Facts of the Case:

The petitioner challenged the judgment of the Rajasthan High Court whereby the writ petition had been disposed of by relegating the assessee to avail the alternative statutory remedy. The petitioner contended before the Supreme Court that the High Court failed to appreciate that the writ petition also involved a constitutional challenge to Section 16(2)(c) of the CGST Act, 2017.

The controversy arose from denial of Input Tax Credit (ITC) on the ground that tax allegedly had not been properly discharged at the supplier’s end. The petitioner argued that there was no dispute regarding payment of tax by the immediate supplier. However, the allegation of the department was that an upstream supplier, one level removed in the supply chain, had either failed to deposit tax or was allegedly a fake entity.

The petitioner submitted that Section 16(2)(c), if interpreted literally, imposes an impossible burden upon a bona fide purchasing dealer by making ITC dependent upon compliance by third parties over whom the purchaser has no control.

Issue:

Whether Section 16(2)(c) of the CGST Act, insofar as it conditions availment of ITC upon actual payment of tax by suppliers in the chain, imposes an impossible and unreasonable condition upon the purchasing dealer, particularly where the purchasing dealer has no control over compliance by upstream suppliers.

Held That:

The Supreme Court heard learned counsel for the petitioner, who argued that the condition contained in Section 16(2)(c) effectively compels an assessee to ensure tax compliance by suppliers beyond its control. It was specifically contended that denial of ITC to a bona fide purchaser on account of alleged default by a supplier further up the chain is arbitrary and unjustified.

The Court directed that a copy of the petition be furnished to the learned Additional Solicitor General appearing for the Union of India as well as counsel appearing for the State. The matter has been directed to be listed on 29 May 2026 for further consideration.

No final adjudication has yet been made on merits. However, the order assumes significance because the Supreme Court has taken cognizance of the constitutional challenge to Section 16(2)(c) and the argument relating to “impossibility of performance” under the GST framework.

Case Name: M/s. Prime Metals Versus Central Board Of Indirect Taxes And Customs & Ors. dated 22.05.2026