Facts of the Case:

In this case, the petitioner claimed Input Tax Credit (ITC) on the GST paid on such purchases after receiving the goods, obtaining valid tax invoices, and making payments through proper banking channels. Following an investigation by the Directorate General of GST Intelligence (DGGI), the petitioner was summoned and called upon to furnish documents relating to the purchases and ITC claims.

A search was also conducted at the petitioner’s premises in July 2019; however, no incriminating materials were allegedly recovered. Thereafter, a show cause notice dated 28.07.2022 was issued alleging wrongful availment and utilization of ITC amounting to ₹78.70 lakh on the ground that the petitioner had availed credit without actual receipt of goods and in contravention of Section 16(2)(a) and 16(2)(b) of the CGST Act.

Subsequently, the adjudicating authority passed an Order-in-Original confirming the demand of CGST, SGST and IGST aggregating to ₹78.70 lakh along with interest and an equivalent penalty under Section 74 of the CGST Act. The appellate authority upheld the demand. Challenging both orders, the petitioner approached the Gauhati High Court contending that it had fulfilled all statutory requirements for availing ITC and that denial of credit was founded primarily on allegations concerning the suppliers’ failure to discharge tax liability, a circumstance beyond the petitioner’s control. The petitioner further argued that it had acted bona fide, had received the goods, and had paid the consideration including GST through banking channels.

Issue:

Whether a purchasing dealer who has received goods, paid the purchase consideration including GST, and fulfilled the statutory conditions prescribed under Section 16 of the CGST Act can be denied Input Tax Credit solely because the supplier allegedly failed to discharge its tax liability or because of allegations against the supplier. Whether the Department could sustain the demand without establishing that the transactions were sham, collusive, or lacking in bona fides.

Held that:

The Gauhati High Court held that the controversy was squarely covered by the Division Bench judgment in National Plasto Moulding v. State of Assam, which had adopted the principles laid down by the Delhi High Court in On Quest Merchandising India Pvt. Ltd. v. Government of NCT of Delhi. The Court reiterated that a bona fide purchasing dealer cannot be penalized for the failure of the selling dealer to deposit tax collected from the purchaser. It observed that once a purchaser has entered into genuine transactions with a registered supplier, received the goods, obtained valid tax invoices, and paid the consideration including GST, the purchaser cannot be expected to ensure that the supplier subsequently remits the tax to the Government. Imposing such an obligation would amount to requiring the purchaser to perform an impossible task.

The Court emphasized that the appropriate remedy for the Department is to proceed against the defaulting supplier who failed to discharge the tax liability and not against a genuine purchaser who has already borne the tax burden. However, the Court clarified that this protection is available only to bona fide purchasers. Where the Department possesses material indicating collusion, fraud, fake invoicing, or non-genuine transactions, it remains open to the authorities to initiate appropriate proceedings in accordance with law.

Finding that the issue stood fully covered by the earlier binding precedent and noting the consensus between the parties on this legal position, the Court set aside and quashed both the Order-in-Original and the Order-in-Appeal. Nevertheless, liberty was reserved to the Department to take action afresh if evidence emerges demonstrating that the transactions were not bona fide or were entered into in collusion with the suppliers.

Case Name: M/s. Metal Syndicate, Sri Dipak Kangsa Banik, Sibdas Kangsa Banik Versus The Union of India, The Assistant Commissioner CGST And Central Excise Silchar, The Additional Commissioner Appeals Central Goods Service Tax Central Excise Customs Guwahati. dated 05.06.2026

To read the complete judgement 2026 Taxo.online 1575