2026-VIL-432-GUJ
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SGST High Court Cases

GST - Denial of input tax credit on account of default of supplier in depositing tax under Section 16(2)(c) of CGST Act, 2017 – Challenge to the vires of the provision of Section 16(2)(c) of the CGST Act, which denies ITC to the purchasing dealer if the tax charged in respect of such supply has not been paid to the Government by the supplier - Whether Section 16(2)(c) of the CGST Act is arbitrary, ultra vires and violative of Articles 14, 19(1)(g), 265, and 300A of the Constitution of India - HELD – The provision of Section 16(2)(c) is clear, self-explanatory and unambiguous, and its underlying intent is to ensure that the Government is not deprived of revenue on account of illegal or defaulting conduct on the part of the supplier. The GST regime, unlike the previous VAT regime, has a destination-based tax structure, and any reading down of Section 16(2)(c) would have cascading fiscal consequences across state boundaries – The clause (c) of Section 16(2) of the CGST Act clearly states that ITC will be available to the purchasing dealer only if the supplier has paid the tax to the Government. It is for the purchasing dealer to prove that the tax collected has been remitted to the Government by the supplier - The GST framework provides adequate safeguards for the purchasing dealer through Sections 41 and 53 of the CGST Act and Rule 37A of the CGST Rules, 2017. The burden of proof lies on the purchasing dealer to establish eligibility for ITC under Section 155 of the CGST Act - It is settled legal principle of statutory interpretation that a provision in the statute is not to be read in isolation rather it has to read along with other related provisions itself. The provision of Section 16(2)(c) cannot be read in isolation, but has to read with attendant provisions - The Court acknowledge the genuine concerns of the petitioners regarding the hardship faced by bona fide purchasers due to the supplier's default. The Government is urged to undertake a comprehensive re-evaluation of the situation and implement a robust, technology-driven tracking mechanism to alleviate the disproportionate burdens on purchasers. The Government is directed to take prompt steps for the recovery of tax from the erring suppliers, instead of compelling the purchasers to avail themselves of alternate cumbersome remedies – The Court expects that the Govt will address the issue of genuine purchasers at the earliest through appropriate legislative amendments or clarifications within the GST framework – The Section 16(2)(c) of the CGST Act is not arbitrary, ultra vires or violative of the Constitution. The challenge to the vires of Section 16(2)(c) of the CGST Act is rejected - The petitions are disposed of - Burden of Proof under Section 155 of the CGST Act - The Section 155 of the CGST Act places the burden of proof on the person claiming input tax credit to establish their eligibility, which is intrinsically linked to the actual payment of tax by the supplier. The expression "eligible" in Section 155 cannot be construed as dependent upon a unilateral act of claim by the purchaser; rather, it has a direct nexus with the actual payment of tax by the supplier - Doctrine of reading down of a provision – The doctrine of reading down is a judicial tool used to salvage the constitutionality of a statute by giving a provision a narrowed or limited interpretation, thereby mitigating potential conflicts with constitutional or legal principles. We do not find that the provision of Section 16(2)(c) if read with the scheme of GST regime as discussed, conflicts with constitutional or legal principles. The provision of Section 16(2)(c) cannot be read in isolation, but has to read with attendant provisions as discussed hereinabove, which enables the government to secure its interest in revenue, by keeping a check on fraudulent transactions while maintaining the interest of genuine purchasers. It is settled legal principle of statutory interpretation that a provision in the statute is not to be read in isolation rather it has to read along with other related provisions itself, more particularly when the subject matter interconnects within different sections or parts of the same statute. [Para 82]
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