The Gujarat High Court has confirmed that Input Tax Credit (ITC) can only be claimed by a recipient if the supplier has actually paid the underlying tax to the government.
While this ruling reinforces a strict interpretation of tax laws, the Court also acknowledged the “disproportionate financial and administrative burdens” this places on honest buyers. Consequently, it has recommended legislative updates to protect purchasers who act in good faith.
“Section 16(2) (c) of the CGST Act is clear, self-explanatory, and unambiguous. Its plain reading does not give rise to any constitutional or legal infirmity. The underlying intent of the provision is that the Government cannot be deprived of revenue on account of illegal or defaulting conduct on the part of the supplier,” a division bench of Justices A S Supehia and Praanav Trivedi said in an order dated May 1 while deciding on a bunch of over 50 writ petitions. It said it is not inclined to read down the said section and so the question of declaring it ultra vires does not arise.
Commenting on the ruling, Harpreet Singh, Partner at Deloitte said: “Businesses must strengthen vendor due diligence, GSTR‑2B/GSTR‑3B monitoring, and contractual safeguards (including tax indemnities), and align internal processes with Section 41(2) and Rule 37A to manage reversals and re‑availment efficiently.”
The ruling significantly limits constitutional challenges to ITC denial, shifting the focus from litigation to robust operational and contractual risk management in the GST credit chain,” he said.
Section 16(2) of the CGST Act lays down six distinct conditions, each of which must be cumulatively satisfied before a registered person becomes entitled to take ITC. The two conditions are:
- The first condition requires the recipient to be in possession of a tax invoice or debit note issued by a registered supplier.
- The second condition requires the details of such invoice or debit note to have been furnished by the supplier in his statement of outward supplies and communicated to the recipient.
- The third condition is the recipient have received the goods or services, or both.
- The fourth condition prescribes communication about the details of input tax credit in respect of the said supply.
- The fifth condition says the tax charged in respect of such supply has been actually paid to the Government.
- The sixth condition is that the recipient has furnished the return “It is thus contended that the six conditions are not only cumulative but have been deliberately arrayed by Parliament in a particular order,” the bench said.
The court also observed that another section, 41(2), addresses the concerns of the purchasing dealer which balances the interests of revenue with those of the recipient by permitting re-availment of credit upon payment by the supplier.
The contention regarding double taxation is misconceived. “It is well settled that ITC is not a constitutional or vested right, but a statutory concession, subject to the conditions and restrictions prescribed under the Act,” the bench said.
Published on May 3, 2026