Sahil Enterprises Vs Union of India (Tripura High Court)
The Tripura High Court held that a bona fide purchaser cannot be denied Input Tax Credit (ITC) merely because the supplier failed to deposit GST collected with the Government. Examining Section 16(2)(c) of the CGST Act, 2017, the Court found that the provision, if applied literally, places an impossible and onerous burden on purchasers who have no mechanism to verify a supplier’s tax payment. To prevent arbitrariness and double taxation, the Court “read down” the provision, restricting its application only to collusive, fraudulent, or non-bona fide transactions. Where transactions are genuine, invoices are valid, and tax has been paid to the supplier, ITC cannot be denied for the supplier’s default. Notably, the Department invoked Section 73 (non-fraud) rather than Section 74, reinforcing the absence of collusion. The Court set aside the demand order and directed restoration of the denied ITC, affirming that recovery must be pursued against the defaulting supplier, not an honest buyer.
Facts of the Case:
- The petitioner, M/s. Sahil Enterprises, is a proprietary concern engaged in the trading of rubber products. The transactions in question occurred between July 2017 and January 2019.
- During this period, the petitioner purchased goods from its supplier, M/s Sentu Dey (Respondent no. 4), and paid a total of Rs. 1,11,60,830/- in Goods and Services Tax (GST) to the supplier.
- The supplier, M/s Sentu Dey, engaged in non-compliance. While it filed GSTR-01 returns reflecting the sales made to the petitioner, it subsequently filed ‘Nil’ GSTR-3B returns, thereby failing to deposit the tax it had collected from the petitioner with the Government.
- Consequently, the tax authorities took action against the petitioner. They denied the ITC claimed by the petitioner, blocked its Electronic Credit Ledger, issued a Demand-cum-Show Cause Notice under Section 73 of the CGST Act, and ultimately passed an order dated 17.05.2022 confirming the demand of Rs. 1,11,60,830/- along with interest and penalty.
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