Supreme Court Sides with Taxpayers — ITC Valid Even If Seller Defaults!
The Supreme Court of India recently ruled that Input Tax Credit (ITC) cannot be denied to a bona fide purchaser solely because the selling dealer failed to deposit the collected tax with the government.
This landmark decision in the case of The Commissioner Trade and Tax, Delhi vs. M/s Shanti Kiran India (P) Ltd. protects genuine taxpayers from being penalized for the defaults of their suppliers.
Big Relief for Genuine Businesses!
In a landmark ruling dated 9 Oct 2025, the Supreme Court in M/s Shanti Kiran India Pvt Ltd vs Commissioner, Trade & Tax, Delhi held that bona fide purchasers cannot be penalized for the seller’s failure to deposit tax.
What the Court Said:
✅ If your purchase is genuine, invoices are valid, and the seller was registered at the time of supply,
➡️ Input Tax Credit (ITC) cannot be denied, even if the supplier defaults later.
Denying ITC to an innocent buyer is equivalent to punishing a genuine taxpayer for another’s fault. This is violating the fairness principle under Article 14 of the Constitution.
What Businesses Should Learn:
1️⃣ Maintain proper documentation — invoices, payments, and vendor records.
2️⃣ Exercise vendor due diligence — avoid fictitious suppliers.
3️⃣ Though the case relates to Delhi VAT, the reasoning is highly persuasive under GST, especially for disputes under Section 16(2)(c).
Implications for the GST Regime:
Though the judgment pertains to the VAT regime, its principles have significant persuasive value for the current Goods and Services Tax (GST) framework in India. The ruling provides strong legal support for taxpayers challenging the arbitrary application of Section 16(2)(c) of the CGST Act, which makes ITC claims conditional on the supplier’s actual tax payment to the government. This decision reinforces that ITC is a vested right for a compliant taxpayer and not a conditional privilege dependent on the actions of others in the supply chain.
A major boost for taxpayer rights and GST fairness!
Team- Intellex Strategic Consulting Private Limited
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