Facts of the Case:

In this case, the petitioner engaged in the production, blending, and supply of tea in India and abroad, challenged the constitutional validity of Section 16(2)(aa) of the Central Goods and Services Tax Act, 2017. The impugned clause makes the availability of Input Tax Credit (ITC) to a purchaser contingent upon the supplier furnishing the corresponding invoice or debit note in Form GSTR-1 and such details being communicated to the recipient under Section 37.

The petitioner contended that this condition is arbitrary and impossible to comply with, because the purchaser has no statutory mechanism to ensure that the supplier uploads invoices correctly in GSTR-1, nor any control over the auto-population of details in GSTR-2A/2B. Despite the purchaser having genuinely received goods/services and paid GST to the supplier, ITC is denied solely due to the supplier’s non-compliance. This results, according to the petitioner, in shifting the incidence of tax from the supplier to the buyer and compelling the purchaser to effectively pay GST twice.

Further, argued on the reasons may exist for the supplier not filing GSTR-1 or not uploading invoice details correctly, and bona fide purchasers cannot be penalized for such failures. The petitioner relied on several decisions—Suncraft Energy Pvt. Ltd., Diya Agencies, and the Supreme Court’s affirmation of Shanti Kiran India (P) Ltd. and On Quest Merchandising—where courts granted relief to purchasers who had paid tax in good faith but were denied credit due to the supplier’s default.

The department opposed the petition, arguing that ITC is a concession subject to conditions, and Section 16 clearly sets out four cumulative requirements, including actual payment of tax by the supplier to the Government. The introduction of Section 16(2)(aa) was intended to strengthen compliance, curb fraudulent ITC claims, and eliminate provisional ITC.

Issue:

Whether Section 16(2)(aa) of the CGST/AGST Act—making ITC dependent on the supplier furnishing invoice details in GSTR-1—violates constitutional principles by denying ITC to bona fide purchasers for defaults committed solely by the supplier, and whether the provision should be declared unconstitutional or read down.

Held that:

The Court observed that denying ITC to a bona fide purchaser who has paid tax, received goods/services, and holds valid tax invoices would shift the tax burden from supplier to buyer, which is contrary to the GST framework. The Court found the provision to be “iniquitous” as it places an onerous burden on the purchasing dealer, particularly because the mechanism for cross-verification under Sections 37 and 38 does not empower the purchaser to compel compliance or rectify the supplier’s omission. While the purpose of the amendment was preventing fraudulent ITC claims and ensuring supplier compliance is legitimate, the absolute denial of ITC to bona fide purchasers was considered disproportionate.

Therefore, although the Court refrained from declaring Section 16(2)(aa) unconstitutional, it read down the provision. It held that before denying ITC to a bona fide purchaser on account of the supplier’s default, the department must provide an opportunity to the purchaser to establish his bona fides, by producing invoices, payment proofs, and other documentary evidence. If such bona fides are established, ITC cannot be denied merely because the supplier failed to upload invoice details in GSTR-1.

The Court clarified that this reading-down shall apply until the CBIC evolves a practical mechanism to protect purchasers from supplier-side non-compliance. The writ petition was accordingly disposed of.

The High Court held that ITC is in the nature of a concession subject to statutory conditions; however, such conditions must be reasonable and aligned with the overarching objective of GST to avoid cascading taxes. Section 16(2)(aa) imposes a condition dependent entirely on the supplier’s compliance—something over which the purchaser has no control.

Case Name: M/s. Mcleod Russel India Limited Versus The Union of India, The State of Assam, The Commissioner, Central Goods & Service Tax, Guwahati, The Commissioner of State Taxes, Assam. dated 09.12.2025

To read the complete  judgement 2025 Taxo.online 3247