Introduction
In a much-anticipated decision dated 9 October 2025, the Supreme Court of India delivered a significant pronouncement in the case of The Commissioner, Trade & Tax, Delhi v. Shanti Kiran India (P) Ltd. (CA No. 2042-2047/2015). The judgment addresses the entitlement of bona-fide purchasing dealers to input tax credit (“ITC”) when the selling dealer, though registered at the time of sale, subsequently fails to deposit the collected tax with the government. It is being hailed as a major relief to compliant traders and has potential ripple-effects for the GST regime.
Legal Question
The key legal question before the Supreme Court was: Should a bona-fide purchasing dealer be denied ITC because the selling dealer, albeit registered at the time of sale, subsequently failed to deposit the collected tax with the government?
Supreme Court’s Decision
- The Supreme Court dismissed the appeals filed by the Commissioner of Trade & Tax, Delhi, thereby upholding the Delhi High Court’s view.
- The Court reiterated that the selling dealers were validly registered at the time of the transactions, the purchases were supported by valid tax invoices, and there was no allegation of collusion or fraud between the seller and the purchaser.
- On that basis, the Court held that the bona-fide purchasing dealers were entitled to claim ITC, and the mere failure of the seller to deposit tax did not automatically defeat the purchaser’s entitlement.
- The Court further underscored that the remedy for the tax department lies against the defaulting seller, not unjustifiably shifting the burden onto a compliant buyer.
Why the Ruling Matters
1. Protection of bona fide purchasers: The ruling gives comfort to dealers/traders who transact with registered sellers and comply with statutory formalities (invoices, payment of tax) that they will not be held liable for the seller’s subsequent failures, provided they act in good faith and no fraud is proved.
2. Clarification of Section 9(2)(g) interpretation: The decision affirms a narrower reading of clause (g) — that it cannot be used to penalise innocent purchasers unless there is collusion, fraud or the sale is from an unregistered dealer. This was the previous Delhi High Court approach which the SC has reinforced.
3. Ease of Doing Business / commercial certainty: By shielding compliant purchasers, the Court strengthens business confidence and reduces anxiety about being penalised for the supplier’s faults — thereby promoting ease of doing business.
Key Take-aways for Practitioners and Businesses
- Verify that the seller is validly registered at the time of supply and that you have valid tax invoices.
- Ensure the transaction is bona-fide, with no indication of collusion or fraud with the seller.
- Maintain records of purchase, invoice, tax payment and documentary evidence of compliance.
- While the seller’s subsequent non-compliance may be outside your control, you must show you acted in good faith.
- Don’t assume automatic denial of ITC merely because the seller defaulted; the SC’s ruling suggests the authorities must establish fraud/collusion to deny ITC under this head.
- Even though the ruling is under DVAT, monitor how it is adopted in GST jurisprudence and in departmental guidance.
- In audits and assessments, be prepared to argue the principle that the default of the selling dealer should not affect your ITC entitlement if you satisfied your part of the deal.
Conclusion
The Supreme Court’s ruling in The Commissioner, Trade & Tax, Delhi v. Shanti Kiran India (P) Ltd. represents a landmark shift in indirect tax jurisprudence in favour of genuine taxpayers. It confirms that compliance by purchasing dealers — in terms of registration, payment of tax and valid invoicing — must not be undermined by the subsequent default of a selling dealer. The decision reinforces the principle of fairness, ensures that ITC mechanisms function sensibly, and sends a positive signal to businesses about the integrity of tax credits. For tax practitioners and businesses alike, the judgment is a reminder of the importance of documentation, good-faith dealing, and the evolving interplay between VAT/ITC law and commercial realities.
Author Bio
Sir,
Why the earlier Judgment of Supreme Court given in the year 2018 on the same lines on S,9, Delhi Vat Act in the case of Commissioner of Trade &Taxes v. Arise India Ltd. (2018) 29 J.K.Jain’s GST & VR 22 is not being followed under GST regime.
Has anybody moved contempt application In the Deptt/SC Court. If Not why?
CA Om Prakash Jain s/o J.K.Jain, Jaipur
Tel No.9414300730/9462749040/0141-3584043