Case Background:
The M/s R.T. Infotech, a registered GST taxpayer, had claimed Input Tax Credit (ITC) of around ₹28.52 lakhs based on seven invoices issued by Bharti Airtel Ltd. during July 2017 to March 2018. These invoices were for mobile recharge coupons that were purchased by the petitioner, and all payments were made through proper banking channels.
Even though the transactions were genuine, the GST department denied the ITC, saying that the supplier (Bharti Airtel) had not deposited the tax with the government. This decision was first made by the Deputy Commissioner, Sector-4, Meerut, on 22 October 2021, and later confirmed by the Additional Commissioner, Commercial Tax, Meerut, on 24 June 2022. As a result, the petitioner took the matter to the Allahabad High Court.
Facts of the Case:
Before the High Court, the petitioner argued that the transactions were entirely genuine. The invoices were issued by Bharti Airtel Ltd., a registered GST supplier, and the recharge coupons were received and used for business purposes. The petitioner made payments through banking channels (RTGS) and duly claimed Input Tax Credit (ITC) of ₹28,52,370 in its GSTR-3B.
The Petitioner stated that CGST and SGST of ₹14,26,185 each were paid. Later, on 08.07.2021, the tax department issued a notice (ASMT-10) pointing out discrepancies in the GST return. The petitioner replied on 20.08.2021 (ASMT-11), clarifying that the mismatch in Input Tax Credit (ITC) was not related to bills from Bharti Airtel Ltd. and that payments for those bills were made via RTGS. Despite this, a show cause notice was issued under Section 73, claiming that ITC was wrongly availed as per Section 16(2)(c). The petitioner argued that any recovery should be made from the seller, Bharti Airtel Ltd., not from them. However, the tax authorities rejected this and passed an order demanding ₹28,52,370 along with a 10% penalty and interest on reversed ITC. The petitioner appealed, but the appeal was dismissed on 24.06.2022.
To support his argument, he has referred to the judgment given in Assistant Commissioner of State Tax vs. Suncraft Energy Pvt. Ltd., reported in (2023) 13 Centax 189 (S.C.).
Conversely, the impugned order was defended by the learned Additional Chief Standing Counsel (A.C.S.C.), who has argued that, since the tax amount was not deposited in the government treasury, the reversal of Input Tax Credit (ITC) cannot be considered either illegal or improper. It has further been submitted that, in accordance with Section 16(2) of the GST Act, entitlement to ITC arises only upon the actual deposit of tax with the government.
The petitioner’s counsel emphasized that the buyer had no control over the supplier’s GST compliance, such as filing returns (GSTR-1, GSTR-3B) or depositing the tax.
Department’s Stand:
The GST department denied the ITC based on a strict reading of Section 16(2)(c) of the CGST Act, 2017. According to the department, this section clearly states that input tax credit can only be allowed if the supplier has actually paid the tax to the government.
In this case, since the supplier hadn’t deposited the GST, the department claimed the ITC was not valid. They also pointed out that the tax mismatch showed up in the GST system (GSTR-2A/2B), which flagged the issue.The department argued that allowing ITC in such cases would lead to a loss of revenue, and said their decision was in line with the law, even if the buyer had no real way to force the supplier to comply.
Court’s Observation
- It is not in dispute that the recharge coupons were purchased by the seven bills and CGST and SGST were charged.
- The record shows that the amount of GST charged over the said tax invoices, were paid through banking channel i.e. by R.T.G.S.
- The record further shows that for non discharge of their duties by the selling dealer, the proceedings were initiated against the selling dealer.
- The purchasing dealer can also not compel the selling dealer to file the return within stipulated time and deposit the tax collected. The purchasing dealer cannot be left at the mercy of the selling dealer.
- The Hon’ble Apex Court in the case of Assistant Commissioner of State Tax Vs. Suncraft Energy Pvt. Ltd., (2023) 13 Centax 189 (S.C.) had occasioned to consider that the party who has paid the tax on invoices being raised and non-discharge of duties by the counterpart of the seller, the Court was pleased to remand the matter for making due inquiry from the supplier
- In the case of Y. Beathel Enterprises Vs. State Tax Officer (Data Cell), Tirunelveli, 2021 (58) G.S.T.L. 269 (Mad.) has taken a view that in absence of non-performance of duty by the supplier, action must be taken against the supplier simultaneously and the purchaser alone shall not be suffered.
Conclusion:
The Allahabad High Court, in the case of R.T. Infotech v. Additional Commissioner Grade 2, clearly held that a buyer cannot be denied Input Tax Credit (ITC) just because the supplier didn’t pay the tax to the government. The Court said that this goes against the intention of Section 16 of the CGST Act, especially when the buyer has done everything right — like making full payment, receiving the goods, and keeping proper tax invoices.
The Court added that it’s unfair to punish the buyer for something they have no control over, such as whether the supplier files their GST returns or deposits the tax. This ruling supports the idea that honest taxpayers should not suffer due to mistakes or defaults by others.
The High Court made it clear that a buyer’s role is limited to making sure the supplier is registered under GST, receives a proper invoice, actually gets the goods or services, and pays the full amount through a traceable method like a bank transfer. If all these conditions are met, then the buyer should not lose their Input Tax Credit (ITC) just because the supplier didn’t file their GST return (like GSTR-3B) or didn’t pay the tax to the government.
The Court also said that interpreting Section 16(2)(c) in a way that punishes honest buyers is wrong and unfair. Instead of going after the buyer, tax officers should check the supplier’s records, take action against them under Section 73 or 74 if needed, and make sure that buyers who have followed the rules are not held responsible for the supplier’s failure.
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