Landmark Relief: SC Upholds ITC Benefit Despite Supplier’s Tax Default

Landmark Relief: SC Upholds ITC Benefit Despite Supplier’s Tax Default

The Supreme Court of India dismissed the Revenue Department’s Special Leave Petition (SLP), effectively upholding the principle that a purchasing dealer cannot be denied Input Tax Credit (ITC) merely because the selling dealer failed to deposit the collected tax to the government exchequer.

Key Points of the Judicial Ruling

• Protection for Bona Fide Purchasers: This ruling provides critical relief and legal certainty to taxpayers (purchasing dealers) who have genuinely entered into a transaction and paid the tax component to their supplier. The court protects the recipient from being penalized for the default of a third party over whom they have no control.
• ITC Denial Under Section 16(2)(c) Challenged: The decision is significant as it challenges the strict enforcement of Section 16(2)(c) of the CGST Act, which links the recipient’s ITC claim to the supplier’s payment of tax. By upholding the benefit for the purchaser, the Supreme Court signals a focus on the bona fide nature of the transaction.
• Burden on Revenue: The judgment places the primary burden of recovery on the tax authorities. The Revenue must pursue recovery against the defaulting selling dealer first, rather than summarily denying the credit to the innocent buyer.
• Clarity in Litigation: This ruling helps resolve a long-standing point of litigation and ambiguity, ensuring that the working capital of compliant businesses is not jeopardized by the actions of their suppliers.