In Delhi VAT Act section 9(2)(g) is very similar to Section 16(2)(c) of GST Act. In both the Acts the buyer is entitled to take credit of ITC only when the seller has remitted tax to the Government. Tens of thousands of cases wherein the innocent buyer is denied of ITC due to non-remittance of GST collected by the Seller or cancellation of GST Registration of the seller due to non-submission of GST returns properly are pending for adjudication.
The Delhi VAT section 9(2)(g) was “read down” by Delhi High Court in Quest Merchandizing India(P) Ltd vs Govt. of NCT of Delhi in the year 2017 and Delhi High court while reading down the provision said the phrase “dealers or class of dealers” is to be understood not to include Bonafide purchaser with no collusion or fraud.
In the recent judgment by Supreme Court in Civil Appeal 2042 of 2015 delivered on 9-10-2025 in Shanthi Kiran India (p) Ltd this judgment of Delhi High Court was upheld. Thus, Supreme Court of India has affirmed that an innocent buyer shall not be punished when there is no collusion or fraud.
The applicability of this Principle endorsed by Hon. Supreme Court of India under GST is to be seen in due course.
If the seller of goods has not remitted tax or has not properly filed his GST returns his GSTN is cancelled and in such circumstances the GST Authorities summarily disallow the ITC taken by a buyer of goods and lakhs of such cases are being processed. This kind of action taken by the authorities on many occasions lead to double taxation and undue enrichment of the government as follows and this shall be explained as follows.
A manufacturer of certain goods sells it to its dealer (A) and properly remits the tax. Thus, the tax is duly remitted to the government account. The dealer (A)who buys the product does not file his GST returns and not prompt in payment of taxes and his GST is later cancelled. But this dealer (A) in turn sells it to another dealer (B) who accounts the purchase, makes payment towards his purchase, sells the goods to his customer and pay the tax promptly and thus he is the innocent purchaser in this case. For the default of the Dealer(A), the Dealer(B) is held responsible and his ITC is blocked and proceedings are initiated. The main point here is that the tax payable by Dealer (A) is only to the extent of his value addition (his gross profit plus expenses) and not for the full value of the goods. Thus, the tax receivable by the Government is only this portion of tax on the value addition made by the Dealer(A) and not on the full invoice value. While so, the full ITC on the full value of the invoice is forfeited and disallowed for Dealer(B)which is unjust. The full tax o the same goods is remitted by the manufacturer himself at the first point of sale and tax has gone to the government. On all subsequent sales it is only the tax on the value addition has to go to the government. But, forfeiture of entire ITC and not restricting it to the portion of value addition results in undue enrichment of the government and double taxation.
The concept of GST itself is to eliminate the cascading effect of tax and this double taxation is against the philosophy of emergence of GST.
In line with this, the section 16(2)(c ) of GST Act has to be “read down” as “The seller has to remit tax on the value addition made by him for the buyer to take credit of the whole tax”. This alone will render justice and fairness
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