Excess ITC Case: Telangana HC Declines Vires Challenge to Section 16(2)(c)

Inam Impex Private Limited Vs Assistant Commissioner (ST) (Telangana High Court)

Telangana HC Declines Vires Challenge to Section 16(2)(c); Directs Taxpayer to File GST Appeal in Excess ITC Case (AY 2021-22)

Introduction

Disputes relating to Input Tax Credit (ITC), especially those linked to supplier compliance under Section 16(2)(c) of the GST law, continue to generate significant litigation. Taxpayers often argue that ITC should not be denied when payments are made against valid invoices, even if suppliers default in tax payment.

In a recent decision dated 31.03.2026, the Telangana High Court addressed such a dispute involving M/s. Inam Impex Private Limited. The Court refused to entertain a constitutional challenge to Section 16(2)(c) and instead directed the petitioner to pursue the statutory appellate remedy, reinforcing the principle of exhaustion of alternative remedies.

Case Background

The petitioner challenged:

• Order-in-Original dated 30.12.2025 for AY 2021-22
• Demand of tax, interest, and penalty for alleged excess ITC

Key facts:

• GST registration of the petitioner was cancelled on 09.09.2024 (unchallenged)
• ITC was denied on the ground of excess claim compared to supplier declarations
• Petitioner also challenged the constitutional validity (vires) of Section 16(2)(c)

The petitioner contended that:

• Payments were made against valid invoices
• ITC was availed legitimately
• Denial was due to supplier default, which should not impact the recipient

Key Legal Issue

Whether the High Court should:

• Entertain a challenge to the vires of Section 16(2)(c) of GST law, and
• Intervene under Article 226 when disputed facts require verification by statutory authorities

Arguments Presented

Petitioner’s Submissions:

• ITC was availed on genuine invoices with payments made
• Alleged that supplier failed to deposit tax
• Challenged Section 16(2)(c) as unconstitutional in such cases
• Argued that recipient should not suffer due to supplier’s default

Respondent’s Contentions:

• No clear finding in the order that supplier failed to deposit tax
• Case involves factual verification of documents
• Appropriate remedy lies before appellate authority, not writ court

Court’s Observations

The Bench comprising Aparesh Kumar Singh and G. M. Mohiuddin made key observations:

• The dispute involves verification of factual records (invoices, tax payments, returns)
• No clear finding that supplier failed to deposit tax collected
• ITC denial was based on mismatch in declarations, not proven non-payment
• Constitutional challenge to Section 16(2)(c) not maintainable in such factual scenario
• Issues should be decided by statutory authorities/appellate forum

Final Judgment

The writ petition was disposed of with the following directions:

• Relief Denied: Court declined to entertain:
  • Challenge to vires of Section 16(2)(c)
  • Direct interference in assessment
• Liberty Granted:
  • Petitioner permitted to file appeal under Section 107
• Conditions:
  • Subject to statutory pre-deposit
  • Within prescribed limitation period

Author’s Analysis – Practical Takeaways for Taxpayers

This ruling provides crucial clarity on ITC litigation strategy:

1. Vires Challenge Requires Strong Foundation

Courts will not entertain constitutional challenges when the case is based on disputed facts rather than pure legal issues.

2. ITC Cases are Fact-Driven

Verification of invoices, returns, and supplier compliance must be done at the departmental/appellate level.

3. Writ is Not the First Remedy

Even in ITC disputes, High Courts insist on exhaustion of statutory remedies.

4. Supplier Default Argument Needs Evidence

Taxpayers must clearly establish that:

• Tax was paid to supplier, and
• Supplier failed to deposit it

Without this, Section 16(2)(c) challenge may fail.

5. Appeal is the Correct Strategic Route

Appellate authorities are better equipped to examine:

• Documentary evidence
• Reconciliation issues
• Supplier compliance

Conclusion

The decision in M/s. Inam Impex Pvt. Ltd. reinforces a consistent judicial approach—High Courts will not bypass statutory mechanisms in fact-intensive GST disputes. The ruling also signals that constitutional challenges to ITC provisions must be backed by clear and undisputed facts.

For taxpayers, the key takeaway is clear:

Build a strong factual record, use appellate remedies effectively, and reserve writ jurisdiction for exceptional circumstances.

FULL TEXT OF THE JUDGMENT/ORDER OF TELANGANA HIGH COURT

Heard Mr. Shaik Jeelani Basha, learned counsel representing Mr. Mohammed Rafi, learned counsel appearing for the petitioner and Mr. Swaroop Oorilla, learned Special Government Pleader for State Tax appearing for the respondents.

2. The registration of the petitioner was cancelled on 09.09.2024 which is not yet challenged in any proceeding. The present writ petition seeks to lay challenge to the order-in-original dated 30.12.2025 passed for the assessment year 2021-22 plus the summary of the order of the same date imposing tax, interest and penalty upon the petitioner on the charge of having claimed excess ITC than what was declared by its suppliers. Petitioner has also laid a challenge to the vires of Section 16(2)(c) of the Telangana Goods and Services Tax Act, 2017/Central Goods and Services Tax Act, 2017 (hereinafter referred to as ‘the TGST Act/CGST Act’) on the ground that the impugned liability is allegedly due to non-deposit of taxes by the supplier despite payment made against invoices raised by it and ITC availed by the petitioner consequent thereto.

3. However, learned Special Government Pleader for State Tax appearing for the respondents has pointed out that there are no specific allegations in the show cause notice or findings in the impugned order-in-original to the effect that the petitioner has availed ITC without taxes deposited by the supplier in lieu of invoices raised by it.

4. Learned counsel for the petitioner submits that the invoices raised by its supplier have been duly paid on the basis of which ITC has been claimed though it appears that the taxes were not deposited by the supplier. Therefore, ingredients for disallowance invoking Section 16(2)(c) of the TGST Act/CGST Act are made out to challenge the vires of Section 16(2)(c) of the TGST Act/CGST Act.

5. However, on scrutiny of the materials on record including the show cause notice and the findings in the order-in-original, it appears that the proceedings against the petitioner were initiated for having availed excess ITC compared to the taxes declared by its supplier on the supplies made to it. It is not evident from the order-in-original that the supplier has failed to deposit the taxes paid by the petitioner in lieu of the supplies made against invoices raised by it. In such a case, whether the taxes have been paid in lieu of invoices raised by its supplier and after receipt of goods by the petitioner depend upon scrutiny of material documents which are within the domain of the statutory authority including the appellate authority.

6. Therefore, we decline to entertain the challenge to the vires of Section 16(2)(c) of the TGST Act/CGST Act in the present writ petition. Petitioner is at liberty to avail the remedy of appeal by making statutory pre-deposit within the limitation period prescribed under Section 107(1) read with Sub-section (4) of the TGST Act/CGST Act.

7. The instant Writ Petition is, accordingly, disposed of. However, there shall be no order as to costs.

Miscellaneous applications pending, if any, shall stand closed.