Can buyer claim ITC if supplier has not paid his tax ???

As per Section 16(2)(c) of CGST Act, the recipient of goods and services can avail ITC only if supplier has deposited the tax with government either in cash or through utilisation of input tax credit.

 After reading this section we can say that if supplier has not paid the taxes then recipient/buyer can not take Input tax credit.

But, I want to ask an question from you… Can, this section is practical ???

Let’s do analysis of this issue, first of all I want to discuss with you the ITC provisions at the time of VAT Scenario 

At the time of VAT there was also an provision which says input can’t be claimed if supplier has not paid the taxes.

On that provision certain court judgements are also available let’s discuss those judgements one by one

Arise India limited :- in this case honorable delhi high court has held that Input can’t be denied if tax has not been paid by supplier.

Kay kay industries :- in this case honorable supreme court has held that input can’t be denied if tax has not been paid by supplier.

The above judgements are in favour of Recipient but one contrary judgement is also available

Madras high court In one of his judgement says that credit can be denied and in that judgement court says that we have to follow the law and we can’t challenge the section provided in law.

Now, we are going to discuss this situation in GST Scenario….

Writ petition has already been filed in delhi high court in case of bharti telemedia limited regarding validity and legality of provisions of section 16(2)(c) of CGST Act,2017.

Also writ petition has been filed on the same issue in punjab and Haryana high court , rajasthan high court and gujrat high court, notices has already been issued to the revenue…

Let’s wait for the decisions

Can buyer claim ITC if supplier has not paid his tax under GST


Now, let’s we are going to discuss the grounds on which basis we can  Say that credit should be available…


  Article 14 of Indian constitution talks about fundamental rights.. in our issues supplier has defaulted but there is no default at the end of recipient hence bonafied recipient can’t be punished by denying credit.

There is an legal term called “ LEX NON COGIT AD IMPOSSIBILIA”  Meaning of this legal term is that law can not compel a men to do something he can not possibly perform

EXAMPLE :- The court cannot possibly ask a men to get the moon for his wife because he promised it.

 Let’s understand the relevance of this provision here…

At the time when GST was implemented (i.e. on 1/07/2017) govt. has said that there is an auto mated process for GST return filing on which match and mis match tools will be available for Input.

But govt. him self gives the facility of GSTR- 2A in the year 2019 and at that time data populated in GSTR-2A was not fully correct also GSTR-2/3 also has not been introduced then how buyer can check his ITC and how he can check that supplier has filed his return..

Also on the reading of section 37/38/39/41/42 of CGST act we found that ITC matching was the back bone of Automated GST Returns.

On the basis of above discussion we can say that it was impossible for the buyer to check that whether supplier has paid taxes or not then how law can to do something which was impossible.

As per section 73 and 74 of CGST act notices can be issued only to the person chargeable to tax (i.e. supplier)

Then how govt. can issue notices to the receipt….. 

 From the above discussion we can understand the legal arguments on that issue  lets‘s wait for court decisions 

Author Bio

Qualification: CA in Practice
Location: JODHPUR, Rajasthan, IN
Member Since: 19 May 2020 | Total Posts: 2

My Published Posts

More Under Goods and Services Tax


  1. sunil b mundada says:

    sir nice article on itc as i am facing same problem of it science 2007 m vat and clanging the question in law forum in my case as per department the supplier not paid tax on sales & they want to recover from me and as i am unable to pay that tax they have collected tax for the vendors whom i supplied know they are saying that we will return them but we forcibly collect from you is any revers osmosis case study or any judjment regarding this

  2. s sampath says:


  3. swaminathan says:

    ADMN. Comment posted y’day has remained to be displayed.
    Meanwhile, to add:
    RE. CAse Law, for inconsistent decisions , refer HERE,-

    Re. MAD HC , it is noted to be a favourable (not adverse) decision (recheck !) as reported HERE,-


  4. Rahul Singh says:

    Notification No. 49/2019-Central Tax sub-rule (4) has been inserted in Rule 36 in the Central Goods and Services Tax Rules, 2017 (“CGST Rules”) which restricts the input tax credit (‘ITC’) in case of mis-match of invoices

  5. vswami says:

    As per Section 16(2)(c) of CGST Act, the recipient of goods and services can avail ITC only if supplier has deposited the tax with government either in cash or through utilisation of input tax credit. UQ

    1. How could the provision, in its present terms, be either complied with by taxpayer, or be implemented or enforced by the Authorities in a situation say, – B(a)2 B(b)2 B(c) 2 C (so on, forming a chain) ? That is,- should there be more than one input supplier, failing to pay his dues before the final stage of supplier of his output (finished GOODS) to consumer for whose benefit the ITC has to enure and be passed on ?!?
    2. Are there not problems in quantifying the tax due by supplier (paid or not ) when the goods supplied is amenable to being classified differently (with tax rates appllicable being different) by taxpayer(s) (collector-s) on one hand and the REvenue on the other??!!??
    From the above discussion we can understand the legal arguments on that issue lets‘s wait for court decisions UQ
    Does that not imply that courts are bound to be totally non-plussed (if not absolutely floored/left hung) in considering and deciding any related issue (or a non-issue) uniformly even in a set of given cases despite the facual matrix being ‘on all the fours’ ???!!!???
    In short: Is not the concept of ‘ITC’ so ill-conceived to the core; that is akin to a new-born destned to be instantly put and remain in ‘incubator’ for time-being / life- long ?>>>>>
    Anyone with independent thoughts (if not of a solution) to spare and share for now !!!

  6. CA RAHUL says:

    CA Sachin, nice study on various angles.
    Law provisions & Practical situation in business are not matching. Denial of ITC by Govt, even after the payment of it to respective seller & incapability of Govt authority to collect the taxes from such defaulting sellers can NEVER BE EASE OF DOING BUSINESS. Decisions of Hon High Courts are not binding to other states but decision of Hon Supreme Court should be followed.

  7. Himanshu Mittal says:

    Sachin Ji,
    Thanks for such information and as per your article 2 or more judgements are in favor of recipient but if buyer has procured goods or services from the supplier and the supplier not filed his invoice in GSTR-1 then can ITC also claim by Buyer, even though buyer has not defaulted in payment and other terms?

    1. Narender Kumar says:

      As of now both ways the recipient of goods & services at the receiving end. At least the govt. should remove Section 16(2)(c) of CGST Act as this part is not in control of the recipient. As far as sub-rule (4) of Rule 36 is concerned the recipient has an upper hand and has various measures to control and pressurize the supplier to file GSTR-1.

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

January 2021