Commissioner of Trade and Taxes Delhi Vs Arise India Limited (Supreme Court of India)
The dispute concerned the constitutional validity of Section 9(2)(g) of the Delhi Value Added Tax Act, 2004 (DVAT Act), which denied Input Tax Credit (ITC) to purchasing dealers unless the tax collected from them had actually been deposited with the Government by the selling dealer. The Delhi High Court examined whether a bona fide purchasing dealer could be denied ITC because of the default of the selling dealer.
Read High Court judgment in this case: Input tax credit cannot be denied to recipient on default of payment by supplier
The petitions before the Delhi High Court involved several dealers who had purchased goods from registered sellers, paid VAT through tax invoices, and later claimed ITC. In one case, the seller allegedly failed to deposit VAT after a fire destroyed records. In another, the purchasing dealer ensured that the selling dealers possessed valid Tax Identification Numbers, transactions were recorded in books of account, and payments were made through banking channels. Despite this, ITC was denied on the ground that the sellers were “suspicious” or had not deposited tax with the Government.
The High Court analysed the scheme of the DVAT Act and noted that only registered dealers could collect VAT and issue tax invoices. It observed that the purchasing dealer could verify whether the seller was registered and whether tax invoices complied with statutory requirements. However, the purchasing dealer had no practical means to verify whether the selling dealer had actually deposited the tax collected with the Government, especially since the returns filed by the seller were confidential under Section 98 of the DVAT Act.
