The Tripura High Court ruled in favor of M/S Malaya Rub-Tech Industries, a firm engaged in rubber manufacturing, regarding their claim for Input Tax Credit (ITC) under the GST regime. The company had purchased input materials from a supplier and paid the applicable GST, believing that the supplier had deposited the tax with the government. However, the Assistant Commissioner issued a show cause notice and later an order for the recovery of ₹22,09,964.04, alleging wrongful availment of ITC because the supplier failed to deposit the tax.
The main issue was whether ITC could be denied to a purchasing dealer who entered into a bona fide transaction, merely because the seller did not deposit the collected tax. The High Court referred to its earlier judgment in M/s Sahil Enterprises v. Union of India, stating that Section 16(2)(c) of the GST Act should not be interpreted to penalize a bona fide purchaser. The court noted that the proceedings were under Section 73, applicable to non-fraud cases, and there was no indication of fraud or collusion in the transaction.
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The court emphasized that it is unreasonable to expect purchasers to ensure the seller's compliance with tax deposit requirements, as this would place an unrealistic burden on them. Consequently, the High Court set aside the recovery order and directed the authorities to allow the ITC claim of ₹22,09,964/- to M/S Malaya Rub-Tech Industries.
Order Date - 10 February 2026
Parties: M/S Malaya Rub-Tech Industries Vs The Union of India represented by its Secretary, The Secretary, Department of Finance, Government of India, The State of Tripura represented by the Commissioner & Secretary, The Commissioner & Secretary, Revenue Department, Government of Tripura, The Commissioner of Goods and Service Tax, Government of Tripura, The Assistant Commissioner, Department of Revenue and Sri Sentu Dey, son of not known, resident of Jumerdhepa
Facts -
- M/S Malaya Rub-Tech Industries, a partnership firm engaged in rubber manufacturing and registered under CGST and SGST, purchased input materials from a supplier (Respondent No.7) between 08.03.2018 and 30.11.2018 and claimed ITC after paying tax on those purchases.
- The firm believed in good faith that the supplier had deposited the collected GST with the Government, and the purchased materials were used in manufacturing finished products.
- The Assistant Commissioner issued a show cause notice under Section 73(1) alleging wrongful availment of ITC amounting to ₹22,09,964.04 and later passed an order directing recovery of the said amount.
- Aggrieved by the recovery order dated 17.02.2022, the petitioner approached the High Court challenging the legality of the notice and denial of ITC.
Issue -
- Whether ITC can be denied to a purchasing dealer who entered into a bona fide transaction merely because the selling dealer failed to deposit the tax collected?
Order -
- The Court relied on its earlier judgment in M/s Sahil Enterprises v. Union of India and held that Section 16(2)(c) cannot be interpreted to punish a bona fide purchaser.
- There was no finding in the show cause notice or order that the transaction was fraudulent, collusive, or lacking bona fides; proceedings were initiated under Section 73 (non-fraud cases), not Section 74 (fraud cases).
- The Court observed that a purchaser cannot be expected to ensure that the seller actually deposits the GST with the Government, as this would impose an impossible burden.
- Accordingly, the High Court set aside the recovery order and directed the authorities to allow ITC of ₹22,09,964/- to the petitioner.
