Sanchayita Lahkar

The High Court of Gauhati, Division Bench of Chief Justice Ashutosh Kumar and Justice Arun Dev Choudhury disposed of an assessee’s writ petition by reading down Section 16(2)(aa) of the CGST Act and the Assam GST Act, holding that input tax credit cannot be denied to a bona fide purchaser merely because the supplier did not upload invoice details in Form GSTR-1. The Court kept the provision in force, but directed that, before denying credit for non-reflection of invoices in the recipient’s GST statements, authorities must give the purchaser an opportunity to prove the transaction through invoices and supporting documents. The dispute concerned the assessee’s challenge to a condition linking the recipient’s entitlement to the supplier’s compliance, pending a practical solution by CBIC.

The petitioner, a public limited company engaged in the production and supply of tea, challenged the validity of Section 16(2)(aa) of the Central Goods and Services Tax Act, 2017 and the Assam Goods and Services Tax Act, 2017. The provision required that input tax credit could only be availed if the supplier furnished invoice details in the outward supply statement under Section 37.

The petitioner contended that this condition was arbitrary, as the purchaser had no control over the supplier’s compliance. It was argued that denial of credit despite payment of tax to the supplier amounted to double taxation and shifted the burden of compliance from supplier to purchaser. The petitioner relied on CBIC circulars issued in 2022 and 2023, which had earlier allowed credit in cases where invoices were not reflected in GSTR-2A. Judicial precedents from the Supreme Court and High Courts were also cited to support the claim that bona fide purchasers should not be denied credit due to supplier default.

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The respondents opposed the petition, submitting that the law permitted conditions and restrictions on entitlement to input tax credit. They argued that Section 16(2)(aa) was introduced to curb fraudulent claims and ensure supplier compliance. The dispute centered on whether bona fide purchasers could be denied credit solely due to supplier non-compliance.

The Court recorded: “A tax imposed by the Government is a tax on the buyer; making the seller a mere collecting agency, so that the tax must always remain outside the sale price.” It stated: “The law is well settled that a person, who claims exemption or concession, has to establish that he is entitled to that exemption or concession.”

The Bench observed: “Section 16(2)(aa) puts a condition on such exemption or concession, namely, the compliance by the seller over which a buyer may or may not have any actual control.” It recorded: “The object and purpose of GST Act is to avoid any cascading effect of taxation.”

The Court stated: “True it is that any exemption available in the taxing regime is dependent on certain conditions and the conditions are required to be complied with.” It observed: “In the present case, the conditions are that the GSTR-2 Form should reflect the payment of tax/invoice, which may or may not have been paid or correctly uploaded. Merely because of this, the ITC benefit to a bona fide buyer cannot be avoided as that would be against the object and purpose of the Act itself.”

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The Bench recorded: “In our estimation, the restriction is quite iniquitous because an onerous burden is placed on purchasing dealer. However, since the object and purpose of the amendment in the Act is to prevent fraudulent ITC claims and to promote supplier compliance, we are not inclined to hold the amendment in Section 16 to be unconstitutional but for the present, we only read it down to the extent that in case of the supplier acting truant, before denying the ITC benefits to a bona fide purchaser, he ought to be given an opportunity to prove his bona fides, which can be verified by the tax invoices and other documents.”

The Court directed: “We have read down this provision only till the time CBIC comes out with any practical solution to the problem posed by making the availability of ITC to the bona fide purchaser contingent on factors which are totally in the hands of a supplier and not the purchaser.”

The petition stands disposed off accordingly.

Advocates Representing the Parties

For the Petitioners: Mr. A. Kanodia, Advocate
For the Respondents: Mr. S.C. Keyal, Standing Counsel, CGST; Ms. R. Hussain, Advocate

Case Title: M/s McLeod Russel India Limited vs Union of India & Ors.
Neutral Citation: 2025:GAU-AS:16974-DB
Case Number: WP(C) No.5725 of 2022
Bench: Chief Justice Ashutosh Kumar, Justice Arun Dev Choudhury