ITC cannot be denied to a bona fide Purchaser due to non-compliance by the Seller

• The Petitioner has challenged the validity of Section 16(2)(c) and 16(2)(d) of the Central Goods and Services Tax Act, 2017 and Assam Goods and Services Tax Act, 2017 (collectively referred as ‘the GST Acts’) along with show cause notice issued by the Department·
• The Petitioner contended that the Delhi High Court in the case of On Quest Merchandising India Private Limited Vs Government of NCT of Delhi & Ors., has held that a purchasing dealer cannot be punished for the act of the selling dealer in case the later had failed to deposit the tax collected by it.

Issues before the Hon’ble High Court

• Whether the Sections 16(2)(c) and 16(2)(d) of the GST Acts are valid which penalize a purchasing dealer for the non-compliance of selling dealers?

Discussion & Ruling

The Hon’ble Guwahati High Court set aside the show cause notice basis the following observations:

• The issue in the current batch of writ petitions is directly covered by the Delhi High Court in the case of On Quest Merchandising India Private Limited Vs Government of NCT of Delhi & Ors. wherein the Court held that demand against purchasing dealers who are engaged in bona fide transactions could not be sustained
• The Hon’ble Supreme Court has also dismissed the Special Leave Appeal against the judgment, reinforcing the Delhi High Court’s stance
• A purchasing dealer who has bona fide transacted with a selling dealer and taken all necessary precautions should not be penalized if the selling dealer fails to deposit the tax. However, the Department retains the right to act against non-bona fide transactions in accordance with the law.