supplier’s default.
No Double Taxation: Denying ITC to a buyer who has already paid the tax to the seller amounts to double taxation, which is unjust.
Remedy: The proper course of action for the Department is to recover the unpaid tax from the defaulting supplier, not the honest buyer.
Source :- Judgement