The Allahabad High Court has set aside orders issued by the State GST authorities directing reversal of Input Tax Credit (ITC) and penalty against a purchasing dealer, holding that a buyer cannot be penalized for the default of a seller in depositing tax with the government treasury.

The bench of Justice Piyush Agrawal observed that the purchaser had duly paid the tax component to the supplier through banking channels against valid tax invoices. Citing Supreme Court’s decision in Assistant Commissioner of State Tax vs. Suncraft Energy Pvt. Ltd. and Madras High Court’s ruling in D.Y. Beathel Enterprises vs. State Tax Officer, the court emphasized that proceedings must be initiated against the defaulting seller and the purchaser cannot be made to suffer for the supplier’s omissions.

The case involved tax demands and penalties totaling over ₹28.5 lakh relating to GST payments made during July 2017–March 2018. Authorities had alleged that ITC claimed by the dealer was ineligible because the selling dealer, a telecom operator, had failed to deposit the tax collected with the government.

“It is a matter of common knowledge that under the GST Act, the purchaser cannot compel the selling dealer to deposit the amount of tax realized from the purchaser with the government treasury,” the court stated.

The court remanded the matter back to the tax authorities for fresh adjudication after hearing all stakeholders, directing them to pass a reasoned order within two months.

Case Details

Case Title: M/S R.T. Infotech Versus Additional Commissioner Grade 2 And 2 Others

Case No.: WRIT TAX No. – 1330 of 2022

Date:  30.05.2025

Counsel For  Petitioner: Additional Commissioner Grade 2 And 2 Others

Counsel For Respondent:  R.R. Agrawal, Senior Counsel, Suyash Agarwal

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