In a landmark decision that strengthens the rights of honest taxpayers, the Allahabad High Court has ruled that a purchaser cannot be denied Input Tax Credit (ITC) under the GST regime merely because the supplier has failed to deposit the tax with the government. The ruling came in the case of R.T. Infotech v. Additional Commissioner Grade 2, providing much-needed relief and clarity for compliant businesses facing issues due to non-compliant suppliers.
Background of the Case
R.T. Infotech had purchased mobile recharge services from Bharti Airtel through seven tax invoices amounting to INR 1.58 crore. Against these transactions, the company claimed ITC of INR 28.52 lakh, having paid GST via RTGS and maintained valid tax invoices and proof of bank payments.
However, the GST department denied the ITC claim on the grounds that the supplier, Airtel, had not deposited the collected tax with the government. Despite R.T. Infotech possessing valid documentation and evidence of payment, the authorities issued demand orders under Section 73 of the CGST Act, imposing penalty and interest. The appellate authority upheld the department’s decision, leading R.T. Infotech to file a writ petition before the Allahabad High Court.
The Court’s Decision
The High Court sided with the petitioner, holding that a buyer who has diligently paid the tax and maintains proper documentation should not be penalized for the default of the supplier. The judgment emphasized that it is the responsibility of the assessing officer to take corrective action against the non-compliant supplier, not to deny rightful claims to a compliant purchaser.
The court quashed the demand orders issued by the tax authorities, making it clear that once a purchaser fulfills the legal requirements—such as valid invoices and payment proof—they are entitled to ITC.
Key Takeaways for Taxpayers
This ruling is a significant relief for buyers who face unjust denial of ITC due to the faults of their suppliers. Here are a few takeaways:
- Purchasers’ Diligence Matters: The court placed great importance on the fact that R.T. Infotech had acted diligently by maintaining proper invoices and making bank payments through official channels.
- Supplier’s Default Is Not Buyer’s Liability: The tax burden cannot be shifted to the buyer just because the supplier failed to deposit the tax.
- Proof and Documentation Are Critical: Maintaining robust documentation is key to protecting your rights under GST. This includes tax invoices, bank transfer records, and supplier communication.
Implications for the GST Ecosystem
This ruling could set a precedent in similar disputes across the country, bringing a sense of fairness and balance to GST enforcement. It also serves as a warning to tax authorities that penalizing compliant taxpayers for third-party defaults may not stand legal scrutiny.
Ultimately, this judgment highlights the importance of trust in a credit-based tax system and reinforces the principle that diligent taxpayers must be protected, not punished.