AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (5) TMI 127
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....1370 Of 2023, 2428 Of 2024, 3011 Of 2024, 3749 Of 2024, 6204 Of 2024, 6645 Of 2024, 8264 Of 2024, 8413 Of 2024, 8419 Of 2024, 8452 Of 2024, 8567 Of 2024, 8584 Of 2024, 8615 Of 2024, 8620 Of 2024, 8630 Of 2024, 8647 Of 2024, 8680 Of 2024, 9519 Of 2024, 16135 Of 2024, 735 Of 2025, 749 Of 2025, 848 Of 2025, 4615 Of 2025, 6080 Of 2025, 7369 Of 2025, 11022 Of 2025. Appearance: For the respective Petitioners: Mr. Tushar Hemani, Senior Advocate With Ms. Poonam M Maheta, Mr. Narendra L Jain, Mr. Ashutosh S Dave, Mr. Jyotindrasinh J Vala, Ms. Dimple K. Gohil, Mr. Uchit N Sheth, Mr. Rahul L Gajera, Mr. Vinay Shraff For Mr. Parth S Shah, Mr. Avinash Poddar, Mr. Hiren J Trivedi, Mr. Chetan K Pandya, Mr. Sahil J Rao, Mr. D K Trivedi, Mr. Abhay Y Desai, Mr. Krutarth K Desai And Ms. S M Ahuja, Advocates. For the Respondents - State Authorities: Mr. Kamal Trivedi, Advocate General With Mr. Vinay Bairagara, Mr. Raj Tanna, Ms. Pooja Ashar, Ms. Nimisha Parekh, Mr. Antrix Kapadiya, And Ms. Tanushree Shrimal. For the Respondent - Union Of India: Mr. Utkarsh Sharma, Senior Standing Counsel With Ms. Hetvi H Sancheti, Ms. Hetal Patel, Mr. Ankit Shah, Mr. Deepak Khanchandani, Mr. Archit Jani An....
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....m GSTR-2A and the Input Tax Credit statement in Form GSTR-2B (Section 38 of the CGST Act r.w. Rule 60 of the CGST Rules, 2017); and the purchasing dealer's ITC claim is restricted to, and communicated entirely on the basis of, what the supplier has filed. The purchasing dealer has no statutory, contractual or factual means of verifying the supplier's Form GSTR-3B, the actual payment of tax, or the utilisation of ITC by the supplier. 8. It is submitted that sub-section (2) of Section 16 of the CGST Act is a composite provision which lays down, in a specific sequence, six distinct conditions in clauses (a), (aa), (b), (ba), (c) and (d), each of which must be cumulatively satisfied before a registered person becomes entitled to take ITC. On a plain reading, clause (a) requires the recipient to be in possession of a tax invoice or debit note issued by a registered supplier; clause (aa) 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; clause (b) requires the recipient to have actually received the goods or services, or both; clause (ba) requires that the details of input t....
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....ilure of the legislature to differentiate between these two manifestly unequal classes, while visiting upon both the identical penal consequence of denial of ITC, is precisely the vice condemned by the Delhi High Court in the case of On Quest Merchandising India (P.) Ltd. vs. Government of NCT of Delhi, [2017] 87 taxmann.com 179/ [2018] 10 GSTL 182 (Del), paragraph No.39, as affirmed by the Supreme Court by dismissal of SLP in the case of Commissioner of Trade & Tax, Delhi vs. Arise India Ltd., 2022 (60) GSTL 215 (SC), and again approved by the Supreme Court in the case of Commissioner Trade & Tax, Delhi vs. Shanti Kiran India (P.) Ltd., [2025] 179 taxmann.com 665 (SC). Reliance is also placed on the decision of the Karnataka High Court in the case of Karnataka vs. Tallam Apparels, 2021 SCC OnLine Kar 15785. 11. It is submitted that the rule of equality is violated not merely when equals are treated unequally, but also when unequals are treated alike. Bona fide purchasers who have discharged every obligation imposed on them by the Act, and dishonest purchasers who have connived with non-paying suppliers, are fundamentally unequal. Section 16(2)(c) treats both alike by subjecting....
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....pplier. Section 9(3) of the CGST Act empowers the Government to notify specific transactions where tax would be payable by the recipient on reverse charge basis. Thus, barring notified categories of transactions under Section 9(3) of the CGST Act, ordinarily charge of tax is on the supplier of the goods or services. The supplier charges such tax from the recipient and he is liable to pay such tax to the Government. By disallowing ITC to the recipient because of default made by the supplier, effectively the burden of tax which lies on the supplier under Section 9(1) of the CGST Act is shifted onto the recipient without any fault on the part of the recipient which is manifestly arbitrary, discriminatory and violating Article 14 of the Constitution of India. 16. That Rule 60(1) of the CGST Rules, 2017 provides that details of outward suppliers of the supplier will be furnished to the recipients in Form GSTR-2A. Rule 60(7) of the CGST Rules, 2017 provides for furnishing auto-drafted ITC statement to the recipient in Form GSTR-2B. Once ITC is reflected in Form GSTR-2B and the recipient has claimed ITC on the basis of such statement, it becomes a vested right in so far as genuine tran....
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....is either the date of issuance of invoice or the date on which, the supplier receives the payment with reference to supply, whichever is earlier. 21. That as per Section 2(62) of the CGST Act, the said tax charged on the supply of goods would be considered as "Input Tax" to the recipient i.e. purchasing dealer, and thereafter, in terms of Section 41 read with Section 16(1) of the CGST Act, a Purchasing Dealer can avail credit of the said Input Tax, which is credited to his Electronic Credit Ledger as provided under Rule 86 of the CGST Rules, 2017. Hence, the Purchasing Dealer is entitled to take credit of input tax charged to him on supply of goods (i.e. 1st transaction), which are used or intended to be used in furtherance of the business of the purchasing dealer (i.e. 2nd transaction). 22. Reference is made to Finance Act, 2022, and it is contended that Section 41 of the CGST Act came to be substituted, whereafter the credit of the input tax availed by a Purchasing Dealer in its electronic credit ledger on a provisional basis, has been given a go bye and resultantly, there is no restriction for utilization thereof, except those mentioned in Section 16(2) of the CGST Act. Fu....
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....nst the Supplier Dealer, for not discharging its duty liability qua the first transaction and as per Rule 37A of the CGST Rules, 2017, once the same is discharged by the said Supplier Dealer for the said invoice, the Purchasing Dealer would get the credit of the said tax component immediately in the succeeding month thereof. Thus, with such mechanism in place, the Purchasing Dealer will not suffer any prejudice as he will get the credit as and when amount is deposited with the Government treasury and the Government will not be unjustly enriched twice. 28. While distinguishing the judgments on which the reliance is placed by the petitioners, it is submitted that there is no need to read down the said Section in the manner in which the Delhi High Court read down Section 9(2)(g) of the Delhi Value Added Tax, 2004 ("the DVAT Act" for short) in case of On Quest Merchandizing India (P) Ltd. (supra), and confirmed by the Supreme Court in case of Arise India Ltd. (supra) and thereafter, approved by the Supreme Court in the case of Shanti Kiran India (P) Ltd. (supra). 29. That the nature of claim of ITC by the dealer is in the nature of concession, and the same is not a fundamental ri....
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.... such person. 34. It is submitted that the petitioners' reliance on the judgment of the Delhi High Court in the case of On Quest Merchandising India (P) Ltd. (supra), is misplaced inasmuch as one cannot draw any parity between the provisions of the DVAT Act in question in the said judgment, on one hand and on the other hand, the provisions of the CGST Act in the present case, There is a conspicuous absence of Section 41(2) and Section 155 of the CGST Act and Rule 37A of the CGST Rules, 2017, in the provisions of the DVAT Act. In view of this, by relying upon the aforesaid judgment of the Delhi High Court, wherein under Section 9(2)(g) of the DVAT Act is read down, one cannot draw the parity of argument for reading down Section 16(2)(c) of the CGST Act also. 35. Similarly, it is contended that the reliance placed on the Judgment of the Supreme Court in the case of Shanti Kiran (supra) is also misconceived, inasmuch as, in the said case, the Supreme Court was dealing with the provision of Section 9(2)(g) of the DVAT Act along with other provisions thereof, which are, as aforesaid, different from the provisions of the Act in the present matter. 36. While distinguishing the ju....
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....on of India, 2025 SCC OnLine (MP). 1301; and G. In the case of Baby Marine (Eastern) Exports vs. Union of India, 2025 SCC OnLine (Mad.) 15588 39. It is contended that reliance placed on the decision of this Court in the case of Arpit Pravinbhai Shah (supra) is also completely misplaced and not applicable to the facts of the present case, inasmuch as, in the said case, upon considering the provisions of the Income Tax Act, 1961 and more particularly Section 205 thereof, this Court held that though the amount of TDS, which has been deducted from the account of assessee, but not deposited with the Government, the assessee would be entitled for the credit of the said amount of TDS deducted by his employer. 40. However, in the present case, the provisions of the GST Act are completely different inasmuch as, in the GST Act, there is no such provision like Section 205 of the Income Tax Act, 1961 which protects the assessee from making the payment of tax to the extent of the deducted amount. "205. Bar against direct demand on assessee Where tax is deductible at the source under the foregoing provisions of this Chapter, the assessee shall not be called upon to pay th....
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.... by the supplier to any person on the direction of and on account of such registered person.] (c) subject to the provisions of [section 41 or section 43A] [Substituted 'section 41' by Act No. 31 of 2018, dated 29.8.2018.], the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and (d) he has furnished the return under section 39:Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment: Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed: Prov....
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....rous burden on a bona fide purchasing dealer. 47. The Delhi High Court, in this context, also relied upon its earlier decision in the case of Shanti Kiran India (P) Ltd. (supra), wherein it was held that, in the absence of any statutory mechanism enabling a purchasing dealer to verify whether the selling dealer had deposited the tax and in the absence of any reliable system to ascertain cancellation of the dealer's registration, denial of ITC would be unjustified. 48. On this basis, the Delhi High Court invoked the doctrine of reading down and interpreted Section 9(2)(g) of the DVAT Act in a manner that excluded bona fide purchasing dealers who had entered into transactions with validly registered selling dealers against proper tax invoices. 49. The Supreme Court, while affirming the judgment of the Delhi High Court in the case of Shanti Kiran India (P) Ltd. (supra), took note of the decision in the case of On Quest Merchandising India (P) Ltd. (supra) and further observed that the Special Leave Petition (Civil) No. 36750 of 2017 challenging the said decision had been dismissed. 50. In the recent decision in case of Sahil Enterprises (supra), the Tripura High Court afte....
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....onsidered that the said expression could encompass either the purchasing dealer or the selling dealer, thereby conferring unguided discretion upon the Department to proceed against either of them. Such unguided discretion was held to be vulnerable to challenge on the touchstone of Article 14 of the Constitution of India. SCHEME OF AVAILING ITC UNDER GST REGIME: 56. We may now refer to the scheme governing the availment of input tax credit under the GST regime, however, is structured around prescribed statutory forms for returns, as set out hereunder: Sr.No. Prescribed Form Particulars 1. Invoice The Supplier Dealer issues Tax Invoice for the supply of goods. [Section 31 r/w. Rule 46] 2. GSTR-1 The said Supplier Dealer files return in prescribed form, disclosing the outward supplies effected by him, including the amount of tax included therein. [Section 37 r/w. Rule 59(1)] 3. GSTR-2A The details of outward supplies furnished by supplier dealer in its GSTR-1 get auto-populated to the Purchasing Dealer. [Section 38 r/w. Rule 60(1)] 4. GSTR-2B Auto generated statement gets available to the Purchasing Dealer, containing the details of I....
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....ating state would be forced to transfer funds to the destination state that it never actually received. This would result in a direct loss of revenue for the originating state. 60. Therefore, considering the overall scheme of the Act, any "reading down" (narrow interpretation) of Section 16(2)(c) would trigger cascading fiscal consequences. The legal position under the former VAT regime was materially different, as input tax credit was confined within the originating state. In contrast, the GST regime is destination-based; therefore, input tax credit must operate seamlessly across state lines for inter-State supplies, requiring strict compliance to maintain fiscal balance. 61. In the case of inter-State transactions, input tax credit is governed through the IGST mechanism, wherein the Centre collects tax equivalent to the aggregate of CGST and SGST and thereafter apportions the same to the destination State. The operation of input tax credit under the GST regime has been lucidly explained by the learned Single Judge of the Kerala High Court in the case of M Trade Links (supra). "81. When the ITC is not an absolute right but is an entitlement subject to the conditions....
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....es the statutory obligation of the Central and the State Governments in this regard, which reads as follows: "Section 53: Transfer of Input Tax credit On utilisation of input tax credit availed under this Act for payment of tax dues under the Integrated Goods and Services Tax Act in accordance with the provisions of sub-section (5) of section 49, as reflected in the valid return furnished under sub-section (1) of section 39, the amount collected as central tax shall stand reduced by an amount equal to such credit so utilised and the Central Government shall transfer an amount equal to the amount so reduced from the central tax account to the integrated tax account in such manner and within such time as may be prescribed." (State laws have Section 53 parallel provision) 83. Considering the aforesaid scenario, without Section 16(2)(c) where the inter-state supplier's supplier in the originating State defaults payment of tax (SGST+CGST collected) and the inter-state supplier is allowed to take credit based on their invoice, the originating State Government will have to transfer the amounts it never received in the tax period in a financial year to the destination Sta....
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....mpowered to initiate recovery proceedings against the supplier under Sections 73 and 74 of the CGST Act for failure to discharge tax liability in respect of the original transaction. Further, in terms of Rule 37A of the CGST Rules, 2017 once the supplier discharges such tax liability, the purchasing dealer becomes entitled to re-avail the credit in the immediately succeeding month. Thus, the statutory mechanism does not permanently deprive the purchasing dealer of ITC; rather, the credit is restored upon payment of tax into the Government treasury. Mere delay or hardship in availing ITC, therefore, cannot constitute a valid ground for reading down Section 16(2)(c) of the CGST Act. 63. Section 41(2) of the CGST Act adequately addresses the concerns of the purchasing dealer. The provision, in its plain terms, 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. Where the statute provide....
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.... Act on the ground of practical impossibility for the purchaser to ensure that the supplier has deposited tax. With respect, we are unable to agree with the said view. The Tripura High Court proceeded on the premise that ITC is intended solely to avoid double taxation under the CGST regime, but did not adequately consider the interplay of Sections 41 and 53 of the CGST Act read with Rule 37A of the CGST Rules, 2017. 69. It may also be noted that neither the Delhi High Court in the case of On Quest Merchandising India (P) Ltd. (supra) nor the Tripura High Court has examined the effect of Section 155 of the CGST Act, which reads as under: "Section 155 - Burden of proof: Where any person claims that he is eligible for input tax credit under this Act, the burden of proving such claim shall lie on such person." 70. Thus, the purchasing dealer must discharge the initial burden of establishing eligibility to claim input tax credit. Such eligibility is intrinsically linked to the fulfilment of statutory conditions, including the deposit of tax by the supplier with the Government. The expression "eligible" in Section 155 of the CGST Act cannot be construed as dependent upon a....
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....ffective October 1, 2022, Section 41(2) specifically requires the recipient to reverse Input Tax Credit (ITC), plus applicable interest, if the supplier fails to deposit the tax. However, the proviso also establishes a mechanism for re-availing this credit once the tax is eventually paid. 75. The operational procedure for this reversal and re-availing was introduced via Rule 37A on December 26, 2022. This rule offers a grace period, allowing recipients to retain ITC even if the supplier has not paid the tax by September 30 of the following financial year. Recipients are granted until November 30 to reverse the ITC; interest liabilities only accrue if the reversal is missed beyond this November deadline. While Section 16(2)(c) must be strictly observed to protect government revenue, the provisions of Section 41 and Rule 37A acknowledges that recipients should not be unfairly penalized for a supplier's default. Section 41 of the CGST Act, 2017 has been fully substituted through Finance Act, 2022. Section 41(2) of the CGST Act, 2017 provides that the recipient of credit must reverse ITC claims if the supplier has not deposited taxes. Further, proviso to section 41(2) of the CGST Ac....
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....isions of Section 16 of the CGST Act and the clauses mentioned therein are to be read independently is misconceived. It was contended before us that the Revenue must stop at the stage of clause (b) of sub-section (2) of Section 16 of the CGST Act and, once that exercise is complete, cannot proceed to clause (c). We do not subscribe to the submissions advanced by the petitioners. 79. ITC falls under Chapter V and Section 16 of the CGST Act deals with the eligibility and conditions for availing such credit. The provision itself contains the necessary checks and balances for claiming input tax credit. The first and foremost condition is that a dealer (registered person) must be in possession of a tax invoice or debit note issued by a supplier registered under the Act. The second condition, as stipulated in clause (b), is that the registered person must have received the goods or services or both. This clause further incorporates twin conditions under sub-clauses (i) and (ii), which mandate that the goods are delivered by the supplier to the recipient or to any other person on the direction of the registered person, and that services are provided by the supplier to any person on acc....
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....giving a provision a narrowed or limited interpretation, thereby mitigating potential conflicts with constitutional or legal principles. 98. In B.R. Enterprises v. State of U.P. & Ors. reported in (1999) 9 SCC 700, this Court observed that the principles such as "Reading Down" emerge from the concern of the courts towards salvaging a legislation to ensure that its intended objectives are achieved. The relevant observations read as under:- "81. ... It is also well settled that first attempt should be made by the courts to uphold the charged provision and not to invalidate it merely because one of the possible interpretations leads to such a result, howsoever attractive it may be. Thus, where there are two possible interpretations, one invalidating the law and the other upholding, the latter should be adopted. For this, the courts have been endeavouring, sometimes to give restrictive or expansive meaning keeping in view the nature of legislation, maybe beneficial, penal or fiscal etc. Cumulatively it is to subserve the object of the legislation. Old golden rule is of respecting the wisdom of legislature that they are aware of the law and would never have intended fo....
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.... as discussed hereinabove, which enables the government to secure its interest in revenue, by keeping a check on fraudulent transactions while maintaining the interest of genuine purchasers. It is settled legal principle of statutory interpretation that a provision in the statute is not to be read in isolation rather it has to read along with other related provisions itself, more particularly when the subject matter interconnects within different sections or parts of the same statute. STATUTORY INTERPRETATION AND CONSTITUTIONAL RIGHTS : 83. In the case of Commissioner of Sales Tax, Uttar Pradesh vs. Modi Sugar Mills Limited, AIR 1961 SC 1047, the Constitution Bench of the Supreme Court has observed as under: ".....In interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions. The Court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed: it cannot imply anything which is not expressed; it cannot import provisions in the statutes so as to supply any assumed deficiency..." 84. Th....
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....ded by the legislature. It is not admissible to all kinds of sales and certain specified sales are specifically excluded. (b) Concession of ITC is available on certain conditions mentioned in this section. (c) One of the most important condition is that in order to enable the dealer to claim ITC it has to produce original tax invoice, completed in all respect, evidencing the amount of input tax." 38. This Court further held that it is a trite law that whenever concession is given by a statute the conditions thereof are to be strictly complied with in order to avail such concession. In paragraph 12, following has been laid down: - "12. It is a trite law that whenever concession is given by statute or notification, etc. the conditions thereof are to be strictly complied with in order to avail such concession. Thus, it is not the right of the "dealers" to get the benefit of ITC but it is a concession granted by virtue of Section 19. As a fortiori, conditions specified in Section 10 must be fulfilled. In that hue, we find that Section 10 makes original tax invoice relevant for the purpose of claiming tax. Therefore, under the scheme of the VAT Act, i....