Input Tax Credit Cannot Be Denied for Supplier Default: Tripura High Court Judgment on Section 16(2)(c) of the CGST Act – Relief to Bona Fide Purchasers
Background
Section 16(2)(c) of the Central Goods and Services Tax Act, 2017 provides that Input Tax Credit (ITC) can be availed only if the tax charged by the supplier has actually been paid to the Government. This provision has been widely invoked by the department to deny ITC to recipients where the supplier defaults in payment of GST, even though the recipient has paid the tax to the supplier and complied with all statutory requirements.
Key Judgment
The Tripura High Court, in its judgment dated 06 January 2026 in Sahil Enterprises vs Union of India & Ors. (WP(C) No. 688 of 2022), has examined the constitutional validity and scope of Section 16(2)(c).
Findings of the Court
- Constitutional Validity Upheld
The Court held that Section 16(2)(c) is not unconstitutional and does not violate Articles 14, 19(1)(g), 265 or 300A of the Constitution of India. - Provision Read Down
Importantly, the Court has read down Section 16(2)(c), holding that it cannot be applied mechanically to deny ITC to a bona fide purchaser. - Bona Fide Recipient Cannot Be Penalised
Where:- the recipient has actually paid GST to the supplier,
- there is no allegation of collusion, fraud, or wilful misstatement on the part of the recipient, and
- the transaction is genuine and bona fide,
denial of ITC merely because the supplier failed to remit tax to the Government is not justified.
- Supplier’s Default vs Recipient’s Rights
The Court observed that if the supplier has fraudulently retained the GST collected, the supplier’s conduct is blameworthy, and recovery should be pursued against the supplier, not the recipient. - Relief Granted
- The order denying ITC to the petitioner was set aside.
- The department was directed to forthwith allow the ITC that had been denied.
- No costs were imposed.