Facts of the Case

The petitioner No. 1, M/s Metal Syndicate, is a proprietorship firm having its registered office at Kathal Road, Silchar, Assam, and petitioner No. 2 is its proprietor, Sri Dipak Kangsa Banik.

The petitioners challenged the Order-in-Original dated 19.02.2024, whereby a total GST demand of ₹78,70,952 was confirmed, comprising:

  • IGST: ₹47,12,010
  • CGST: ₹15,52,967
  • SGST: ₹16,05,975

The demand related to the period from July 2017 to March 2019. Interest was directed to be recovered at the applicable rate under Section 50 of the CGST Act, 2017, along with corresponding provisions of the SGST and IGST laws. A penalty of ₹78,70,952 was also imposed under Section 74(1) read with Section 122 of the CGST Act, 2017 and Section 20 of the IGST Act, 2017.

The petitioners also challenged the Order-in-Appeal dated 14.02.2025, by which the Additional Commissioner (Appeals), CGST, Central Excise and Customs, Guwahati rejected the appeal against the Order-in-Original.

The petitioners stated that, during the initial phase of GST implementation, business entities faced practical difficulties in filing GSTR-1 and GSTR-3B, including incorrect data-entry discrepancies relating to output tax liability, input tax credit and invoice matching.

For the assessment years 2017-18 and 2018-19, the petitioner purchased goods from suppliers in Kolkata and claimed that the value of the goods together with applicable GST was paid to the sellers through proper banking channels against valid invoices.

On allegations of availing ineligible ITC on invoices without actual receipt or supply of goods, summons were issued by the DGGI, Guwahati Zonal Unit. The petitioner appeared before the authorities on 05.04.2019 and submitted relevant documents, including GSTR-1, GSTR-3B and purchase invoices for the period from May 2018 to March 2019.

Thereafter, a search was conducted at the petitioner’s business premises on 09.07.2019. According to the petitioner, no incriminating material was recovered or seized. The petitioner explained the nature of the scrap/waste battery business, procurement and sale arrangements, transportation, storage practices and payments through banking channels, asserting that the invoiced goods were actually received and that payments, including GST, were made to suppliers.

A Show Cause Notice dated 28.07.2022 alleged wrongful availment and utilisation of ITC of ₹78,70,952 in violation of Section 16(2)(a) and Section 16(2)(b) of the CGST Act, 2017, on the allegation that goods had not actually been received.

Issues Involved

The principal issues before the Gauhati High Court were:

  1. Whether input tax credit can be denied to a bona fide purchasing dealer solely because the selling dealer failed to deposit the tax collected with the Government.
  2. Whether a purchaser who claims to have received goods, possessed proper tax invoices and made payments including GST through banking channels can be penalised for the supplier’s default.
  3. Whether the demand and penalty under Section 74(1) read with Section 122 of the CGST Act could survive where the dispute was covered by the Division Bench judgment in National Plasto Moulding vs State of Assam & Ors..
  4. Whether the Department’s proper remedy, in a bona fide transaction, lies against the defaulting selling dealer rather than by denial of ITC to the purchasing dealer.
  5. Whether the Department remains entitled to proceed where materials demonstrate that purchase transactions were not bona fide or were entered into in collusion with suppliers.
  6. Whether the alleged denial of effective personal hearing and non-uploading of notices on the GST portal affected the validity of the adjudication proceedings.
  7. Whether Sections 73 and 74 could validly be invoked in the circumstances alleged by the petitioner and whether multiple assessment periods could be clubbed in a consolidated GST order.

Petitioner’s Arguments

The petitioners contended that the ITC was claimed strictly in accordance with Section 16(2) of the CGST Act, 2017, after fulfilment of the prescribed statutory conditions.

It was argued that:

  • Goods were actually purchased and received from suppliers.
  • Proper tax invoices were available.
  • Payments for goods, including applicable GST, were made through proper banking channels.
  • GST returns were filed and output tax liabilities were discharged after adjustment of eligible ITC.
  • The petitioner had no control over the supplier’s subsequent failure, if any, to deposit tax with the Government.
  • A bona fide purchaser should not suffer for a default committed exclusively by the selling dealer.

The petitioners further alleged that despite submission of relevant documents and repeated requests, no effective opportunity of hearing was granted. According to them, notices were not uploaded on the GST portal and were manually served beyond the date fixed for hearing. It was also contended that the Order-in-Original was passed without a meaningful hearing and without issuance of Form GST DRC-07.

The petitioners submitted that the sole basis for denial of ITC was the alleged failure of suppliers to discharge their tax liability, which was beyond the petitioner’s control. They maintained that they acted in good faith by verifying tax invoices, receiving goods and making payments, including GST, through banking channels.

The petitioners also argued that even if the allegation of non-supply were accepted, tax could not be levied in the absence of actual supply, relying upon the clarification contained in the Circular dated 06.07.2022.

Further, the petitioners contended that Sections 73 and 74 of the CGST Act, 2017 could not have been invoked in the manner adopted by the Department, that the relevant limitation period had expired, and that clubbing multiple assessment years in a consolidated GST order was impermissible.

Most importantly, the petitioners relied upon the Division Bench decision of the Gauhati High Court in:

National Plasto Moulding vs State of Assam & Ors., [2024] 129 GSTR 544 (Gauhati)

It was submitted that the controversy was squarely covered by this judgment, which held that a purchasing dealer cannot be penalised for the failure of the selling dealer to deposit tax collected from the purchaser.

Respondents’ Arguments

The learned Standing Counsel for CGST fairly submitted that the issue raised in the writ petition was squarely covered by the judgment in National Plasto Moulding vs State of Assam & Ors.

The respondents acknowledged that the Division Bench, relying upon the Delhi High Court judgment in:

On Quest Merchandising India Pvt. Ltd. vs Government of NCT of Delhi, [2018] 56 GSTR 177 (Delhi)

had held that a bona fide purchasing dealer cannot be denied input tax credit merely because the selling dealer failed to deposit tax with the Government.

At the same time, it was recognised that the Department may proceed in accordance with law where the purchase transactions are found not to be bona fide or where materials indicate collusion.

Court Order / Findings

The Gauhati High Court held that the controversy was squarely covered by the Division Bench judgment in National Plasto Moulding vs State of Assam & Ors.

The Court noted that the Division Bench had examined the issue of ITC denial arising from the failure of a selling dealer to deposit tax collected from a purchasing dealer and had relied upon the Delhi High Court judgment in On Quest Merchandising India Pvt. Ltd. vs Government of NCT of Delhi.

The Court reaffirmed the governing principle that:

A purchasing dealer cannot be punished for the act or default of the selling dealer where the selling dealer fails to deposit the tax collected by it.

The Court found that where a purchasing dealer has:

  • entered into transactions bona fide with a registered supplier;
  • complied with statutory requirements; and
  • acted without collusion,

denial of ITC solely because the supplier failed to deposit tax would not be justified.

The Court further observed that, in such circumstances, the Department’s remedy lies against the defaulting supplier, rather than against the bona fide purchasing dealer.

Since both sides agreed that the controversy was covered by National Plasto Moulding, the Court held that no further adjudication was required.

Accordingly, the Gauhati High Court:

  • set aside and quashed the Order-in-Original dated 19.02.2024; and
  • set aside and quashed the Order-in-Appeal dated 14.02.2025.

Thus, the impugned GST demand of ₹78,70,952, together with the consequential interest and penalty imposed through the challenged orders, could not survive those orders.

Important Clarification

The judgment does not grant unconditional protection to every purchaser merely because tax invoices or banking records exist.

The Gauhati High Court expressly clarified that the respondent authorities remain at liberty to proceed in accordance with law if there are materials indicating that:

  • the transactions were not bona fide; or
  • the transactions were entered into in collusion with the suppliers.

Therefore, the decisive distinction is between:

(a) a genuine and bona fide purchasing dealer, who should not ordinarily be denied ITC merely for the supplier’s failure to deposit tax; and

(b) a purchaser involved in non-genuine, collusive or sham transactions, against whom the Department may lawfully proceed based on supporting material.

Sections Involved

Central Goods and Services Tax Act, 2017:

  • Section 16(2)(a) – Possession of tax invoice or prescribed tax-paying document.
  • Section 16(2)(b) – Receipt of goods or services or both.
  • Section 16(2)(c) – Tax charged in respect of supply actually paid to the Government, subject to statutory provisions.
  • Section 16(2)(d) – Furnishing of return under Section 39.
  • Section 50 – Interest on delayed payment of tax.
  • Section 73 – Determination of tax not paid or short paid, or ITC wrongly availed or utilised, for reasons other than fraud, wilful misstatement or suppression.
  • Section 74(1) – Determination involving allegations of fraud, wilful misstatement or suppression of facts.
  • Section 122 – Penalty for specified offences.

Integrated Goods and Services Tax Act, 2017:

  • Section 20 – Application of provisions of the CGST Act to integrated tax matters.

Other Provision Discussed Through Related Case Law:

  • Section 9(2)(g) of the Delhi Value Added Tax Act, 2004


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