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There is yet another development pertaining to Section 16 (2) (c) of the CGST Act, 2017 on 01/05/2026 when the issue on section 16 (2) (c) was examined at length by the High Court of Gujarat in a bunch of writ petitions on this issue. Though the High Court has not read down the provision in line with Tiripura High Court in the matter of M/s. Sahil Enterprises Versus Union of India, through its Secretary, Government of India, Ministry of Finance, Department of Revenue, New Delhi., Commissioner, Central Goods & Services Tax, Tripura Assistant Commissioner, Tripura M/s. Sentu Dey, Represented by its Proprietor Sri Sentu Dey, Bairagi Bazar, Jumerdhepha. - 2026 (1) TMI 385 - TRIPURA HIGH COURT or Karnataka High Court in M/s. Instakart Services Private Limited Versus The Union of India, The Central Board of Indirect Taxes and Customs New Delhi, The Goods and Service Tax Council, The Principal Commissioner of Central Tax Bengaluru, The State of Karnataka. - 2026 (3) TMI 1674 - KARNATAKA HIGH COURT , has agreed with the views of the petitioners and ruled in their favor.
In their exhaustive judgements running to 90 paras in the matter of Maruti Enterprise Vs Union of India and others, the division bench has made an in depth analysis on all issues pertaining to 16 (2) (c) before passing the order and observed that the requirements to fulfill all the six conditions as contained in clauses a, aa, b, ba c and d of sub section 2 of section 16 of the CGST Act to avail ITC by the receiver is an act which is impossible to perform by the genuine receivers who make payment to supplier on agreed terms. The High Court has gone one step further and rightly observed that all the six clause are to be fulfilled in a sequential manner and when first four consisting of a, aa, b and ba are fulfilled, the genuineness of the transactions are fully established.
The High Court has categorically observed that the Parliament has failed to distinguish to identify the cases where the first four clause are sufficient requirements for availing the ITC and cases where clause c and d are to be mandatory.
The High Court also expects the Government to make appropriate amendments to section 16 (2) (c) in due course of time by ensuring that after the proposed amendments, only a section of receivers who either has not paid the amount to supplier or colludes with the supplier are required to fulfill the clauses c and d and in all other cases ITC is eligible on fulfillment of a, aa b and ba cumulatively.
It is expected that the GST Council, in their 57th council meeting which is already over due considers the above proposal on amendment to section 16 (2) (c) as suggested by the Gujarat High Court.
There is an absolute as well as URGENT need to look in to all the aspects connected with bringing down the litigation at least pertaining to genuine transactions as the GST officials make the use of differences in GST Returns, Section 16 (2) (c) and 17 (5) as a tool, more often than the requirements for raising huge demands of GST. Once GSTAT is fully operational, at least 75% of the cases on the above three issues are definitely going to be settled against the Revenue and accordingly, by not bringing down the number of cases involved in litigation, both tax payers and Government are at a loss to ensure adequate professional opportunities to tax professionals.
The operative portion is reproduced for creating awareness on the recent developments on this burning issue.
88. Albeit, we acknowledge that the provisions of Section 16(2)(c) of the Act are to be viewed from a regulatory standpoint and are anchored in the legitimate objective of maintaining the integrity of the tax chain, preventing systemic revenue loss to the Government; however, it is high time that, in order to resolve the conundrum, the Government undertakes a comprehensive re-evaluation of the dicey situation which purchasers are facing. There is a pressing need for legislative amendments or clarifications to be issued within the GST framework to alleviate the disproportionate financial and administrative burdens currently placed upon purchasers who have an honest claim of ITC. Beyond mere policy changes, the Government should implement a robust, technology-driven tracking mechanism enabling verification of payments made by suppliers against specific invoices in real time, thereby insulating bona fide recipients from the defaults of their vendors. Simultaneously, the Government has to take prompt and immediate steps for recovery of tax from the erring suppliers, instead of compelling the purchasers to avail themselves of alternate cumbersome remedies. In the absence of stringent oversight, unscrupulous sellers could potentially enrich themselves at the expense of both the public exchequer and honest buyers.
It may be concluded by stating that the above observations of the High Court in para 88 of the order dated 01/05/2026 are vital and very relevant. Now it is the turn of the GST Council to find out the ways and means for implementing the above suggestions in letter and sprit which shall give several benefits in the long run in reducing avoidable litigation.