Tripura HC allows ITC availed by bona-fide recipient despite supplier’s default

Post hearing and examining all the facts, the bench held that the provision under Section 16(2)(c) of the CGST Act, 2017 cannot be used to deny ITC to a bona‑fide purchaser who has taken all reasonable precautions and holds a valid tax invoice, even if the supplier has not deposited the GST with the government
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In a significant ruling, Tripura High Court has held that Input Tax Credit (ITC) cannot be denied to a bona‑fide purchaser when the seller is a registered dealer and valid invoices are issued, even if the seller has not deposited the tax. However, experts said that the matter is expected to be settled fully by the Supreme Court.

“Section 16(2)(c) of the (CGST) Act is held not violative of Article14, 19(1)(g) or 265 or 300-A of the Constitution of India; But Section 16(2) (c) of the Act ought not to be interpreted to deny ITC to purchasers in a bona fide transaction like the petitioner and it should be read down and applied only where the transaction is found to be not bona fide or is a collusive transaction or fraudulent transaction to defraud the revenue,” a division bench, comprising Chief Justice MS Ramachandra Rao and Justice S Datta Purkayastha, said in a ruling dated January 6.

Section 16(2)(c) of the CGST Act prescribes that ITC can only be claimed by a recipient if the tax charged on the supply has been actually paid to the government by the supplier. Article 14 is related with equality before law, while article 19(1)(g) says that all citizens shall have the right to practise any profession, or to carry on any occupation, trade or business. Article 265 makes it clear that no tax shall be levied or collected except by the authority of law. Based on article 300A no person can be deprived of their property except through legal authority.

According to Harpreet Singh, Partner with Deloitte, the decision provides significant relief to bona fide taxpayers by holding that ITC cannot be denied merely due to a supplier’s failure to deposit tax, provided valid invoices are held and reasonable due diligence is undertaken. However, considering few of the High Courts have upheld the constitutional validity of Section 16(2)(c), the matter is likely to be settled by the Supreme Court,” he said.

The petitioner is engaged in the trading of rubber products and had procured goods from Sentu Dey (Supplier) on payment of applicable GST, against which ITC was duly availed. During investigation, it was alleged that the supplier had failed to deposit the tax with the government and accordingly, the ITC availed by the petitioner was proposed to be denied under Section 16(2)(c) of the CGST Act, 2017. A show cause notice was issued demanding reversal of the alleged ineligible ITC along with interest and penalty, which was subsequently confirmed through a demand order.

Aggrieved by the demand, the petitioner moved court. Post hearing and examining all the facts, the bench held that the provision under Section 16(2)(c) of the CGST Act, 2017 cannot be used to deny ITC to a bona‑fide purchaser who has taken all reasonable precautions and holds a valid tax invoice, even if the supplier has not deposited the GST with the government. It also observed that while making the provision, the legislature failed to make a distinction between purchasing dealers who have bona fide transacted with the selling dealer by taking all precautions.

Published on January 9, 2026