Bombay HC Admits GST Challenge to ITC on Supplier’s Tax Default

Christie’s India Private Limited Vs Union of India And Ors. (Bombay High Court)

Bombay High Court admits the constitutional challenge to Section 16(2)(c) of CGST i.e. default in payment of taxes by Supplier

The Bombay High Court, in the case of Christie’s India Private Limited v. Union of India & Ors., admitted a constitutional challenge against Section 16(2)(c) of the CGST Act and its corresponding state provision. This section restricts the Input Tax Credit (ITC) available to the recipient (Christie’s) if the supplier has not actually paid the tax to the government. The Petitioner, an auction house, faced a substantial GST demand of crore (plus interest and penalty) because of their supplier’s alleged default. Christie’s argued that making a bona fide purchaser responsible for the supplier’s failure to remit tax violates Articles 14, 19(1)(g), and 300A of the Constitution, highlighting the conflicting judgments across High Courts, specifically noting the recent decision of the Gauhati High Court which struck down the provision as an unreasonable burden on the recipient.

The Court acknowledged the serious nature of the constitutional challenge, noting the divergence in judicial opinion—with the Kerala, Patna, and Madhya Pradesh High Courts upholding the provision, while the Gauhati High Court ruled against it. Recognizing the need for a definitive resolution, the Bombay High Court issued notice to the Attorney General for India and granted interim relief. The Court ordered a stay on all recovery proceedings arising from the GST demand, subject to the Petitioner depositing lakhs in Court within six weeks. The Court specifically denied an unconditional stay, reasoning that the State’s revenue dues should not be jeopardized by the taxpayer’s internal disputes with a co-noticee, who had only partially paid lakhs toward the liability. This conditional protection ensures the matter receives a full constitutional hearing while safeguarding the interests of the Revenue pending final adjudication.