McLeod Russel India Ltd (Judgment dated 09.12.2025)
The Gauhati High Court, in McLeod Russel India Ltd vs Union of India, delivered an important ruling on the constitutional validity and applicability of Section 16(2)(aa) of the CGST/SGST Act.
Background
Section 16(2)(aa) makes Input Tax Credit (ITC) contingent on the supplier uploading invoices in GSTR‑1 and the same being communicated to the buyer. This led to denial of ITC even where the buyer had paid GST to the supplier and possessed valid documents.
Key Issues Raised
• Buyers cannot control supplier compliance under Section 37.
• Denying ITC for supplier default is arbitrary and shifts the tax burden illegally.
• Genuine taxpayers face double taxation—once paid to supplier and again through ITC denial.
• The GST framework aims to avoid cascading of taxes.
Court’s Observations
• ITC cannot be denied solely due to non‑reflection in GSTR‑2A/2B when buyer is bona fide.
• Placing such an onerous burden on buyers is inequitable.
• However, to prevent fraud and encourage compliance, the amendment cannot be struck down entirely.
Final Ruling (Reading Down of the Law)
The Court held that:
> Before denying ITC under Section 16(2)(aa), authorities must give the buyer an opportunity to prove bona fides through invoices and supporting documents.
Until CBIC provides a practical mechanism, ITC cannot be denied automatically for supplier non‑compliance.
Practical Impact for Taxpayers
• ITC denial cannot be done mechanically based on GSTR‑2A/2B mismatch.
• Buyers must be given a chance to justify the claim.
• Helps in defending ITC in litigation where mismatch is due to supplier lapses.