供給者が政府への納税を怠った場合でも、善意の購入者にはITCの適用が認められる

Held by Hon’ble Supreme Court of India

In the matter of THE COMMISSIONER TRADE AND TAX DELHI Vs M/S SHANTI KIRAN INDIA (P) LTD.

(CIVIL APPEAL NO(S).2042-2047/2015)

The Purchasing dealers were denied the ITC against the purchases made from suppliers whose registration is cancelled and who has failed to pay the tax to the government. Hon’ble Delhi High Court allowed the benefit of ITC holding that statutory authority for granting input credit, only to the extent tax is deposited by the selling dealer, is unsound and contrary to the statute. Further,  The Court does not see any provision or methodology by which the purchasing dealer can monitor the selling dealer's behavior, vis-à-vis the latter's VAT returns. 

Hon’ble Supreme Court has held that Section 9(2)(g) of the DVAT Act should be interpreted as not including a purchasing dealer who has bona fide entered into purchase transactions with validly registered selling dealers who have issued tax invoices in accordance with Section 50 of the Act where there is no mismatch of the transactions in Annexures 2A and 2B. 

Therefore, the Department is precluded from invoking Section 9 (2) (g) of the DVAT to deny ITC to a purchasing dealer who has bona fide entered into a purchase transaction with a registered selling dealer who has issued a tax invoice reflecting the TIN number.  

In the event that the selling dealer has failed to deposit the tax collected by him from the purchasing dealer, the remedy for the Department would be to proceed against the defaulting selling dealer to recover such tax and not deny the purchasing dealer the ITC. However, In case of any collusion, the Department can proceed under Section 40A of the DVAT Act.

There is no dispute regarding the selling dealer being registered on the date of transaction and neither the transactions nor invoices in questions have been doubted, based on any inquiry into their veracity. Therefore, we do not find a good reason to interfere with the order of the High Court directing for grant of ITC benefit after due verification. 

1. Back Ground

• The Purchasing dealer was engaged in trading of Electrical goods and was registered under DVAT Act. 

• The Appellant purchased goods from dealers registered under DVAT Act on the basis of tax invoices and on payment of VAT at applicable rates.

• During the Assessment proceedings, the VATO disallowed the ITC claims against 2 suppliers contending that the sellers have operated for a short period of time and their turnover was high in comparison to the tax deposited by them. 

• Accordingly, the demand was raised of tax, interest and penalty. The VATO order was upheld by OHA and VAT tribunal. Therefore, the Appellant filed an appeal before Hon’ble Delhi High Court.

• Hon’ble High Court held that:
  
  • Hon’ble Supreme Court in the matter of Suresh Trading Co held that a purchasing dealer is entitled to rely upon the certificate of registration of the selling dealer and to act upon it. Retrospective cancellation can’t have effect upon any person who has acted upon the strength of a registration certificate when the registration was current. 

• The argument of the department that it was the duty of persons dealing with registered dealers to find out whether a state of facts exists which would justify the cancellation of registration must be rejected. 

• To accept it would be to notify the provisions of the statute which entitle persons dealing with registered dealers to act upon the strength of registration certificates.

• As a result, this Court is of the opinion that the interpretation placed by the Tribunal that there is statutory authority for granting input credit, only to the extent tax is deposited by the selling dealer, is unsound and contrary to the statute. 

• The Court does not see any provision or methodology by which the purchasing dealer can monitor the selling dealer's behavior, vis-à-vis the latter's VAT returns. 

• Nor is this Court in agreement with the Tribunal's opinion that insertion of clause (g) to Section 9(2) is clarificatory. As observed earlier, Section 9(2) is an exception to the general rule granting input tax credit to dealers who qualify for the benefit. The conditions for operation of the exception are well defined. 

• This Court is of the opinion that in the absence of any mechanism enabling a purchasing dealer to verify if the selling dealer deposited tax, for the period in question, and in the absence of notification in a manner that can be ascertained by men in business that a dealer's registration is cancelled (as has happened in this case) the benefit of input credit, under Section 9(1) cannot be denied. 

• Aggrieved by the order of Delhi High Court, the Revenue filed an appeal before the Hon’ble Supreme court of India vide C.A. No. 9902/2017 (XIV-A), wherein the judgment was pronounced on 9th October, 2025.

2. Brief facts of the case before Hon’ble Supreme Court:

• In these appeals the short issue that arose for consideration before the Delhi High Court was whether the benefit of ITC is available to the purchaser dealers who paid taxes to registered suppliers in terms of tax invoices issued by them even though such suppliers failed to deposit such tax with the Government.

• There is no dispute that on the date of transaction, the suppliers were registered with the Department. 

• However, after the transaction, the registration of such suppliers got cancelled and they defaulted in depositing the tax collected from the purchaser dealer. 

• In this matter, The High Court held that the bona fide purchaser dealer had paid taxes in good faith to the registered supplier and, therefore, entitled to the benefit of ITC and, accordingly, allowed the said benefit to them after due verification of invoices.

3. Findings and Analysis by Hon’ble Supreme Court

Hon’ble Supreme court made following findings and analysis:

• Reliance was placed on judgment of High court in case of Quest Merchandising India Pvt. Ltd. vs. Government of NCT of Delhi and Ors., 2017 SCC OnLine Delhi 13037 in the context of the provisions of Section 9(2)(g) of the DVAT Act.

• Section 9(1) of DVAT Act permits ITC to a registered dealer in respect of turnover of purchases occurring during the tax period where the purchase arises in the course of his activities as a dealer and the goods are to be used by him directly or indirectly for the purpose of making sales which are liable to tax under Section 7 of the DVAT Act. 

• Section 9(2)  sets out the conditions under which such ITC would not be allowed. 

• Section 9(2)(g) made ITC benefit available to a purchasing dealer only when the tax paid by the purchasing dealer has actually been deposited by the selling dealer with the Government and correctly reflected in the return filed for the respective tax period. 

• In the case of Quest Merchandising India Pvt. Ltd., the Hon’ble Delhi High Court held in the case of Section 9(2)(g):

• The expression ‘dealer or class of dealers’ occurring in Section 9(2)(g) of the DVAT Act should be interpreted as not including a purchasing dealer who has bona fide entered into purchase transactions with validly registered selling dealers who have issued tax invoices in accordance with Section 50 of the Act where there is no mismatch of the transactions in Annexures 2A and 2B. 

• Unless the expression ‘dealer or class of dealers’ in Section 9 (2) (g) is ‘read down’ in the above manner, the entire provision would have to be held to be violative of Article 14 of the Constitution.

• The result of such reading down would be that the Department is precluded from invoking Section 9 (2) (g) of the DVAT to deny ITC to a purchasing dealer who has bona fide entered into a purchase transaction with a registered selling dealer who has issued a tax invoice reflecting the TIN number. 

• In the event that the selling dealer has failed to deposit the tax collected by him from the purchasing dealer, the remedy for the Department would be to proceed against the defaulting selling dealer to recover such tax and not deny the purchasing dealer the ITC.

• Where, however, the Department is able to come across material to show that the purchasing dealer and the selling dealer acted in collusion then the Department can proceed under Section 40A of the DVAT Act.

The aforesaid decision of the High Court was challenged before this Court in Special Leave to Appeal (Civil) No.36750 of 2017. The said special leave petition was disposed of without interfering with the order of the High Court.

Read Also: Blocking Beyond the Balance Available in Electronic Credit Ledger (Negative blocking) is not Allowed Under Rule 86A

4. Final order

Hon’ble Supreme Court of India has held that:

• There is no dispute regarding the selling dealer being registered on the date of transaction and neither the transactions nor invoices in questions have been doubted, based on any inquiry into their veracity.

• したがって、適切な検証を経てITC（仕入税額控除）の適用を命じた高等裁判所の決定に介入する正当な理由は認められない。

• 本上訴には理由がないため、棄却する。

5. 結論

最高裁判所は、貿易および商業に広範な影響を及ぼす画期的な判決を下した。その中で、善意の購入者は、供給者が納税を怠ったことに対して罰せられるべきではないと判断された。

MSME（中小零細企業）を含むあらゆる産業が、供給者自身の行為により登録が取り消されたことを理由に、政府から追徴課税を求められる事態に直面している。善意の購入者は、すでに供給者に支払った税金に加え、利息や罰金を政府に二重に支払うよう要求されている。

最高裁判所は、すべての条件が満たされている場合、善意の購入者に対してITCを拒否することはできないと判示した。

1. 購入者が、有効に登録された販売業者と善意の購入取引を行ったこと。
2. 供給者が法的規定に従って税務請求書を発行していること。
3. 当該取引がポータルサイト上で報告されていること。

当局がとるべき救済措置は、当該税額を回収するために債務不履行の販売業者に対して手続きを行うことであり、購入業者からITCを拒否することではない。

ただし、購入業者と販売業者の間で詐欺や結託があった場合には、ITCは拒否され得る。

この判決は、法を遵守する納税者を恣意的かつ不公平な課税要求から守る記念碑的な先例である。当局には供給者から回収する仕組みがある以上、罪のない購入者が供給者の不履行の犠牲にされるべきではない。