TaxTMI 
TaxTMI 
06 Aug 2026 
This article is being written in simple words without reference to citations and sections ( to the extent possible) by elaborating the requirements so that the taxpayer irrespective of supplier or receiver is not hit by non -payment of GST by the supplier. This aspect has gained momentum now due to the recent Supreme Court decision on 24/07/2026 [Bhandari Scrap Traders Versus Union of India & Ors. - 2026 (7) TMI 1839 - SC Order] by way of dismissal of the Special Leave Petition filed by one of the receivers.
This concept is really interesting as well as has a long history. There was a provision under the Delhi Vat Act similar to this. However, GST law provides for non-availing of the ITC on the purchases where seller has not remitted the GST to the Government and also there is a provision for re availing the credit once the seller makes payment of GST to the Government. This is the main reason for the Supreme Court to dismiss the SLP.
As the matter has been decided by the top court of India, it would be wise to find out the solutions for this problem rather than litigation. It is after all a contract between two persons whether written or oral based on which a purchase takes place. Sometimes the sellers delay or do not pay GST to Government in majority of such non payment of GST cases due to liquidity crisis only. However, there could be a few taxpayers with fraudulent intention which may be less than 2% only. Let us assume that B is buying 10 lakhs worth of goods from A. Let us assume that goods attract GST @ 18%. In case there is a strong mutual understanding between A and B that B shall pay a minimum of 25 % to A before 15th of the succeeding month in which the transactions take place so as to facilitate A payment of applicable GST to Government, and accordingly, A is relieved from liquidity crisis so far as payment of GST is concerned. Balance 75 % could be paid by B to A as per mutually agreed terms as the law provides for a window up to 180 days. The GST portion of 18% must be paid by B to A upon documentary evidences that establishes that the applicable GST pertaining to the transaction between B and A is remitted in full to the Government by A. That way, B shall not be a looser on ITC as there is no room for invocation of section 16 (2) (c) in this case.
The same principles holds good for all transactions carried out by B in his capacity as seller to his customer. In a like manner, B should collect a minimum of 25% before due date for payment of GST and remit the same to Government without fail. 75% could be collected as per mutually agreed terms and applicable GST may be collected upon furnishing proof of payment. This may be practicable for small players and for large business activities, there must be a system in place to ensure that the portion of ITC which is otherwise eligible shall be paid to the seller only when the applicable GST is fully and accurately paid to the Government by the respective sellers so that at a later date the buyer is not put in to trouble.
Considering the complexities of Section 16 and as even Supreme Court would go based on the legal provisions only as they are more than nine years old, we must ensure that we are no more a looser as we are in the 10th year of GST. This provision should have been challenged during the initial years itself by associations such as FICCI, PHDCI, CII, HCC and other similar bodies by arguing that the Government must first take recovery action from the seller before approaching the buyer. Now it is too late and it would be better to find out ways and means in which both buyer as well as seller are not hit by non-payment of GST by way of prompt payment of applicable GST to Government. Large corporates invariably make it as a term of the contract itself that the buyer shall release applicable GST to seller if and only if the ITC is absolutely made available to the buyer and accordingly insist on proof or declaration to the effect.
Earlier there were some rays of hope for the taxpayers on two grounds. The first one was that once the buyer establishes the physical receipt of goods, payment of consideration in full with GST to seller in banking channel and in possession of documents, ITC should be available as the buyer has no control over the seller on payment of GST to Government. In the second place, there is no logic in approaching a genuine buyer whose records as well as transactions are transparent to deny genuine ITC due to the fault of the seller. It is comparable with a situation where A is punished for an error committed by B only because A happens to be a buyer and B is the seller. For a big trader/ manufacturer whose turnover is in 1000's of Crores and suppliers are also in 1000's, how it would be feasible to monitor as to whether all the 1000's of suppliers are genuine people who promptly make the payment of GST to Government in time ?.
More often than not, section 16 (2) (c) was always misused on genuine buyers and now to add fuel to the fire, the Supreme Court has also endorsed the view that ITC to be availed once the supplier pays the GST to Government. It is appealed to all taxpayers in their own business interest to have good practices as suggested above to ensure that genuine ITC is not denied at a later date. ITC is comparable with money kept in Bank as GST payment, in the absence of ITC credit is made from the profits.