M/S Advance Engineering Farms And Equipments vs. The State Of Assam And 3 Ors

Held

The Court held that the petitioner, as a purchasing dealer, should not be denied Input Tax Credit (ITC) for the GST paid on purchases made from Respondent No. 4. The reasoning was based on the established principle that a purchasing dealer who has bona fide entered into a purchase transaction with a validly registered selling dealer, has paid the tax, and received a tax invoice, should not be denied ITC merely because the selling dealer failed to deposit the tax or file returns. The Court followed the proposition of law laid down by the Delhi High Court in *On Quest Merchandising India Private Limited* and the Gauhati High Court's Division Bench in *National Plasto Moulding*. The Court reasoned that the remedy for the revenue in such cases is to proceed against the defaulting selling dealer to recover the tax, not to deny the ITC to the purchasing dealer, unless there is evidence of collusion. The impugned order dated 10.04.2024, demanding Rs. 1,60,506/- each for CGST and SGST, was set aside and quashed. The Court directed that the setting aside of the demand would not preclude the authorities from initiating recovery steps against Respondent No. 4.

Facts

The petitioner, M/s Advance Engineering Farms and Equipments, purchased generators from Respondent No. 4, M/s C.R Group, for Rs. 9,44,000/- during the Financial Year 2017-18, including CGST and SGST of Rs. 72,000/- each, which were duly paid. The petitioner received a show cause notice on 30.09.2023 regarding excess Input Tax Credit (ITC) claimed. The petitioner replied, providing details of the purchase from Respondent No. 4. An order dated 30.09.2023 held the petitioner liable for tax, interest, and penalty. A rectification application led to an order dated 10.04.2024, which accepted most contentions but rejected the ITC claim on goods purchased from Respondent No. 4. The State's affidavit-in-opposition stated that ITC was claimed from the petitioner because Respondent No. 4 had not filed returns. Respondent No. 4 admitted receiving the GST amount but not filing returns.

Key Issues

1. Whether the petitioner, as a purchasing dealer, can be denied Input Tax Credit (ITC) under the Assam Goods and Services Tax Act, 2017, when they bona fide purchased goods from a registered selling dealer (Respondent No. 4) and paid the applicable GST, even if the selling dealer failed to deposit the collected tax or file returns? Petitioner's arguments: The petitioner contended that they had made bona fide purchases and paid the GST. They relied on the principle laid down in the Delhi High Court's decision in *On Quest Merchandising India Private Limited Vs. Government of NCT of Delhi and Others* and the Gauhati High Court's Division Bench judgment in *National Plasto Moulding Vs. State of Assam and 3 Others*, which held that a purchasing dealer should not be denied ITC if the transaction was bona fide and tax was paid, and that the revenue's recourse should be against the defaulting selling dealer. Revenue's arguments: The State Respondents, in their affidavit-in-opposition, indicated that ITC was disallowed because Respondent No. 4 had not filed returns. The judgment does not explicitly record further arguments from the Revenue.