Facts:

• The Petitioner, a registered dealer under GST laws, availed mobile recharge services from the vendor (‘the Vendor’) during FY 2017–18 and claimed Input tax credit (ITC) based on tax invoices issued by the Vendor
• The State tax authorities alleged that the Vendor failed to deposit the GST charged on the invoices, and accordingly, passed an order under Section 73 of the Central Goods and Service Tax Act, 2017 (‘the CGST Act’) demanding reversal of ITC by the Petitioner, along with applicable interest and penalty
• The Petitioner contested the demand, asserting that liability of tax was duly discharged by him and paid to the Vendor via banking channels (RTGS). Accordingly, it could not be penalized for the Vendor’s default. However, the Appellate Authority dismissed the appeal filed by the Petitioner
• The Petitioner filed a writ petition before the Hon’ble Allahabad High Court and challenged the order passed by the Appellate Authority and the State tax authorities

Issue before the High Court:

• Whether ITC can be denied to the Petitioner under Section 16(2)(c) of the CGST Act merely on the ground that the Vendor failed to deposit tax, despite the Petitioner having complied with all statutory requirements?

Discussion and Ruling:

The Hon’ble Allahabad High Court quashed the orders and remanded back the matter for fresh adjudication, observing:

• The Petitioner had discharged its tax liability by paying through RTGS and possessed valid tax invoices
• Under the GST law, the purchaser cannot compel the supplier to file returns within stipulated timeline or remit tax, and thus, the purchaser cannot be held liable for such defaults of the supplier
• The authorities failed to conduct a reasonable inquiry into the Vendor’s conduct before acting against the Petitioner
• The Court relied on the Hon’ble Supreme Court’s ruling in the case of Suncraft Energy Pvt. Ltd. and the Hon’ble Madras High Court’s decision in the case of D.Y. Beathel Enterprises, reiterating that buyers should not be penalized alone; action must also be pursued against the defaulting seller.