Court Dismisses Petition Challenging Section 16(2)(c) of CGST Act, 2017 Over Unpaid Supplier Tax
The Rajasthan High Court has dismissed a writ petition filed by M/s Shree Karni Electrovision challenging the constitutional validity of Section 16(2)(c) of the Central Goods and Services Tax Act, 2017. The petitioner had contested the requirement that the tax charged in respect of supply must be actually paid to the Government for availing Input Tax Credit (ITC). The court, comprising Dr. Pushpendra Singh Bhati and Justice Praveer Bhatnagar, ruled on August 17, 2026, that Section 16(2)(c) is mandatory and not unconstitutional, emphasizing the purchaser's responsibility to ensure the supplier's tax payment.
The petition arose after the petitioner firm, engaged in supplying electronic goods, faced recovery of ITC when its supplier, M/s Techno Kart India Limited, failed to remit taxes due to insolvency. The petitioner argued that it was unfairly penalized for the supplier's default and cited the Supreme Court's ruling in Ghanashyam Mishra & Sons (P.) Ltd. to support their case. However, the court held that the statutory conditions under the CGST Act take precedence over the implications of an approved resolution plan under the Insolvency and Bankruptcy Code.
The court further referenced the Gujarat High Court's ruling in Maruti Enterprise, affirming that ITC claims must comply with Section 16(2)(c), which necessitates the actual payment of tax to the government. The Rajasthan High Court reinforced that the burden of proof for ITC eligibility lies with the claimant and underscored the necessity for purchasers to exercise due diligence in verifying tax payments.
The judgment highlights the intricate balance between safeguarding government revenue and ensuring fair treatment of purchasers, indicating that while the law does not compel the impossible, due diligence and contractual safeguards are essential in the GST framework.
Bottom Line :
Section 16(2)(c) of the Central Goods and Services Tax Act, 2017 (CGST Act) is mandatory, requiring actual payment of tax to the Government for availing Input Tax Credit (ITC). The purchaser must ascertain the supplier's tax payment, and failure to do so makes recovery of ITC lawful.
Statutory provision(s): Central Goods and Services Tax Act, 2017 - Section 16(2)(c), Rule 37A, Insolvency and Bankruptcy Code, 2016, Rajasthan Goods and Services Tax Act, 2017.
M/s Shree Karni Electrovision v. Union of India, (Raj)(DB) : Law Finder Doc id # 2969169
