Advance Payment Recovery in Supply Contracts: Delhi HC Ruling Explained
The Delhi High Court recently upheld a civil court decree allowing the recovery of advance payment made in a supply contract, where goods were never delivered.
Let’s break down what this means for Indian taxpayers and small businesses.
Why This Matters for Advance Payment Recovery
When businesses make advance payments for goods or services, they expect timely delivery. But when delivery fails and the seller refuses to refund, what options do you really have?
In this case, the buyer filed a civil suit after the seller failed to supply the goods and didn’t refund the advance. The court ruled in favour of the buyer, confirming that recovery through civil remedies remains valid—despite GST being in place.
Case Background: Key Facts
- A company paid advance to a supplier under a supply agreement
- Supplier neither delivered goods nor refunded the money
- Buyer filed a civil suit for recovery under CPC
- Trial court decreed in favour of the buyer
- Supplier appealed in Delhi High Court, arguing GST and contractual terms barred the suit
- Delhi HC dismissed the appeal and upheld the recovery
Key Legal Insights
1. Advance Payment Recovery Under Civil Law
- Civil courts retain jurisdiction for contractual recovery claims, unless expressly barred
- GST law does not override contractual civil remedies
2. GST Irrelevant to Civil Recovery
- The court clarified that tax treatment (like GST) has no bearing on the right to recover money
- GST liability arises on supply of goods/services, not just on receiving advance
CBDT and CBIC have clarified in multiple FAQs and circulars that contract disputes and tax treatment must be dealt with separately.
3. No Need to Wait for Arbitration
- The court held that civil suits are valid even if arbitration clause exists, unless the matter is referred to arbitration at the initial stage
What Businesses Should Learn
If you’re a small business or taxpayer who:
- Paid advance but didn’t receive goods
- Supplier is delaying refund
- Has proof of transaction (invoice, agreement, payment confirmation)
You can:
- File a summary suit under CPC
- Seek legal recovery of advance
- Not worry about GST blocking your claim
Expert Tip
Keep records of communication and payment proof ready.
FAQs on Advance Payment Recovery
Q1: Can I recover advance without going to arbitration?
Yes, unless the defendant seeks arbitration at the outset, you can proceed with a civil suit.
Q2: What if GST was already paid on the advance?
You can claim refund or adjust GST through proper filing if no supply took place.
Q3: Does GST bar filing civil suits?
No. The GST Act doesn’t bar civil recovery suits between private parties.
Summary
Delhi HC upheld a civil suit for recovery of advance payment in a supply contract where no goods were delivered.