The Gauhati High Court ruled that a bona fide purchaser cannot be denied Input Tax Credit (ITC) simply because the supplier failed to deposit GST with the government, as long as the purchase transactions are genuine. This decision came in the case involving Sri Gurucharan Kangsa Banik, proprietor of M/s Sree Guru Metals, who had purchased goods from registered suppliers and claimed ITC for transactions between July 2017 and March 2019. Despite an investigation by the DGGI alleging wrongful ITC claims on invoices without actual receipt of goods, no incriminating material was found during a search of the petitioner's premises.
The petitioner challenged an Order-in-Original that confirmed tax, interest, and penalties totaling ₹69.56 lakh, arguing that ITC denial was unjustified given the bona fide nature of the transactions. The High Court referred to a previous Division Bench decision in National Plasto Moulding v. State of Assam, affirming that a genuine purchasing dealer should not be penalized for the supplier's failure to deposit collected taxes. The Court also cited the Delhi High Court's decision in Quest Merchandising India Pvt. Ltd., which stated that imposing a burden on purchasers to ensure suppliers deposit taxes is unreasonable.
Read More: Gauhati High Court - ITC cannot be denied to a bona fide purchaser merely because the supplier failed to deposit GST, unless there is evidence of collusion or non-genuine transactions [Order attached]
While the Court emphasized protection for genuine transactions, it noted that if the Department finds evidence of collusion, sham transactions, or lack of bona fides, it can pursue legal action against the purchaser. The Court concluded that the Department should seek remedies against defaulting suppliers rather than penalizing bona fide purchasers.
Order Date - 03 June 2026
Parties: Sri Gurucharan Kangsa Banik, Proprietor of M/s Sree Guru Metals Vs Union of India & Anr. (Assistant Commissioner, CGST & Central Excise, Silchar Division)
Facts -
- Sri Gurucharan Kangsa Banik, proprietor of M/s Sree Guru Metals, purchased goods from registered suppliers, paid the value along with GST through banking channels, and claimed ITC for the period July 2017 to March 2019.
- The DGGI initiated an investigation alleging wrongful availment of ITC on invoices without actual receipt of goods. The petitioner appeared before the authorities and furnished GST returns, invoices, and other supporting documents.
- A search was conducted at the petitioner’s premises in July 2019, but no incriminating material was recovered. The petitioner maintained that goods were actually received and payments, including GST, were made through banking channels.
- Subsequently, a show cause notice was issued alleging wrongful availment of ITC of ₹69.56 lakh, and an Order-in-Original dated 28.03.2024 confirmed tax, interest, and equivalent penalty. The petitioner challenged the order before the High Court.
Issue -
- Whether ITC can be denied to a purchasing dealer solely because the supplier allegedly failed to discharge GST liability, despite the purchaser having completed bona fide transactions and complied with statutory requirements?
Order -
- The Court noted that the controversy was already settled by the Division Bench decision in National Plasto Moulding v. State of Assam. The legal position is that a genuine purchasing dealer cannot be penalized merely because the selling dealer failed to deposit the tax collected from the purchaser.
- Relying on the Delhi High Court decision in On Quest Merchandising India Pvt. Ltd., the Court observed that the law cannot impose an impossible burden on a purchaser to ensure that the supplier deposits tax with the Government after receiving it. Such a requirement would be unreasonable and unfair to bona fide purchasers.
- The Court emphasized that where a purchaser has dealt with a registered supplier, received valid tax invoices, received goods, and complied with statutory conditions, denial of ITC solely due to supplier default is not justified. The Department's remedy lies against the defaulting supplier.
- However, the Court clarified that protection is available only to genuine transactions. If the Department possesses material showing collusion, sham transactions, or lack of bona fides, it is free to initiate proceedings in accordance with law.
