Tolaram Surendar Kumar Kundalia And Anr vs. The Union Of INDIA And 4 Ors

Facts

The petitioners, who are purchasing dealers, have filed writ petitions challenging show cause notices and consequential orders issued by GST authorities. These notices sought to deny Input Tax Credit (ITC) to the petitioners on the grounds that the selling dealers had failed to deposit the tax collected from them. The petitioners argue that they entered into bona fide transactions and fulfilled all their obligations. The respondents, the State of Assam and the Union of India, issued these notices and orders under the provisions of the GST Acts. The core of the dispute revolves around the denial of ITC to purchasing dealers when the selling dealer defaults in tax payment.

Held

The Court held that the controversy raised in the writ petitions is squarely covered by the decision of the Delhi High Court in the case of 'On Quest Merchandising India Private Limited'. The Court noted that the provisions of Section 9(2)(g) of the Delhi Value Added Tax Act, 2004, which were challenged in that case, are analogous to Sections 16(2)(c) and 16(2)(d) of the Assam Goods and Services Tax Act, 2017, and the Central Goods and Services Tax Act, 2017. The Delhi High Court had observed that a law that fails to distinguish between purchasing dealers who have bona fide transacted and those who have not, and imposes disproportionate consequences on bona fide purchasers, is vulnerable to invalidation under Article 14. The Court concluded that the purchasing dealer cannot be expected to do the impossible of ensuring the selling dealer deposits the tax. Consequently, the show cause notices and consequential orders impugned in the present writ petitions were set aside. However, the Department was granted liberty to proceed in cases where purchase transactions were not bona fide.

Key Issues

1. Whether the provisions of Section 16(2)(c) and 16(2)(d) of the Assam Goods and Services Tax Act, 2017, and the Central Goods and Services Tax Act, 2017, which allow for the denial of Input Tax Credit (ITC) to purchasing dealers when the selling dealer fails to deposit collected tax, are constitutionally valid, particularly in light of Article 14 of the Constitution. Petitioner's Arguments: The petitioners contend that the denial of ITC to bona fide purchasing dealers, who have taken all reasonable precautions and entered into genuine transactions, is arbitrary and disproportionate. They argue that it is impossible for a purchasing dealer to ensure that the selling dealer will deposit the collected tax. They rely on the Delhi High Court's decision in 'On Quest Merchandising India Private Limited' which held similar provisions of the Delhi Value Added Tax Act, 2004, to be invalid and read them down. Revenue's Arguments: The learned counsel for the respondents (State and Union of India) were not in a position to dispute that the controversy is covered by the Delhi High Court's decision in 'On Quest Merchandising India Private Limited'.