ITC cannot be denied to bona fide purchasers if seller defaults on tax payment: Supreme Court

The Supreme Court ruled that Input Tax Credit (ITC) cannot be denied to bona fide purchasers merely because their suppliers failed to deposit the corresponding tax with authorities. The Court emphasized that a genuine buyer who has paid tax to the seller and complied with all statutory conditions cannot be penalized for the seller’s default. Such denial would violate the principles of fairness and proportionality under GST law. The judgment clarifies that the buyer’s eligibility for ITC depends on actual payment of tax to the seller and possession of valid invoices, not the seller’s subsequent compliance failures. The Court also observed that tax authorities should pursue defaulters rather than punish compliant purchasers, thereby protecting the integrity of GST as a value-added system. This landmark decision strengthens taxpayer confidence and ensures that genuine trade transactions are not jeopardized due to third-party non-compliance.