Can MVAT Credit Be Denied To Genuine Buyers For Sellers' Tax Default? Bombay High Court To Examine

The Bombay High Court will examine whether Section 48(5) of the Maharashtra Value Added Tax Act, 2002, permits the denial of input tax credit (ITC) to a bona fide purchaser without any allegation of fraud, collusion, or connivance, particularly when the State has failed to recover the tax from the defaulting seller.

A Division Bench of Justices Suman Shyam and Gautam A. Ankhad admitted six appeals filed by IJM (India) Infrastructure Limited against the State of Maharashtra. The court will also examine whether deductions for subcontract payments under the Maharashtra VAT Rules, 2005, are independent of or subject to the state VAT Act.

On denial of input tax credit, the court framed the following substantial question of law:

“Whether the provisions of Section 48(5) of the Maharashtra Value Added Tax Act, 2002 can be interpreted to deny Input Tax Credit to a bona fide purchaser without any allegation of fraud, collusion, or connivance, especially when the State has failed to exercise its machinery to recover the tax from the defaulting selling dealer, contrary to the undertaking given before this Hon'ble Court?”

The question concerns whether a genuine buyer can lose tax credit because the selling dealer defaults on its tax payment obligations. The court will also consider the State's failure to use its recovery machinery in light of an undertaking given before the High Court.

The second substantial question of law concerns deductions for payments made to subcontractors while calculating a works contractor's taxable turnover. The court framed the following question:

"Whether, on a true and proper interpretation of the Maharashtra Value Added Tax Act, 2002, and the Rules framed thereunder, the deduction for subcontract payments provided under Rule 58(1)(b) of the Maharashtra Value Added Tax Rules, 2005, is an independent and absolute provision for determining the taxable turnover of a works contractor, or is it conditional upon and subject to the provisions of Section 45(4) of the Maharashtra Value Added Tax Act, 2002?"

The appeals arise from a common judgment and order passed by the Maharashtra Sales Tax tribunal, Mumbai, on November 18, 2025. IJM challenged the tribunal's decision in six appeals

After hearing the company's counsel, the court admitted all six appeals and issued notice to the State, returnable on December 8, 2026. The State's counsel waived service of notice.

The company's counsel also sought permission to withdraw the interim applications, with liberty to file them afresh when necessary. The State's counsel did not oppose the request, and the court disposed of the applications with liberty as requested.

For the Appellant: IJM (India) Infrastructure Limited: Advocates Rahul Sarda, Iqra Qureshi and Rahul Totala, instructed by Advocate Swapnil Lohiya.\

For the Respondent: State of Maharashtra: Himanshu Takke, Assistant Government Pleader (AGP).