Summary: Punjab and Haryana High Court in Shaurya Alloys Pvt. Ltd. v. State of Punjab, decided with 423 connected writ petitions, upheld the validity of Section 16(2)(c) of the CGST Act read with Section 155 but held that input tax credit cannot be reversed mechanically merely because the supplier failed to deposit GST, filed nil returns, became untraceable, or had registration cancelled retrospectively. Supplier-side default can trigger investigation, but officers must examine the genuineness of the transaction, actual receipt of goods or services, documentary evidence maintained by the purchaser and any material connecting the purchaser with the supplier’s wrongdoing. The ruling emphasises the importance of tax invoices, e-way bills, transport documents, stock and consumption records and banking-channel payments. It also makes clear that a GSTR-2B mismatch or supplier-registration cancellation is the starting point of an inquiry rather than its conclusion. The judgment provides significant procedural protection to bona fide purchasers while continuing to place the burden of establishing ITC eligibility on the claimant under Section 155.
- Supplier's Default Cannot Automatically Deny Buyer's ITC
- Shaurya Alloys Judgment Covers 424 Writ Petitions
- Section 16(2)(c) and Supplier's Payment of GST
- Section 16(2)(c) Is Valid but Cannot Be Applied Mechanically
- Evidence an Honest Buyer Can Produce to Prove ITC
- GSTR-2B Mismatch Is Beginning of Inquiry, Not Its Conclusion
- Binding Effect and Persuasive Value of Shaurya Alloys Judgment
- Balance Between GST Recovery and Protection of Honest Buyers
Supplier’s Default Cannot Automatically Deny Buyer’s ITC
A buyer who has genuinely purchased goods and paid GST to his supplier cannot automatically lose his input tax credit (ITC) just because the supplier failed to deposit that tax with the Government. This is the central message of a major judgment delivered by the Punjab and Haryana High Court on 1 October 2026.
Shaurya Alloys Judgment Covers 424 Writ Petitions
A Division Bench of Chief Justice Ashwani Kumar Mishra and Justice Rohit Kapoor decided Shaurya Alloys Pvt. Ltd. v. State of Punjab along with 423 connected writ petitions, filed mostly by traders dealing in steel, alloys and other goods. In each case, the department had reversed the buyers’ ITC on the sole ground that their suppliers had not paid tax, had filed nil returns, had gone missing, or had their registrations cancelled with retrospective effect.
Section 16(2)(c) and Supplier’s Payment of GST
The dispute centres on Section 16(2)(c) of the CGST Act, which allows ITC only when the tax charged by the supplier has actually been paid to the Government. The petitioners argued that this places an unfair burden on honest buyers who have no control over their suppliers.
Section 16(2)(c) Is Valid but Cannot Be Applied Mechanically
The Court did not strike down the provision. It held that Section 16(2)(c), read with Section 155, is valid, since ITC is a concession and the payment of tax to the Government is its very basis. The burden of proving eligibility for credit continues to rest on the buyer.
However, the Court made it clear that the provision cannot be applied mechanically or in isolation. A supplier’s default may justify an investigation, but it cannot by itself justify reversing the buyer’s credit. Officers must examine each transaction on its own facts: whether it was genuine, whether the goods or services were actually received, and what role, if any, the buyer played. Unless there is material linking the buyer to the supplier’s wrongdoing, he cannot be held responsible for it.
Evidence an Honest Buyer Can Produce to Prove ITC
The Court also explained how an honest buyer can prove his case. Tax invoices, e-way bills, lorry receipts, weighbridge slips, stock and consumption records, and payments made through banking channels are the evidence that counts.
GSTR-2B Mismatch Is Beginning of Inquiry, Not Its Conclusion
For tax officers, the lesson is that a GSTR-2B mismatch or a cancelled supplier registration is the beginning of an inquiry, not its conclusion. Orders must rest on evidence and clearly recorded reasons. For taxpayers, the ruling offers protection but not a free pass: complete purchase records, bank payments and careful verification of suppliers remain essential.
Binding Effect and Persuasive Value of Shaurya Alloys Judgment
The judgment is binding on authorities in Punjab, Haryana and Chandigarh. In other States and Union Territories, including Jammu and Kashmir, it carries strong persuasive value.
Balance Between GST Recovery and Protection of Honest Buyers
In striking a balance between the Government’s right to collect tax and the honest buyer’s right to fair treatment, the High Court has delivered a ruling that is likely to be cited widely in GST disputes across the country.
Author is JKAS, State Taxes Officer, Circle Budgam (Kashmir) and writes about GST compliance.
