ITC Available To Buyer Only If Supplier Has Paid Tax To Government: Supreme Court Upholds Validity Of Section 16(2)(c) CGST Act
The Supreme Court has upheld the constitutional validity of Section 16(2)(c) of the CGST Act, ruling that a buyer can claim Input Tax Credit (ITC) only if the supplier has actually deposited the tax collected with the government treasury.
Whether Section 16(2)(c) of the CGST Act, which conditions the buyer's ITC claim on the supplier's actual payment of tax to the government, violates Articles 14 and 19(1)(g) of the Constitution.
The Supreme Court of India has affirmed the judgment of the Gujarat High Court upholding the constitutional validity of Section 16(2)(c) of the Central Goods and Services Tax (CGST) Act, 2017. A Bench comprising Justice Sanjay Kumar and Justice Sanjeev Sachdeva held that actual payment of tax by the supplier into the government exchequer is a mandatory prerequisite for a purchasing dealer to claim Input Tax Credit (ITC).
Constitutional Validity of Statutory Condition
The petitioners had challenged Section 16(2)(c) on the ground that it imposes an unreasonable and impossible burden on bona fide buyers, penalizing them for a default committed by the supplier. Rejecting the challenge, the Supreme Court clarified that ITC is a statutory concession rather than an absolute right, and Parliament is fully competent to attach conditions to its availment.
Key Takeaways
Statutory Prerequisite: The purchasing business cannot claim ITC merely on the strength of a tax invoice if the tax collected by the supplier has not reached the government.
Legislative Policy: Statutory conditions preventing revenue loss due to defaulting suppliers are reasonable, constitutional, and aimed at curbing fraudulent tax credit claims.
The ruling establishes nationwide clarity for tax authorities and GST-registered businesses regarding the strict enforcement of ITC conditions.
📌 Held by the Court
Held that Section 16(2)(c) of the CGST Act is constitutionally valid. Input Tax Credit can only be availed by a buyer if the supplier has actually deposited the tax collected with the government.
⚡ Practical Impact
Places a strict obligation on purchasing businesses to perform due diligence on their vendors, as supplier tax defaults will directly jeopardize the buyer's ITC claims.
👔 For Lawyers & Advocates
Key ruling for tax practitioners, corporate advisers, and GST litigators dealing with Section 16 ITC disallowances and vendor compliance disputes.
