The Allahabad High Court in the case of M/S R.T. INFOTECH VERSUS ADDITIONAL COMMISSIONER GRADE 2 AND 2 OTHERS vide Case No. Writ Tax No. 1330 of 2022 dated 30.05.2025, emphasized on a significant issue of denial of ITC to a bona fide purchaser due to default of the supplier. The Court held that ITC can’t be denied if payment made via banking and invoices are valid, GSTR-2A mismatch not conclusive. The Authorities must act against supplier simultaneously u/s 73, 74 & 79 CGST Act.
Facts of the Case: The Petitioner is an Authorized user of Bharti Airtel’s recharge coupons for FY 2017–18. The Department denied ITC worth ₹28.52 lakh claimed on 7 invoices, despite petitioner having paid GST through RTGS. The department denied the ITC citing non-reflection in GSTR-2A and non-payment of GST by the supplier. Consequently, show cause notice was issued under Section 73, culminating in an order demanding ITC reversal with 10% penalty and interest. The first appellate authority also upheld the order.
The Petitioner argued that payment was made through RTGS against valid invoices; the seller’s default should not prejudice the purchaser.
Issue: Whether ITC can be denied under Section 16(2)(c) of the CGST Act to a bona fide purchaser who received tax invoices, paid consideration including tax through banking channels. However, supplier failed to deposit the tax or file returns.
Held that: The Court noted that the petitioner has discharged his obligations, and made payment through banking channels. Also, tax invoices were genuine and undisputed. This satisfies that the conditions under Section 16(2)(a) & (b) i.e. receipt of goods/ services, possession of tax invoices and payment to the supplier.
The Court held that Purchaser cannot ensure seller files GSTR-1 or pays taxes. Also, states that a purchaser cannot compel the seller to file return and deposit tax with the government. The purchaser cannot be penalized for the supplier’s default.
Reliance placed upon judgments in the case of Suncraft Energy Pvt Ltd v. ACST (Supreme Court) and D.Y. Beathel Enterprises v. STO (Madras High Court), wherein it was held that Purchaser cannot be held liable solely due to seller’s non-payment of GST, ITC can’t be denied if payment made via banking and invoices are valid
The Court finds that the authorities failed to appreciate legal duties of both parties, no proper inquiry was conducted on supplier-side default and no reasoned order was passed. Hence, it quashes the orders and remands the matter back.
Related legal provisions
Section 16(2)(c) of CGST Act, 2017:
“A registered person shall be entitled to the credit of any input tax in respect of any supply only if the tax charged in respect of such supply has been actually paid to the Government.”
However, this condition often forms the basis for denying ITC where the tax has not been deposited by the supplier, even if the purchaser acted in good faith.
To read the complete judgment 2025 Taxo.online 968
