ITC Cannot Be Denied for Supplier’s Tax Default if Purchaser Acted Bona Fide

Case Details: Narayan Enterprise vs. Union of India [2026] 187 taxmann.com 279 (Gauhati)

Judiciary and Counsel Details

• Kardak Ete, J.
• P. Alam, Adv. for the Petitioner.
• Dr B.N. Gogoi, Ld. Standing Counsel for the Respondent.

Facts of the Case

The petitioner had purchased goods from registered suppliers, discharged consideration along with applicable GST through banking channels against tax invoices, and duly filed returns in GSTR-1 and GSTR-3B while availing and utilising input tax credit (ITC). A show cause notice was issued alleging wrongful availment of ITC on the ground that the goods were not received and that the suppliers had failed to deposit tax, and a demand with interest and penalty was confirmed by the Assessing Officer under Section 74 of the CGST Act and Assam GST Act read with relevant penal provisions, which was subsequently upheld by the appellate authority. The petitioner challenged the denial of ITC and consequential recovery. The matter was accordingly placed before the High Court.

High Court Held

The High Court held that ITC cannot be denied to a bona fide purchasing dealer solely on the ground that the supplier has defaulted in depositing tax. The Court observed that where the purchaser has transacted with registered suppliers, fulfilled the statutory conditions under Section 16 of the CGST Act and Assam GST Act, and there is no material indicating collusion or lack of bona fides, the benefit of ITC cannot be withdrawn. It further held that the appropriate remedy for recovery lies against the defaulting supplier and not against the bona fide recipient of goods. The Court found that, in the absence of any evidence of fraud or collusion, the impugned orders could not be sustained and were liable to be set aside, and granted liberty to the authorities to proceed against the supplier in accordance with law.

List of Cases Reviewed

• National Plasto Moulding v. State of Assam [2024] 165 taxmann.com 255/89 GSTL 82/105 GST 693 (Gauhati)/[2024] 129 GSTR 544 (Gauhati) (para 16) followed

List of Cases Referred to

• National Plasto Moulding v. State of Assam [2024] 165 taxmann.com 255/89 GSTL 82/105 GST 693 (Gauhati) (para 11)
• On Quest Merchandising India (P.) Ltd. v. Government of NCT of Delhi [2017] 87 taxmann.com 179/64 GST 623/[2018] 10 GSTL 182 (Delhi) (para 12).