Meenu Trading Co Vs Commissioner Of Trade & Taxes (Delhi High Court)
In a significant decision providing relief to countless businesses, the Delhi High Court in Meenu Trading Co vs. Commissioner of Trade & Taxes has ruled that a purchasing dealer who acts in good faith cannot be denied Input Tax Credit (ITC) merely because the selling dealer failed to deposit the collected tax with the government. The court found Section 9(2)(g) of the Delhi Value Added Tax (DVAT) Act, 2004, unconstitutional as it failed to distinguish between bona fide and non-bona fide purchasers, thereby violating Article 14 of the Constitution.
The case centered on the validity of Section 9(2)(g), which allowed the tax department to deny ITC to a buyer if the seller did not remit the collected VAT. The petitioners argued this imposed an impossible and unfair burden on them, effectively penalizing them for a third party’s default.
The court observed that under the DVAT Act, the buyer pays the price inclusive of tax, and the seller is liable to remit this amount to the government. To claim ITC, a purchasing dealer must ensure the seller is registered and holds a valid tax invoice. However, the court recognized that the buyer has no practical way of forcing the seller to deposit the tax, especially since seller’s tax returns are confidential.
