The High Court of Delhi has held that a defendant in a commercial suit cannot challenge the genuineness of invoices or deny the receipt of goods if they have already availed Input Tax Credit (ITC) under the Value Added Tax (VAT) Act based on those very invoices. The Division Bench of Justice Prathiba M. Singh and Justice Madhu Jain observed that such contradictory pleas are impermissible, especially in commercial transactions.
Background
The dispute arose from an appeal filed by Feroz Khan and others (Appellants/Defendants) against a judgment dated June 1, 2024, passed by the District Judge (Commercial Court), Tis Hazari. The trial court had decreed a suit in favor of Anil Jain (Respondent/Plaintiff), the proprietor of M/s Jain Chemicals, for a sum of ₹8,89,350/- along with interest.
The Plaintiff, engaged in the chemical trade, alleged that he had supplied chemical products to M/s New Chemical Industries (a partnership firm of the Appellants) against three invoices raised in March 2016 amounting to ₹5,77,500/-. When the Defendants failed to pay, the Plaintiff initiated legal action, including pre-institution mediation which ended as a “Non-Starter.”
Arguments of the Parties
The Appellants/Defendants contended that the invoices were “fictitious bills” or “entry bills” and that no goods were ever physically delivered. They argued that their accountant had inadvertently entered these invoices into their books of account and reflected them in their VAT returns. Counsel for the Appellants, Mr. Gaurav Dalal, emphasized that the Plaintiff failed to produce transportation receipts, vehicle numbers, or acknowledgments of delivery.
On the other hand, Counsel for the Respondent/Plaintiff, Mr. Tejveer Singh, submitted that the defense was an afterthought. He pointed out that the Defendants had admittedly availed VAT input credit on the strength of these invoices. He argued that having claimed the tax benefit of a “purchase,” the Defendants were estopped from denying the underlying transaction.
Court’s Analysis and Observations
The Court focused on the evidentiary value of the VAT returns and the doctrine of “approbate and reprobate.”
1. Evidentiary Weight of VAT Returns: The Court noted that Defendant No. 1 (DW1) admitted during cross-examination that VAT input credit was taken for all three invoices. The Bench observed:
“The claim of VAT input credit necessarily proceeds on the premise that the purchasing dealer recognizes the transaction as a genuine purchase from the supplier.”
Relying on the Coordinate Bench decision in Ranjeet Saini v M/s Banwarilal Arora and Sons (2026), the Court reiterated:
“Once the Appellant availed of the Input Tax Credit on the GST inputs in respect of all the invoices, the Appellant cannot argue that on the one hand, it is entitled to Input Tax Credit on the ground of supply of goods having been made and on the other hand, for the same very invoices, argue that the goods have been returned.”
2. Failure to Reply to Legal Notice: The Court took an adverse inference against the Defendants for failing to reply to the Plaintiff’s legal notice dated February 23, 2019. Citing Metropolis Travels & Resorts (I) Pvt. Ltd. v. Sumit Kalra & Anr., the Court noted that silence in the face of a legal demand raises serious doubts about the subsequent defense.
3. Absence of Delivery Documents: Regarding the lack of transportation documents, the Court accepted the Plaintiff’s explanation that, as per the then-prevailing practice, the responsibility for road permits and “builty” lay with the purchaser. The Court held that the absence of these documents alone could not establish non-supply when weighed against the Defendants’ own tax filings.
4. Doctrine of Estoppel: The Court invoked the principle established by the Supreme Court in Cauvery Coffee Traders v. Hornor Resources Company Limited:
“A party cannot be permitted to ‘blow hot and cold’, ‘fast and loose’ or ‘approbate and reprobate’. Where one knowingly accepts the benefits of a contract… [he] is estopped to deny the validity or binding effect on him of such contract.”
The Decision
The High Court upheld the findings of the Commercial Court regarding the liability of the Defendants. However, it modified the rate of interest. While the contractual pre-suit interest of 18% was maintained, the pendente lite and future interest was reduced from 9% to 6% per annum, deemed “just and reasonable” for commercial lending rates.
The Court directed the release of the deposited amount of ₹5,75,500/- (kept in an FDR) along with accrued interest to the Respondent/Plaintiff. The appeal was dismissed with the Respondent granted liberty to execute the decree for the remaining balance.
Case Details
- Case Title: Feroz Khan and Ors. v. Anil Jain
- Case No: RFA (COMM) 162/2025
- Coram: Justice Prathiba M. Singh and Justice Madhu Jain
- Date: March 30, 2026
