Delhi High Court Rejects Buyers' Denial Of Supply After VAT Credit Claim

The Delhi High Court has upheld a commercial court decree directing recovery of Rs. 8.89 lakh in a dispute over supply of chemical goods, holding that the purchasers' conduct in availing VAT input credit made their plea that the transactions were fictitious untenable.

A Division Bench of Justices Prathiba M. Singh and Madhu Jain said, “The claim of VAT input credit necessarilyproceeds on the premise that the purchasing dealer recognizes the transaction as a genuine purchase from the supplier. The admission of DW1 therefore reflects the manner in which the Defendants themselves acknowledged and treated the transactions represented by the invoices," adding that such conduct reflects the purchasers' own acknowledgment of the invoices.

The dispute arose from a suit filed by Anil Jain, proprietor of Jain Chemicals, against New Chemical Industries and its partners, including Feroz Khan. The supplier claimed that goods were supplied on credit under three invoices in March 2016 amounting to Rs. 5,77,500, which remained unpaid. With interest, the claim totaled Rs. 8,89,350.

The purchasers denied liability, alleging that no goods were supplied and that the invoices were fictitious entries.

The Commercial Court decreed the suit in favour of the supplier, which was challenged in appeal.

Before the High Court, the purchasers argued that there was no proof of delivery and pointed to the absence of transport documents or acknowledgment of receipt. They also contended that the invoices and statement of account were insufficient to establish liability.

The supplier submitted that the defence was an afterthought and emphasised that the purchasers had availed VAT input credit on the same invoices.

The Court held that entries in books of account require corroboration, which was present in the invoices and the purchasers' conduct.

The Court noted that by availing VAT input credit on the invoices, the purchasers had treated the transactions as genuine, and could not then turn around and deny them.

It also took into account that no reply was sent to the legal notice issued by the supplier, observing that such silence permits an adverse inference.

As for the absence of transport documents, the Court said this by itself is not sufficient to establish that no goods were supplied and must be assessed alongside the rest of the evidence on record.

The defence was therefore rejected. The Court observed that a bare denial, without any supporting material, cannot displace documentary evidence. On that basis, it held that the supplier had established the transactions and was entitled to recover the amount.

While affirming the decree, the Court made a limited modification by reducing pendente lite and future interest from 9% to 6% per annum, leaving the pre-suit interest at 18% unchanged.

The appeal was dismissed.

For Appellants: Advocate Gaurav Dalal, Adv.

For Respondent: Advocates Tejveer Singh Bhatia & Sanjog Singh Arneja