TaxTMI 
TaxTMI 
Input Tax Credit Eligibility under the CGST Act: Supplier Tax Non-Payment and Recipient ITC Claims: Constitutional and Compliance Consequences
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.... CGST Act and Rule 37A of the CGST Rules. The decision proceeds on the basis that input tax credit is a statutory entitlement or concession, not an absolute or vested right independent of the conditions prescribed by the Act. A recipient may have to reverse credit where the supplier has not paid the tax, but Section 41(2) and Rule 37A provide for re-availment once the supplier furnishes the relevant return and discharges the tax liability, as applicable. The Court nevertheless recognised the practical burden on genuine recipients. It expected the Government to consider measures, including an effective technology-based mechanism, to enable invoice-specific verification of supplier tax payment and to address the difficulties faced by bona fide purchasers. Background & Context The constitutional challenge arose from the consequence of a supplier's failure to remit GST collected on an underlying supply. The recipients contended that they had paid tax to registered suppliers, possessed proper documentation and, in relevant cases, had transaction details reflected through the GST system. Their central objection was that a recipient has no control over, or ordinary access ....
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.... of the communicated credit under Section 38 under clause (ba); actual payment of the tax to the Government under clause (c); and furnishing of the return under Section 39 under clause (d). The impugned clause is expressly made "subject to the provisions of section 41". This textual connection is material: Section 16(2)(c) fixes actual payment of tax as a condition, while Section 41 addresses the consequence of supplier non-payment after the recipient has availed self-assessed eligible credit. Section 41 and Rule 37A: reversal and re-availment Section 41 of the Central Goods And Services Tax Act, 2017 permits a registered person, subject to prescribed conditions and restrictions, to avail self-assessed eligible input tax credit in the return. Section 41(2) provides that credit availed in respect of supplies for which the supplier has not paid tax "shall be reversed along with applicable interest". Its proviso permits the registered person to re-avail the reversed amount where the supplier makes payment of the tax payable. Rule 37A of the Central Goods and Services Tax Rules, 2017 prescribes the procedure for a specified non-filing situation. Where the recipient has avai....
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....and communication framework, but does not displace the statutory requirement of actual payment under Section 16(2)(c). The judgment specifically noted that furnishing Form GSTR-3B does not, by itself, establish full payment of tax for the purpose of the clause. Why the former VAT analogy was not accepted The Court considered the line of authority under a former State VAT enactment in which denial of credit to a bona fide purchaser was read down. That approach was shaped by the absence of a mechanism enabling the purchaser to ascertain whether the selling dealer had remitted tax, the confidentiality of the seller's returns, and wording that was understood to permit unguided choice of the dealer against whom the department could proceed. Those features were not treated as determinative under the GST framework. The Court distinguished the former VAT regime because GST includes the combined operation of Section 41(2), Rule 37A and Section 155, and because the credit system has an inter-State fiscal dimension. The former VAT reasoning could therefore not be transposed without examining the integrated GST scheme. A decision which had applied the former VAT reasoning to Se....
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....enge based on deprivation of property did not succeed. Reading down was unavailable on the statutory language adopted Reading down is a limited interpretative device: where a provision reasonably bears a narrower construction that avoids constitutional invalidity, a court may adopt that construction to preserve the legislation. It is not a means to rewrite clear statutory language or introduce an exception that Parliament has not enacted. Section 16(2)(c) was held to be clear and unambiguous. Its terms do not distinguish between bona fide and collusive recipients as a condition for operation. The Court concluded that the broader statutory framework supplies checks and balances through reversal, eventual re-availment and revenue recovery. Consequently, neither invalidation nor a recipient-protective reading down was warranted. Practical Implications • Recipients should treat supplier tax compliance as a live ITC risk, rather than confining verification to possession of invoices, receipt of supplies and reflection of entries in GSTR-2B. • Where Rule 37A applies, the statutory dates for reversal are significant. Credit relating to a supplier....