M/S Lunakaran Nandkishore And Anr vs. The Union Of INDIA And 4 Ors

Facts

The petitioners, who are purchasing dealers, are 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 their selling dealers had failed to deposit the tax collected from them. The petitioners contend that they had entered into bona fide transactions and had taken all necessary precautions. The revenue authorities, represented by the State and Union of India, did not dispute that the controversy was covered by a previous Delhi High Court judgment. The tax periods are not explicitly stated for all petitioners, but the challenge pertains to the denial of ITC under GST provisions.

Held

The Court held that the controversy raised in the writ petitions is squarely covered by the decision of the Delhi High Court in *On Quest Merchandising India Private Limited*. The Court agreed with the Delhi High Court's reasoning that provisions which deny ITC to bona fide purchasing dealers solely because the selling dealer failed to deposit the collected tax place an impossible burden on the purchasing dealer and are vulnerable to invalidation under Article 14 of the Constitution. The Court found that the provisions of Section 16(2)(c) and 16(2)(d) of the Assam Goods and Services Tax Act, 2017, and analogous provisions in the Central Goods and Services Tax Act, 2017, are analogous to the provisions of Section 9(2)(g) of the Delhi Value Added Tax Act, 2004, which was examined by the Delhi High Court. Consequently, the show cause notices and consequential orders impugned in the writ petitions were set aside. The Department was granted liberty to proceed in cases where purchase transactions were not bona fide, in accordance with the law.

Key Issues

1. Whether the denial of Input Tax Credit (ITC) to bona fide purchasing dealers is sustainable when the selling dealer fails to deposit the collected tax, particularly in light of Section 16(2)(c) and 16(2)(d) of the Assam Goods and Services Tax Act, 2017, and analogous provisions in the Central Goods and Services Tax Act, 2017? Petitioner's contention: The petitioners argued that the denial of ITC to bona fide purchasing dealers, who have taken all reasonable precautions, is unsustainable. They relied on the Delhi High Court judgment in *On Quest Merchandising India Private Limited*, which held that such provisions place an onerous burden on purchasing dealers and can lead to disproportionate consequences, potentially violating Article 14 of the Constitution. They further highlighted that the Supreme Court had dismissed a Special Leave Appeal against this Delhi High Court judgment. Revenue's contention: The learned counsel for the respondent State and CGST authorities were not in a position to dispute that the controversy was squarely covered by the Delhi High Court's decision in *On Quest Merchandising India Private Limited*.