Summary: Two Supreme Court orders from July 2026 address different aspects of Input Tax Credit (ITC) exposure for genuine GST buyers where supplier-side defaults arise. In Bhandari Scrap Traders v. Union of India, the issue was the constitutional validity of Section 16(2)(c) of the CGST Act and whether the statutory condition requiring the tax charged on a supply to have actually been paid to the Government could be diluted for a bona fide purchaser; the condition was upheld, with ITC denied where the tax never reached the exchequer. In Additional Commissioner v. Safecon Lifesciences, the issue was narrower and concerned Section 74 of the UPGST Act and the use of the extended-period fraud machinery against a buyer without proof of fraud, wilful misstatement or suppression by that buyer; the Revenue’s SLP was dismissed and the High Court’s reasoning remained undisturbed. The supplied comparison therefore treats the decisions as addressing different legal questions, provisions and factual settings rather than as contradictory rulings. Bhandari Scrap concerned a situation where the supplier never deposited the tax, whereas Safecon concerned a transaction where the immediate supplier had filed GSTR-1/3B and paid tax at the time of the transaction, with the later irregularity relating to the supplier’s own upstream purchases. The practical position identified is that Section 16(2)(c) creates a hard-edged statutory condition, while invocation of the harsher Section 74 route still requires the statutory fraud-related threshold. The unresolved position concerning Sahil Enterprises, supplier due diligence, transaction-level documentation and the distinction between Sections 73 and 74 remain important for genuine businesses.
- The Two Cases, Side by Side
- Why This Isn't Really a Contradiction where as there is non payment of taxes at the end of suppliers vendors
- They answer different legal questions.
- The facts genuinely differ.
- The weight of the two rulings is different.
- Where the Tension Isn't Fully Resolved
- Practical Value-Add: What This Means for Business
- Bottom Line
The Two Cases, Side by Side
| Bhandari Scrap Traders v. Union of India | Addl. Commissioner v. Safecon Lifescience | |
|---|---|---|
| Citation | SLP(C) No. 23931/2026, decided 24 July 2026 | SLP(C) No. 23993/2026, decided 17 July 2026 |
| Bench / disposal | Justices Sanjay Kumar & Sanjeev Sachdeva — reasoned judgment | Dismissal of Revenue’s SLP against Allahabad HC |
| Provision at issue | Section 16(2)(c), CGST Act — constitutional validity | Section 74, UPGST Act — extended-period fraud proceedings |
| Question decided | Is the “tax must actually reach the government” condition itself valid, or must it be read down for bona fide buyers? | Can the extended-period fraud provision be invoked on a buyer without proof of fraud/suppression by the buyer? |
| Key fact | Supplier never deposited the tax at all | Supplier had filed GSTR-1/3B and paid tax at the time of the transaction; registration was cancelled later, and the alleged irregularity was in the supplier’s own upstream purchases as tax not paid on which credit taken. |
| High Court affirmed | Gujarat HC — Maruti Enterprise (01 May 2026) | Allahabad HC — Safecon Lifescience (09 Sept 2025) |
| Outcome for the buyer | ITC denied — statutory condition not met | ITC upheld — no fraud shown, ordinary Section 74 threshold not crossed |
| Precedential weight | Full reasoned judgment on a constitutional question | SLP dismissal — leaves HC reasoning undisturbed, doesn’t independently expand the law |
Why This Isn’t Really a Contradiction where as there is non payment of taxes at the end of suppliers vendors
They answer different legal questions.
Bhandari Scrap decides whether Section 16(2)(c) — the substantive eligibility condition — can be diluted for an innocent buyer. The Court said no: bona fides cannot override an express statutory condition, and VAT-era jurisprudence protecting buyers doesn’t automatically transplant into the GST scheme.
Safecon decides something narrower: whether the fraud-specific, extended-period machinery of Section 74 can be triggered against a buyer with no finding of fraud, wilful misstatement, or suppression on the buyer’s part. The Court said no — mere retrospective cancellation of the supplier’s registration, or problems in the supplier’s own upstream chain, isn’t evidence of the buyer’s fraud.
The facts genuinely differ.
In Bhandari Scrap, the 16(2)(c) condition was factually unmet — tax simply never reached the exchequer. In Safecon, the immediate supplier had deposited tax and filed returns when the transaction happened; the problem surfaced only afterward, one level removed. It’s entirely possible 16(2)(c) was actually satisfied in Safecon at the relevant time — meaning the case never needed to test the harder question Bhandari Scrap resolved.
The weight of the two rulings is different.
Bhandari Scrap is a full merits judgment on a constitutional challenge. Safecon is a dismissal of the department’s special leave petition — it lets the High Court’s finding stand but isn’t a fresh, wide-ranging pronouncement on ITC law generally.
Where the Tension Isn’t Fully Resolved
There’s a genuine, still-open fault line the two cases don’t settle:
- Section 73 vs. Section 74 matters enormously. If a department invokes ordinary Section 73 (no fraud allegation needed) in a Safecon-type fact pattern — supplier compliant at the time, cancelled later — it’s not settled that the buyer is equally protected.
- The Sahil Enterprises question is still pending. The Tripura High Court had read down Section 16(2)(c) to apply only to collusive/non-genuine transactions, following the older On Quest Merchandising VAT logic. That SLP is still before the Supreme Court and is now “considerably diluted” by Bhandari Scrap’s reasoning — but not formally overruled.
So the honest legal position today is: 16(2)(c) is a hard-edged condition (Bhandari Scrap), but the department still needs to prove fraud to use the harsher extended-period route against a buyer (Safecon). Genuine buyers are not fully protected, but they are not fully unprotected either — it depends on which provision is invoked and when the default in the chain occurred relative to the transaction.
Practical Value-Add: What This Means for Business
| Risk | Old assumption | Post-2026 reality |
|---|---|---|
| Supplier stops depositing tax after the sale | “I paid the supplier, I’m covered” | Not covered — Section 16(2)(c) is enforced literally; re-availment is possible only once the supplier eventually pays |
| Supplier’s registration cancelled after a compliant transaction | Assumed exposure was automatic | Not automatic — Section 74 needs proof of the buyer’s own fraud, not just the supplier’s later default |
| Department skips straight to Section 74 without evidence of buyer wrongdoing | Common department practice | Now a live, arguable defence per Safecon and the CBIC’s Dec-2023 instruction on Section 74’s threshold |
Recommended compliance posture:
1. Reconcile GSTR-2B every filing cycle, not just at year-end — this is now the frontline evidence of supplier compliance at the time of the transaction.
2. Build a supplier due-diligence file per vendor: GST registration status, return-filing track record, and periodic re-verification — not a one-time onboarding check.
3. Retain transaction-level proof (e-way bills, transport documents, banking-channel payment trails, tax invoices) indefinitely for high-value suppliers — this is exactly what saved Safecon.
4. Distinguish contractually — consider vendor agreements that require evidence of tax deposit as a condition of final payment, shifting some commercial risk back onto the supplier.
5. Watch the Sahil Enterprises SLP — its outcome could reopen or further foreclose the “bona fide buyer” defiance under 16(2)(c) itself.
Bottom Line
The two rulings aren’t philosophically at war — they police different failure points in the same fraud/default problem. But they leave the genuine, paying buyer in a position where outcome depends on procedural choices by the tax department (which section is invoked) and timing (was the default contemporaneous or retrospective) rather than on the buyer’s own conduct alone. That asymmetry — buyer bears commercial risk for supplier behavior outside its control — is the substantive policy gap flagged at the outset, and it remains, even after both judgments.
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This note is for general informational and discussion purposes and does not constitute legal advice. Given that the Sahil Enterprises SLP is still pending and this area of GST jurisprudence is actively evolving, please confirm current status with a qualified GST practitioner before relying on this for any specific dispute or compliance decision.
