ITC can’t be denied to buyer due to non-payment of VAT by seller: Rajasthan HC

Case Details: Assistant Commissioner, Commercial Taxes, Jaipur v. Asha Oil Traders A-11, Rajasthan - [2022] 135 taxmann.com 183 (Rajasthan)

Judiciary and Counsel Details

• • Manindra Mohan Shrivastava and Birendra Kumar, JJ.
  • Ayush Singh and Punit Singhvi, Advs. for the Petitioner. 
  • V.K. Gogra for the Respondent.

Facts of the Case

The demand notice was issued to assessee on the ground that input tax credit under Rajasthan VAT was claimed based on false/forged invoices issued by dealer who failed to deposit tax. The department argued that in cases where the registered seller is found to have obtained a forged registration as dealer and it is found that such person has not paid any tax to the department, recovery could always be made from the buyer. But the Rajasthan Tax Board deleted the Tax, Interest and penalty on assessee. The department filed petition against the same as it would amount to double jeopardy to the State as the selling dealer has not deposited the tax whereas subsequent dealer has claimed benefit of Input Tax Credit.

High Court Held

The Honorable High Court observed that a purchasing dealer is entitled by law to rely upon the certificate of registration of the selling dealer and to act upon it. The retrospective cancellation of registration of selling dealer can have no effect upon any person who has acted upon the strength of a registration certificate. The question of law raised by department had already been settled in various judgments holding that it would be impossible for receiving dealer to prove tax was paid by selling dealer. Therefore, it was held that no substantial question of law arises for consideration and petition has to be dismissed.

Case Review

• • Arise India Ltd. v. Commissioner of Trade & Taxes [W.P.(C) No. 2106 OF 2015, dated 26-10-2017] (para 6)
  • Assistant Commissioner, Commercial Tax, v. Trilokchand Bharat Kumar, Bhamashah Mandi, [S.B. Sales Tax Revision Petition No. 115 of 2011, dated 29-9-2016] followed (para 12).

List of Cases Referred to

• • R.S. Infra-Transmission Ltd. v. State of Rajasthan [D.B. Civil Writ Petition No. 12445 of 2016, dated 11-4-2018] (para 5)
  • Arise India Ltd. v. Commissioner of Trade & Taxes [W.P.(C) No. 2106 OF 2015, dated 26-10-2017] (para 6)
  • Assistant Commissioner, Commercial Tax, v. Trilokchand Bharat Kumar, Bhamashah Mandi, [S.B. Sales Tax Revision Petition No. 115 of 2011, dated 29-9-2016] (para 7).