The Punjab and Haryana High Court upheld the validity of Section 16(2)(c) of the Central Goods and Services Tax Act, 2017, and laid down 14 guidelines for officers assessing input tax credit claims. The court held that officers must examine the circumstances of the purchase before invoking the provision against a buyer.
Why buyers challenged the provision
The ruling covers 424 writ petitions before Chief Justice Ashwani Kumar Mishra and Justice Rohit Kapoor. Purchasing dealers challenged notices and orders seeking to deny or reverse credit because suppliers had allegedly failed to pay tax to the government. Some proceedings followed retrospective cancellation of suppliers’ registrations.
Section 16(2)(c) makes payment of the tax charged on a supply to the government a condition for credit. The bench upheld that condition and declined to confine it to cases involving fraud, collusion or sham transactions. It also considered that the original statutory mechanism for matching returns was never brought into operation and was later removed.
What the tax officers must reconsider
The bench said a supplier’s failure to pay tax calls for an examination of the transaction and the evidence available to the department. Officers must apply the court’s guidelines when assessing disputed claims, including cases in which a purchaser says it paid the tax component to the supplier and received the goods.
The court directed reconsideration of the notices and orders challenged in the batch. The outcome for each purchaser will depend on the facts and the applicable statutory conditions.
Case: Shaurya Alloys Pvt. Ltd. v. State of Punjab and another, CWP No. 34296 of 2024 (O&M) and connected cases, decided on 1 October 2026.