• Dated 16^th January, 2026

Input Tax Credit Cannot Be Denied for Supplier’s Lapse in Bona Fide Transactions

Brief Facts:

The Assessee, a bona fide purchasing dealer, procured goods from a duly registered supplier and discharged the entire consideration along with applicable GST. However, the supplier failed to remit the GST so collected to the Government. On this ground alone, the department denied the Assessee 's claim of Input Tax Credit under section 16(2)(c) of the CGST Act, alleging that the tax had not been actually paid to the Government by the supplier.

Assessee 's Contention:

The Assessee contended that it had duly paid GST to the supplier and complied with all statutory requirements. It is impossible for a purchaser to verify whether the supplier has deposited tax with the Government. Denial of ITC in such bona fide transactions amounts to double taxation and violates Articles 14, 19(1)(g), 265 and 300-A of the Constitution and unjustly deprives the Assessee of its vested rights in ITC.

Department's Contention:

The department argued that section 16(2)(c) clearly mandates that ITC is available only if tax charged on the supply is actually paid to the Government. Since the supplier failed to deposit GST, the assessee was not entitled to ITC. The provision is constitutional and within legislative competence.

Court's decision:

The Tripura High Court held that section 16(2)(c) is constitutionally valid but must be read down. ITC cannot be denied to a purchasing dealer in bona fide transactions merely because the supplier failed to deposit tax. The provision can be applied only where transactions are non-bona fide, collusive or fraudulent. Denial of ITC to a bona fide purchaser would impose an impossible burden and result in double taxation. The department was directed to allow ITC to the Assessee.

BTA Comment

The Tripura High Court has taken a balanced and practical view by reading down section 16(2)(c) of the CGST Act. While affirming its constitutional validity, the Court held that ITC cannot be denied to a bona fide purchaser solely because the supplier failed to remit tax to the Government. Such denial would result in double taxation and impose an impossible compliance burden on the recipient. The judgment reiterates that the department's remedy lies against the defaulting supplier and not against an honest taxpayer, thereby preserving the fundamental objective of GST as a non-cascading tax regime.

Case ref-Sahil Enterprises Versus Union of India(2026) 38 Centax 116 (Tripura)

Author-Aindrila Ghosh

Edited by-Sneha Nandi