Constitutional Validity of Section 16(2)(c) Affirmed: Gujarat High Court Rules on ITC Denial Due to Supplier Default
The landscape of Input Tax Credit (ITC) under the Goods and Services Tax (GST) framework has been a subject of intense judicial scrutiny, particularly concerning the denial of credit to a bona fide recipient due to the tax defaults of a supplier. In a landmark judicial pronouncement, the Gujarat High Court, in the lead matter of Jigneshbhai Bharatbhai Tarpara Vs Union of India & Ors. (Gujarat High Court), comprehensively addressed these concerns. The Court evaluated a batch of writ petitions challenging the constitutional vires of Section 16(2)(c) of the Central Goods and Services Tax Act, 2017.
This detailed analysis summarizes the core arguments, the statutory interpretations, and the final verdict delivered by the High Court, providing critical insights into the operational mechanics of ITC availment, reversal, and the strict compliance expected from an assessee.
Core Dispute: The Constitutional Challenge to Section 16(2)(c)
The primary grievance raised by the petitioners revolved around the strict condition imposed by Section 16(2)(c) of the Central Goods and Services Tax Act, 2017. This specific clause mandates that an assessee is entitled to claim ITC only if the tax charged in respect of the inward supply has actually been paid to the Government by the supplier.
The petitioners challenged this provision, arguing that it suffers from manifest arbitrariness and violates fundamental constitutional rights enshrined under Articles 14, 19(1)(g), 265, and 300A of the Constitution of India. As an alternative prayer, the petitioners urged the Court to "read down" the provision so that it would exclusively penalize fraudulent or collusive transactions, thereby shielding the genuine, bona fide assessee who has fulfilled all statutory obligations within their immediate control.