Supplier Tax Default Condition for ITC Constitutionally Valid: Rajasthan HC

Sumetco Alloys Private Limited Vs Union of India (Rajasthan High Court)

Summary: The Rajasthan High Court rejected Sumetco Alloys Private Limited’s constitutional challenge to Section 16(2)(c) of the Central Goods and Services Tax Act, 2017 and declined to interfere with a show cause notice dated 26.09.2025 and order-in-original dated 10.04.2026 raising a demand of Rs. 56,44,08,265/- for financial years 2020-21 to 2023-24. The petitioner, a manufacturer of pure lead and lead ingots, claimed that it had purchased goods from registered suppliers, maintained invoices and transport documents, made payments through banking channels and satisfied the requirements within its control. During proceedings it had also deposited Rs. 50,00,000/- through Form GST DRC-03 under protest.

Read SC Judgment in this case: SC Grants Interim Protection Against Coercive GST Recovery in Sumetco Alloys Case

The department, however, alleged fake invoices, bogus supplies and multi-layered paper transactions without actual movement of goods. The Court held that Section 16(1) does not confer an unconditional right to input tax credit and that the conditions prescribed in Section 16(2), including clause (c), are cumulative. Section 16(2)(c), read with Section 41, provides for reversal where the supplier has not paid tax and permits re-availment after the supplier discharges the liability; consequently, the denial is contingent and reversible. Section 155 places the burden of establishing ITC eligibility on the claimant. Relying materially on Bhandari Scrap Traders v. Union of India, the High Court held that the constitutional challenge and plea to read down Section 16(2)(c) could not succeed. It distinguished the approaches in Sahil Enterprises v. Union of India and other High Court decisions because the present proceedings involved allegations of fake invoices, bogus supplies and absence of goods movement, the truth of which required factual adjudication.