Summary: The article examines the recurring GST dispute in which a genuine buyer purchases goods from a registered supplier, receives a tax invoice and e-way bill, receives the goods, pays the supplier through banking channels including GST, and claims input tax credit, only to face a demand years later because the supplier allegedly failed to deposit the tax with the Government. It acknowledges that, following the Supreme Court decision in Bhandari Scrap Traders v. Union of India on 24 July 2026, Section 16(2)(c) of the CGST Act has survived constitutional challenge and a case based only on protecting an honest buyer from the statutory condition may not succeed. At the same time, the article focuses on the statutory machinery available to the Department against the defaulting supplier, including Sections 75(12), 76 and 79, along with provisions concerning provisional attachment, personal liability and offences. It argues that advocates should specifically require the Department to disclose what action has been taken against the supplier, establish whether tax relating to the particular invoice was actually paid, and pursue supplier-side recovery before fastening liability on the buyer. It suggests separate grounds in appellate proceedings concerning premature and arbitrary recovery, and, before the High Court, joining the supplier and jurisdictional officer and seeking directions for supplier-side recovery and appropriate adjustment or restoration of credit. The article also relies on the approaches discussed in D.Y. Beathel Enterprises and Suncraft Energy and urges objections to Section 74 and interest where the buyer has neither committed fraud nor caused the delay.4.6%AI
The Supplier Took the Tax. Why Is the Department Chasing My Client?
The problem in simple words
I have been handling these cases for some years now, and the story is almost always the same. A trader buys goods from a registered supplier. He gets a proper tax invoice and an e-way bill. The goods reach his shop or godown. He pays the supplier through the bank, and the payment includes GST. He then takes credit of that GST in his returns, exactly as the law allows.
Three or four years later, a notice comes. It says that his supplier never paid this GST to the Government. So the trader must now give back the credit, pay interest at 18 per cent, and pay a penalty on top. In plain words, he is asked to pay the same tax a second time. The first time he paid it to the supplier. The second time he is paying it to the Government. The supplier, who kept the money, is nowhere in the picture.
In every such case, whether the amount is a few thousand rupees or a few lakhs, I ask the officer a simple question. What action have you taken against the supplier? Most of the time the answer is nothing. No notice has gone to the supplier. No recovery has been tried. No property has been attached. Yet the buyer’s file is ready and a demand is raised on him. That, friends, is what we must take to court.
Where the law stands today
We should be honest with our clients. On 24 July 2026 the Supreme Court, in Bhandari Scrap Traders v. Union of India, upheld the Gujarat High Court’s judgment in Maruti Enterprise. The Court said Section 16(2)(c) is valid, and it refused to soften the section for honest buyers. The old Delhi VAT judgments which we relied on for years were held to be of no help under GST. An appeal against the Tripura High Court’s Sahil Enterprises judgment, which had protected honest buyers, is still pending. So keep raising the point and keep it alive. But understand that a case which rests only on this point will not succeed today.
Why the Court saved the section, and why that helps us
The section was saved for a reason, and the reason is important. The Supreme Court noted that the Gujarat High Court relied on Section 41 and on Sections 73 and 74 of the Act. The idea is this. The Department will make the supplier pay. Once the supplier pays, the buyer gets his credit back. The Gujarat High Court said clearly that the buyer is not left without a remedy, because the Department has the power to recover the tax from the supplier who defaulted. The same Court also told the Government to look into the hardship of honest buyers and to recover the tax quickly from suppliers who default.
So the section stands on a promise. The promise is that the Department will go after the supplier. If the Department does not keep that promise in a given case, the very ground on which the section was saved is missing in that case. This is the argument I want every one of us to carry into court.
The Department has every power, but does not use it
Look at what the Act gives the officer against the supplier. Under Section 75(12), if the supplier has shown the invoice in his GSTR-1 but has not paid the tax in his GSTR-3B, that tax is treated as self-assessed tax. The officer can recover it straight away under Section 79. He does not need to issue a show cause notice or pass any order. Remember that the invoice shows up in our client’s GSTR-2A or 2B only because the supplier filed his GSTR-1. So the Department knew about the default from its own portal on day one.
Section 76 says that anyone who collects tax from another person must pay it to the Government at once. This section overrides other provisions, and there is no time limit for issuing a notice under it. Section 79 allows the officer to attach bank accounts, seize and sell property, and recover the amount like land revenue. Section 83 allows provisional attachment. Sections 88 to 90 make directors and partners personally liable. Section 29(3) says the liability continues even after the supplier’s registration is cancelled. Sections 122 and 132 make it an offence, with penalty and prosecution, to collect tax and not deposit it within three months.
In short, Parliament has named the supplier as the wrongdoer and has given the officer every tool to catch him. If the officer leaves all these tools untouched and turns to the buyer, only because the buyer is easy to find and has a running business, that is arbitrary. And an arbitrary act can be challenged.
What I request every advocate to do
Start with the reply to the notice. Ask the officer in writing what action has been taken against the supplier under Sections 75(12), 76 and 79. Ask for the supplier’s GSTR-1, his GSTR-3B and his ledger for that period. Ask that the supplier be summoned under Section 70 and that our client be allowed to cross-examine him. Section 16(2)(c) speaks of tax on “such supply”, meaning that particular invoice. So make the officer prove that the tax on this very invoice was not paid. A simple remark in the system that the supplier is a non-filer is not proof.
When the matter goes in appeal, whether before the Appellate Authority or the GST Tribunal, take a separate ground that the demand is premature and arbitrary because no recovery was ever attempted from the supplier. Keep this ground separate from the argument about validity of the section. Ask for the matter to be sent back with a direction to verify what was done against the supplier.
When you go to the High Court, add the supplier and the supplier’s jurisdictional officer as respondents, because without them the Court cannot pass an effective order. Ask the Court to direct the Department to proceed against the supplier under Sections 75(12), 76 and 79 within a fixed time, and to stop recovery from the buyer until that is done. Ask that whatever is recovered from the supplier be adjusted against the buyer’s demand. Ask that the buyer’s credit be restored without the time limit in Section 16(4) coming in the way, and where the buyer has already paid in cash, that the money be refunded in cash. Base the petition on Articles 14, 265 and 300A of the Constitution. The State cannot collect the same tax twice, and it cannot pick the innocent person just because he is easier to catch.
We are not without support. The Madras High Court in D.Y. Beathel Enterprises pulled up the Department for going after the buyer without taking any real step against the seller. The Calcutta High Court in Suncraft Energy said that the supplier must be proceeded against first, except in exceptional cases, and the Supreme Court refused to interfere with that judgment. The GST Council itself, in its press release after the 27th meeting, said that recovery should first be made from the seller. The Department will say that Bhandari has changed all this. It has not. Those judgments are about the order and fairness of recovery, not about whether the section is valid. And Bhandari itself stands on the promise of recovery from the supplier.
Also object whenever Section 74 is used. Section 74 is for fraud and suppression. A supplier’s default is not the buyer’s fraud. Once Section 74 goes, the longer time limit and the heavy penalty go with it. Object to the interest as well. Our client paid on time. The delay was caused by someone else, and interest is meant to compensate for delay, not to punish the person who did not cause it.
A last word
The section has survived. But our profession does not exist to tell a small trader that he must pay the same tax twice because the law says so. The same law tells the Department to catch the person who pocketed the money. Until the Department does that, let us not allow a single such demand to pass without a challenge.
