Input Tax Credit (ITC) remains the cornerstone of the GST regime. However, it has also become the primary source of litigation, disputes, and investigations for businesses across India. Recent High Court judgments have provided critical guidance on this matter.
Supplier Default Conundrum
One of the most litigious aspects of ITC is Section 16(2)(c) of the CGST Act, which denies credit to the buyer if the supplier fails to deposit the tax with the government. High Courts have recently taken a more balanced view on this.
Key Highlights of Recent Rulings
Several High Courts have observed that the buyer cannot be penalized for the default of the seller if the transaction is genuine, the buyer has paid the tax to the seller, and due diligence was performed.
- Proof of Genuineness: Buyers must maintain strong documentation, including e-way bills, delivery receipts, and banking logs, to prove physical movement of goods.
- Departmental Recovery: Rulings show that the department must first proceed against the defaulting seller before recovering tax from the buyer.
Proper vendor management and regular credit reconciliation are absolutely essential for companies to avoid high-value ITC disputes.
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