GST ITC Under Sections 16(2)(aa) and 16(2)(b): Supplier Reporting & Receipt of Goods

GST Input Tax Credit Under Sections 16(2)(aa) and 16(2)(b): Supplier Reporting and Receipt of Goods

Summary: The article examines input tax credit eligibility under Sections 16(2)(aa) and 16(2)(b) of the Central Goods and Services Tax Act, 2017, focusing on supplier reporting and the receipt of goods. It explains that Section 16(2)(aa), introduced with effect from 1 January 2022, links a recipient’s claim to the supplier furnishing invoice or debit-note particulars in outward-supply statements and their communication to the recipient under Section 37. The authors refer to Rule 59(4), Form GSTR-1 and the practical consequences of missing invoices in Form GSTR-2B. They argue that a genuine purchaser should have an opportunity to substantiate a transaction with invoices, banking records and evidence of receipt instead of facing an automatic denial solely because the supplier failed to report an invoice. The discussion cites the Madhya Pradesh High Court decision in Shree Kishna Chemicals and a Gauhati High Court decision involving MCLEOD Russel India Limited, alongside CBIC circulars addressing earlier implementation difficulties. Turning to Section 16(2)(b), the article describes the statutory explanation under which delivery to another person at the registered purchaser’s direction may constitute deemed receipt. It also considers principal-agent supplies, deliveries away from the purchaser’s premises and ex-works contracts. Particular attention is given to CBIC Circular No. 241/35/2024-GST dated 31 December 2024, including delivery to transporters at the supplier’s premises. The authors conclude that supplier reporting obligations and deemed-receipt principles should inform departmental scrutiny of ITC claims and question notices that disregard those considerations. These are the authors’ interpretations, not a finding that every disputed credit or notice must succeed.

Paralysed Section 16(2)(aa) which came in to effect from 01.01.2022: Section 16(2)(aa): Supplier Reporting and ITC Eligibility

Introduction of Section 16(2)(aa) and Its Effective Date

The Government had realized the difficulty in the initial roll out of the GST regime under the CGST/SGST Act and considered that GSTR 2A was not available initially in the Finance years, 2017-2018 and 2018-2019, during the implementation of GST. In order to resolve all bona fide claims and mistakes, the government has introduced Section 16(2)(aa) with effect from 01.01.2022.

Invoice and Debit Note Reporting Under Section 37

The Section 16 (2) (aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;

Rule 59(4) and Invoice-Wise GSTR-1 Disclosure

Therefore it is mandatory that the supplier has to upload the supply details under Rule 59 (4) The details of outward supplies of goods or services or both furnished in FORM GSTR-1 (under section 37) shall include the (a) invoice wise details of all (i) inter-State and intra-State supplies made to the registered persons; (ii) inter-State supplies with invoice value more than one lakh rupees] made to the unregistered persons (b) consolidated details of all (i) intra-State supplies made to unregistered persons for each rate of tax; and (ii) State wise inter-State supplies with invoice value up to one lakh rupees]made to unregistered persons for each rate of tax;

GSTR-2B Mismatch and Evidence of Genuine Purchases

Hence it is mandatory to upload all the information in GSTR 1 by the supplier as specified under Section 16 (2) (aa) read with rule 59 (4). when the object of introducing Section 16(2)(aa) of the CGST Act, 2017, is to prevent fraudulent availment of Input Tax Credit and promote compliance by suppliers. However, the provision ought not to be applied mechanically so as to penalise a bona fide recipient for an omission or default committed by the supplier, particularly where the recipient establishes the genuineness of the transaction through tax invoices, proof of receipt of goods or services, banking records, and other contemporaneous documents. Mere non-reflection of an invoice in Form GSTR-2B cannot, by itself, be treated as conclusive evidence that the recipient has participated in tax evasion. The Department should undertake an appropriate verification of the transaction and afford the recipient a reasonable opportunity to establish bona fides before denying legitimate credit

Madhya Pradesh High Court and Transitional GST Circulars

 Madhya Pradesh High Court’s decision in Shree Kishna Chemicals Vs Union of India given clarification on introduction of Section 16(2)(aa). That the Government had realized the difficulty in the initial roll out of the GST regime under the CGST/SGST Act and considered that GSTR 2A was not available initially in the Finance years, 2017-2018 and 2018-2019, during the implementation of GST. In order to resolve all bona fide claims and mistakes, Circular No.183/15/2022- GST dated 27.12.2022 and Circular No. 193/05/2023- GST dated 17.07.2023 have been issued. Circulars cover the period from the introduction of GST till Section 16(2)(aa) was introduced with effect from 01.01.2022.

Purpose and Effect of Section 16(2)(aa)

And the Hon’ble Gauhati High Court in the case of M/s MCLEOD Russel India Limited Vs Union of India, the Hon’ble High court categorically adjudged that the purpose of inserting Section 16(2)(aa) into the CGST Act is to mandate a stricter condition for availing ICT. It actually ties the recipient’s ability to claim ITC directly to the supplier’s compliance with their GST filing obligations. This amendment was introduced to address tax evasion and improve the transparency and integrity of the GST system. Thus, the purpose and rationale is to prevent fraudulent ITC claims, to promote supplier compliance and eliminate provisional ITC, which has proved to be effective in curbing fraudulent claims. The object and purpose of GST Act is to avoid any cascading effect of taxation.

Supplier Obligations and the Authors’ Interpretation of Section 16(2)(c)

So it is evident that the Government has introduced Section 16 (2) (aa) for the benefit of purchased by putting onus on the suppliers to submit all the information about outward supplies and payments to be communicated to the purchaser/ recipient.Having the new provision introduced by the CBIC for the benefit of recipient, no effective utilization such new subsection by the department with effect from  01/01/2022 rather utilization of amended section 16 (2)(c) based on insertion of Section 41 with effect from 01/10/2022.

Proof of Receipt of Goods Under Section 16(2)(b)

Section 16 of the Central Goods and Services Tax Act, 2017 governs the eligibility of a registered person to claim input tax credit on GST paid on inward supplies of goods or services used or intended to be used in the course or furtherance of business. Section 16 establishes the statutory framework for claiming ITC. Eligibility must be examined with reference to the applicable provisions, supporting documents, actual receipt of supplies, supplier reporting, tax payment and prescribed time limits.

Statutory Requirement of Receipt of Goods or Services

Deemed Receipt Under the Explanation to Section 16(2)(b)

Explanation.—For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services–– (i)  where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise; (ii)  where the services are provided by the supplier to any person on the direction of and on account of such registered person.

Principal-Agent Supplies Under Schedule I

Therefore the condition of receipt of goods under section 16 (2)(b) become in inapplicable for the transactions specified under section 7 (1) (c) the activities specified in Schedule I (3) Supply of goods— (a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or (b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.

Physical Receipt at the Purchaser’s Premises

No requirement of physical receipt of goods by the registered purchaser or its agent at its business premises when interpreting Section 16(2)(b) of the CGST Act, 2017, as requiring physical receipt of goods at the registered person’s own business premises or insisting upon physical delivery to the purchaser personally or through its agent.

CBIC Circular 241/35/2024-GST on Third-Party Delivery

The Explanation to Section 16(2)(b) expressly provides for deemed receipt where goods are delivered by the supplier to any other recipient or person on the direction of the registered purchaser, whether acting as an agent or otherwise, before or during movement of the goods, by transfer of documents of title or otherwise. Further, CBIC Circular No. 241/35/2024-GST dated 31 December 2024 clarifies at clarification No 3.2.1 The said Explanation provides that where goods are delivered by the supplier to any other person, whether acting as an agent or not, upon the direction of the registered person, and where such delivery occurs either through transfer of documents of title to goods or otherwise, the registered person is deemed to have “received” such goods for the purpose of the clause (b) of sub-section (2) of section 16 of CGST Act. Accordingly, in cases where goods are delivered by the supplier to the registered person, either directly or to any other person on the directions of the said registered person, the registered person shall be considered to have “received” the said goods for the purpose of clause (b) of sub-section (2) of section 16 of CGST Act.

EXW Contracts and Delivery to Transporters

And at clarification No 3.4 of above circular, The same principle is applicable in respect of supply of other goods also where the contract between the supplier and recipient is an EXW contract, and as per terms of the contract, the goods are to be delivered by the supplier to the recipient, or to any other person (including a transporter) on behalf of the recipient, at his (supplier’s) place of business and the property in the goods stands transferred to the recipient at the time of such handing over. In such cases, the said goods can be construed to have been “received” by the said recipient at the time of handing over the said goods to the recipient or to the transporter, as the case may be, as per provisions of clause (b) of sub-section (2) of section 16 of CGST Act.

Opinion on Supplier Compliance and Deemed Receipt

Authors’ Conclusions on ITC Notices

Section 16 (2)(aa) read with rule 59(4) the supplier should upload the invoice wise details in GSTR 1 like invoice number, date of invoice, Quantity and Value of supply to avoid department action under section 16 (2)(C).  And another issue is that the CBIC has admitted through Circular No. 241/35/2024-GST dated 31 December 2024, that the condition under Section 16 (2) (b) that the recipient must received goods or services may not be possible in many occasions. Hence the notices issued based on the above are not sustainable under the GST law.

Cases Discussed

• Shree Kishna Chemicals Vs Union of India and Others, Writ Petition No. 5692 of 2025, decided 18 February 2025 (Madhya Pradesh High Court). Cited in the article in connection with transitional GST difficulties and CBIC circulars addressing ITC mismatches.
• M/s MCLEOD Russel India Limited Vs Union of India (Gauhati High Court). Cited for the stated legislative purpose of Section 16(2)(aa) and its link between supplier compliance and recipient ITC eligibility; the supplied text does not give a decision date or full case citation.

***

About the Authors:
S.V.S. Raghavendra Rao, Advocate & Tax Consultant, Nellore, Andhra Pradesh, Phone: 9440275175, Email: [email protected]
S.V.S.N. Sasidhar Rao, Chartered Accountant, Nellore, Andhra Pradesh, Phone: 9490087873, Email:[email protected].