Department cannot take action against bonafide purchasing dealers, for the failure of a selling dealer

Facts of the Case: In this case, the petitioner challenges the validity of Sections 16(2)(c) and 16(2)(d) of both the Assam GST Act, 2017 and CGST Act, 2017. They relied on the Delhi High Court's judgment in the case of On Quest Merchandising India Private Limited v. Government of NCT of Delhi & Ors., where it was held that a purchasing dealer cannot be penalized for the failure of a selling dealer to deposit the tax collected. It was argued that their case is identical to the On Quest Merchandising case and therefore, the decision in that case should apply to their petitions as well. Requested that the show cause notices and consequential orders issued to them under the Assam and Central GST Acts be set aside based on the Delhi High Court's judgment.

Held that; The Gauhati High Court ruled that bona fide purchasing dealer, who had taken all required precautions, cannot be denied Input Tax Credit (ITC) because the selling dealer failed to deposit the tax. The court held that such a provision violates Article 14 of the Constitution (equality before the law) if it does not distinguish between honest and dishonest purchasing dealers.

The Court found that the issues raised in the petitioners' writ petitions are covered by the Delhi High Court's judgment in the On Quest Merchandising case, which was upheld by the Supreme Court. The court, therefore, set aside the show cause notices and consequential orders issued to the petitioners under the Assam and Central GST Acts. However, it allowed the Department to proceed against purchasing dealers in cases where the transactions are not bona fide.

To read the complete judgment 2024 taxo.online 1692