Mahan Polymers Vs Commissioner of Vat & Anr (Delhi High Court)
Delhi High Court, in a significant ruling in the case of Mahan Polymers vs. Commissioner of VAT & Anr, has held that Input Tax Credit (ITC) cannot be denied to a bona fide purchasing dealer if their selling dealer fails to deposit the collected tax with the government. The court found that Section 9(2)(g) of the Delhi Value Added Tax (DVAT) Act, 2004, which allowed for such denial, was arbitrary and violated Article 14 of the Constitution for failing to distinguish between genuine and non-genuine purchasers.
The core of the issue revolved around the constitutional validity of Section 9(2)(g) of the DVAT Act. This provision allowed the tax department to deny ITC to a purchasing dealer if the selling dealer did not deposit the tax collected or properly reflect the transaction in their returns. The petitioners, a group of purchasing dealers, argued that this placed an impossible burden on them, effectively punishing them for the default of the selling dealer.
The High Court acknowledged that VAT is an indirect tax, with the liability to pay ultimately falling on the seller, who acts as an agent for the government. The buyer’s price is inclusive of the VAT, which the seller is then obligated to remit.
