Yes. Section 16(2)(c) of the CGST Act allows input tax credit (ITC) only if the tax charged on the supply "has been actually paid to the Government", so a buyer who paid the supplier in full can have the credit reversed if the supplier never deposited the tax. On 24 July 2026 the Supreme Court dismissed, with reasons, petitions against a Gujarat High Court judgment that refused to read the clause down for a genuine buyer; the Madras (13 August 2026) and Delhi (29 September 2026) High Courts have applied that order since. Keep the invoice, bank proof of payment, proof the goods arrived and the supplier's proof of tax payment; the credit can be taken again under section 41(2) once the supplier pays.
In this article
- What have courts done in my situation?
- What do clauses (aa), (b) and (c) of section 16(2) say?
- What did the Supreme Court decide on 24 July 2026?
- What has each High Court said?
- Do the Tripura, Karnataka and Gauhati read-down rulings still help a buyer?
- What should I keep on file?
- Must the Department recover from the supplier first?
- How do I reverse the credit, and get it back when the supplier pays?
- Frequently asked questions
- Sources
What have courts done in my situation?
| Your situation | What courts did |
|---|---|
| Supplier collected the tax from you but did not deposit it | Reversal upheld. Madras, 13 Aug 2026 (WP 30310/2026): "there is no infirmity in the impugned order warranting interference" (para 4), but the order "will not stand in the way of the petitioner claiming ITC once payments are made by the defaulting suppliers" (para 5). Delhi, 29 Sep 2026 (W.P.(C) 583/2026, para 23), also refused to read the clause down. |
| Section 74 (fraud) notice because supplier registrations were cancelled retrospectively | The challenge to clause (c) failed, yet the Delhi Division Bench set the order aside: it named no supplier, invoice or cancellation date and made no finding of fraud or suppression (W.P.(C) 583/2026, paras 29, 31, 40 to 43). |
| Supplier's invoice missing from your GSTR-2B | Rule 36(4) allows credit only on invoices reported in GSTR-1 and communicated in GSTR-2B. Gauhati Division Bench, 9 Dec 2025 (WP(C) 5725/2022), read clause (aa) down so a buyer is "given an opportunity to prove his bona fides" (para 20). GSTAT Cuttack, 8 Oct 2026 (APL/10/CTT/2026, para 19), treated non-disclosure of invoice details (in GSTR-2A) as non-payment by the supplier. |
| FY 2017-18, 2018-19 or 1 Apr 2019 to 31 Dec 2021: GSTR-3B credit exceeds GSTR-2A | Circular 183/15/2022-GST (extended by Circular 193/05/2023-GST) asks for a Chartered Accountant or Cost Accountant certificate where the supplier-wise difference exceeds ₹5 lakh and the supplier's certificate up to ₹5 lakh (paras 4.1.1, 4.1.2). GSTAT Bengaluru, 8 Oct 2026: it "does not dispense with Section 16(2)(c)" (Vintek, para 35). |
| You cannot show the goods arrived, or the supplier was not genuine | Relief refused: Gujarat Division Bench, R V Enterprises, 19 Jun 2025 (SCA 20134/2023, para 7); Madras, Devi Traders, 24 Jan 2025: "admittedly, there are no documents to show that the goods had been received" (WP(MD) 22371/2023, para 68). |
| The supplier pays later | Section 41(2), proviso: the buyer "may re-avail the amount of credit reversed". Madras, 20 Mar 2023: the Department "may reverse credit in the hands of the purchaser, this has to be a protective move, to be reversed and credit restored if the liability is made good by the supplier" (WP 8493/2023, para 10). |
| You want to challenge clause (c) itself | Refused in Gujarat (affirmed by the Supreme Court), Kerala, Madras and Delhi; Rajasthan, 13 Aug 2026 (D.B. Civil WP 9323/2026), declined to follow the read-down rulings (as recorded in Vintek, para 29). Tripura, Karnataka and Gauhati read it down before 24 July 2026. |
What do clauses (aa), (b) and (c) of section 16(2) say?
| Clause | Text | In force |
|---|---|---|
| (aa) | "the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37" | 1 Jan 2022 |
| (b) | "he has received the goods or services or both" | 1 Jul 2017 |
| (c) | "subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply" | 1 Jul 2017; "or section 43A" omitted from 1 Oct 2022 |
The "statement of outward supplies" is the supplier's FORM GSTR-1; the communication to you is FORM GSTR-2B (Rule 36(4), as substituted from 1 January 2022). Section 155 puts the proof on the buyer: "the burden of proving such claim shall lie on such person." Section 41(2) says credit on supplies "the tax payable whereon has not been paid by the supplier, shall be reversed along with applicable interest"; its proviso lets the buyer take it again when the supplier pays.
What did the Supreme Court decide on 24 July 2026?
In Bhandari Scrap Traders v. Union of India, a bench of Sanjay Kumar and Sanjeev Sachdeva JJ. dismissed petitions against the Gujarat High Court's judgment of 1 May 2026 in SCA 749/2025. It held that the Delhi VAT Act and the CGST Act cannot be put on par:
"there is no possibility of drawing parity between the provisions of the two enactments, so as to treat a purchasing dealer under the CGST Act on par with a purported bonafide purchasing dealer under the Delhi VAT Act in relation to ITC, when the supplier-dealer fails to pay the requisite tax."
Supreme Court of India, Record of Proceedings, SLP(C) No. 23931/2026 with 24088/2026 and 24103/2026, 24 July 2026
It noted that the Gujarat court referred to section 41 and sections 73 and 74, the purchaser "being entitled to re-avail the reversed ITC after the supplier-dealer is made to discharge the tax liability", and concluded:
"We find ourselves in complete and respectful agreement with the views expressed by the High Court of Gujarat and affirm and uphold the impugned judgment."
Supreme Court of India, Record of Proceedings, SLP(C) No. 23931/2026 with 24088/2026 and 24103/2026, 24 July 2026
GSTAT Bengaluru reads the reasons as a declaration of law under Article 141 (Vintek, para 29). The Delhi Division Bench describes the order and applies it (Treco Wire, paras 20 to 22; Jain Cement, para 13), as does Madras (WP 30310/2026, para 4).
What has each High Court said?
Courts that applied the clause as written come first.
| Court, bench and date | What it held, and what it asked of the buyer |
|---|---|
| Delhi, Division Benches Jain Cement Udyog, W.P.(C) 13622/2026 17 Sep 2026 Treco Wire India, W.P.(C) 583/2026 29 Sep 2026 | Clause (c) "merely requires the recipient to establish, through cogent material, that the tax charged has been actually deposited by the supplier"; the Supreme Court "rejected the argument that the provision must be read down merely because the supplier may default" (Jain Cement, para 13). The Court relegated the petitioner to the section 107 appeal. Treco Wire: the challenge "cannot be accepted" (para 23). |
| Madras WP 30310/2026 (single judge) 13 Aug 2026 WP(MD) 2127/2021 24 Feb 2021 WP(MD) 21165/2022 (Division Bench) 6 Aug 2025 | 2026: the officer had examined each supplier on the buyer's reply and documents (para 4). 2021: orders quashed because the seller was not examined and no recovery action was begun against him (paras 13, 15). 2025, noting that the Kerala and Madras Division Benches upheld the provisions: "no further deliberations are required from the hands of this Court" (para 3). |
| Gujarat, Division Bench SCA 749/2025 1 May 2026 | Clause (c) neither unconstitutional nor to be read down; affirmed by the Supreme Court on 24 Jul 2026. Reported as 2026 SCC OnLine Gujarat 4013; called Maruti Enterprises v. Union of India in Treco Wire (para 19). |
| Kerala M. Trade Links, WP(C) 31559/2019 (single judge) 4 Jun 2024 Nahasshukoor, WA 1853/2023 (Division Bench) 3 Nov 2023 | Clause "neither unconstitutional nor onerous on the taxpayer" (para 84); relief through Circulars 183 and 193, "on submitting proof of payment to the Government by the supplier" (para 99). Division Bench: "the challenge to the constitutional validity of the impugned provisions must fail." (para 10) |
| Patna, Division Bench Aastha Enterprises, CWJC 10395/2023 18 Aug 2023 | "The purchasing dealer being the person who claims Input Tax Credit could only claim the Input Tax benefit if the supplier who collected the tax from the purchaser has paid it to the Government and not otherwise." (para 13) Petition dismissed. |
| Allahabad, single judge Trendships Online Services, WRIT TAX 501/2023 26 May 2025 | "Once the supplier has not deposited the tax mandated under sub-section (2)(c) of Section 16, the petitioner purchaser cannot claim the benefit." (para 20) Petition dismissed. |
| Calcutta, Division Bench MAT 1218/2023 2 Aug 2023 | The buyer had produced the tax invoice and bank statement (paras 8, 9); the officer "ought to have taken action against the fourth respondent the selling dealer" unless collusion or a missing supplier was shown (para 9). The Revenue's special leave petition was dismissed in limine, and the exceptional-case view "cannot be reconciled with the statutory scheme affirmed in Bhandari Scrap Traders" (Vintek, para 31). |
| Gauhati National Plasto Moulding, WP(C) 2863/2022 (Division Bench) 5 Aug 2024 Advance Engineering Farms, WP(C) 4312/2024 16 Jul 2026 | Followed the Delhi VAT judgment: "the controversy raised in this batch of writ petitions is squarely covered by the decision of the Delhi High Court" (final paragraph). In 2026 the demand was "contrary to the law laid down by the learned Division Bench of this Court" (para 12). |
| Karnataka, single judge Instakart Services, WP 4917/2021 9 Feb 2026 | "I am in respectful agreement with the view taken by the Division Bench of the Tripura High Court" (para 17); section 16(2)(c) and Rule 36(4) "are hereby read down" (para 18). |
| Tripura, Division Bench Sahil Enterprises, WP(C) 688/2022 6 Jan 2026 | "It ought not to be interpreted to deny ITC to purchasers in a bona fide transaction and should be read down and applied only where the transaction is found to be not bona fide or is a collusive transaction or fraudulent transaction to defraud the revenue." (para 35) |
Do the Tripura, Karnataka and Gauhati read-down rulings still help a buyer?
The clause (c) rulings of Tripura, Karnataka and Gauhati rest on the Delhi High Court's 2017 judgment under the Delhi VAT Act (W.P.(C) 6093/2017, 26 October 2017), which the Supreme Court found cannot be carried over to the CGST Act. Its order of 24 July 2026 records that "a special leave petition has been entertained in relation to the decision of the Tripura High Court in Sahil Enterprises". LiveLaw Business reported on 1 September 2026 that a bench of Justices J.B. Pardiwala and K. Vinod Chandran issued notice and stayed that judgment (D No. 33460/2026). Since 24 July 2026, the Madras and Delhi High Courts, GSTAT Bengaluru and (as recorded in Vintek, para 29) the Rajasthan High Court have applied the clause as enacted.
What should I keep on file?
- Invoice and payment: the tax invoice and bank statement (Calcutta, above).
- Receipt and the supplier's payment: "transport records, delivery challans and payment trails" (Delhi, Jain Cement, para 15); Gujarat found no "material to show that the supplies received by the petitioner are supported by invoices, e-way bill, transport receipt etc." (SCA 20134/2023, para 7).
- The supplier's registration on the invoice date: "In case of retrospective cancellation of registration of a supplier, the recipient is not entitled to claim ITC in respect of invoices or debit notes issued after the effective date of cancellation of the registration." (Instruction 02/2022-GST, 22 March 2022, Annexure B, item 7).
- The supplier's proof of tax payment: "The Appellant must prove that the suppliers paid the tax to the Government at least when the recipient was put on notice by the Revenue with the details of the supplier", and "a purchaser who has paid a supplier in full through the bank may reasonably be expected to obtain from that supplier a certificate of payment of tax" (GSTAT Bengaluru, Vintek, paras 33, 35).
Must the Department recover from the supplier first?
Circulars 183/15/2022-GST and 193/05/2023-GST do not say so. Calcutta (paras 5 and 8, above) records a CBIC clarification that "there shall not be any automatic reversal of input tax credit from buyer on non-payment of tax by seller", and Madras (WP(MD) 2127/2021, para 9) records the press release of 4 May 2018 to the same effect. GSTAT Bengaluru has since said that the exceptional-case view cannot stand with Bhandari Scrap Traders (Vintek, para 31).
How do I reverse the credit, and get it back when the supplier pays?
Circular 170/02/2022-GST (6 July 2022, para 4) has the buyer report a reversal under section 16(2)(c) in Table 4(B)(2) of FORM GSTR-3B and reclaim it in Table 4(A)(5) "on fulfilment of necessary conditions". Rule 37A (inserted by Notification 12/2024-Central Tax, 10 July 2024) fixes dates: if the supplier reported your invoice in GSTR-1 but had not filed its GSTR-3B by 30 September after the financial year, reverse the credit in a GSTR-3B filed by 30 November or it becomes payable with interest under section 50; if the supplier files later, you may take it again. For the time limit on taking credit, see section 16(4) and the 16(5) relief.
Frequently asked questions
Can ITC be denied to a buyer who paid the supplier in full?
Yes. Clause (c) asks whether the tax reached the Government. On 24 July 2026 the Supreme Court declined to read it down, pointing to section 41 for re-availing the credit.
Does the Department have to proceed against the supplier first?
Circulars 183 and 193 do not require it. Madras (2021) and Calcutta (2023) faulted officers who had not acted against the supplier; GSTAT Bengaluru (8 October 2026) says that view cannot stand now.
What does section 16(2)(aa) add?
From 1 January 2022 the supplier must have reported the invoice in GSTR-1 and the details must reach you in GSTR-2B (Rule 36(4)). Gauhati read it down in December 2025.
Can I still cite the Tripura or Karnataka ruling?
Both pre-date the Supreme Court's order; a petition against Tripura is before the Court, and GSTAT Bengaluru did not follow Karnataka for that reason (Vintek, para 30). Say so when you cite them.
If the supplier pays later, do I get the credit back?
Yes: the proviso to section 41(2) and the second proviso to Rule 37A allow it, on the conditions they state.
Sources
- Statute and rules CGST Act section 16, section 41, section 155; CGST Rules rule 36 and rule 37A (CBIC consolidations).
- CBIC Circular 183/15/2022-GST, Circular 193/05/2023-GST, Circular 170/02/2022-GST, Instruction 02/2022-GST.
- Judgments as named above; Supreme Court of India, Record of Proceedings, SLP(C) No. 23931/2026 with 24088/2026 and 24103/2026, 24 July 2026 (copy hosted by LiveLaw).
See what your High Court did
Say your State and ask, for example: Madras High Court on ITC denied under section 16(2)(c) because the supplier did not deposit the tax, after the Supreme Court's Bhandari Scrap Traders order of 24 July 2026. Nira sets out the decisions in the courts' own words, with paragraph numbers. No account needed.