The Tripura High Court has ruled in favor of M/S Malaya Rub-Tech Industries, a rubber manufacturing firm, allowing them to claim Input Tax Credit (ITC) despite the seller's failure to deposit the collected GST with the government. This decision came after the firm was issued a show cause notice under Section 73(1) for allegedly wrongfully availing ITC amounting to ₹22,09,964.04, which led to a recovery order against them.
The case arose when M/S Malaya Rub-Tech Industries purchased input materials from a supplier between March and November 2018, in the belief that the supplier had fulfilled their tax obligations. The Assistant Commissioner, however, challenged the firm's ITC claim, prompting the firm to contest the order in the High Court.
The central issue was whether a purchasing dealer could be denied ITC solely because the seller did not deposit the tax. The court, referencing its prior judgment in M/s Sahil Enterprises v. Union of India, concluded that Section 16(2)(c) should not be used to penalize a bona fide purchaser. The court noted that the transaction was neither fraudulent nor collusive, and proceedings were appropriately initiated under Section 73, not Section 74, which pertains to fraud cases.
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The High Court emphasized that it is unreasonable to expect purchasers to ensure sellers deposit GST with the government, as this would place an undue burden on them. Consequently, the court set aside the recovery order and instructed authorities to grant the ITC to the petitioner, M/S Malaya Rub-Tech Industries.
Order Date - 11 February 2026
Parties: Tvl.RB Communication Vs The State Tax Officer
Facts -
- Tvl. RB Communication, represented by its proprietor M. Ramachandran, challenged an assessment order dated 19.08.2025 passed under Section 74 of the TNGST Act for the assessment year 2025–26.
- The petitioner contended that Sections 73 and 74 stood omitted from 01.04.2024, and only Section 74A applies for financial years 2024–25 onwards.
- Despite this, the respondent issued a show cause notice under Section 74 and passed the impugned order under the same provision.
- The show cause notice inconsistently referred to Section 74A(5), revealing confusion and non-application of mind.
Issue -
- Whether an assessment order passed under Section 74 (after its omission) for FY 2025–26 is legally sustainable?
Order -
- The Court held that with effect from 01.04.2024, Sections 73 and 74 were omitted, and Section 74A alone governs proceedings for FY 2024–25 onwards.
- Issuing notice and passing an order under Section 74 for FY 2025–26 was without jurisdiction.
- The inconsistent reference to both Sections 74 and 74A in the notice reflected total non-application of mind, causing confusion and prejudice to the petitioner.
- The Court set aside the order and remanded the matter, directing the petitioner to treat the impugned order as a notice under Section 74A and file objections within four weeks.
