ITC Can’t Be Denied Without Hearing Buyer’s Bona Fides | HC

Case Details: MCLEOD Russel India Ltd. vs. Union of India - [2025] 181 taxmann.com 322 (Gauhati)

Judiciary and Counsel Details

• Ashutosh Kumar, CJ. & Arun Dev Choudhury, J.
• A. Kanodia, Adv. for the Petitioner.
• S.C. Keyal, Standing Counsel & Ms R. Hussain, Adv. for the Respondent.

Facts of the Case

The petitioner, engaged in the tea business, challenged the validity of Section 16(2)(aa) of the CGST Act. It was contended that the denial of input tax credit (ITC) solely on account of non-reflection of supplier details in Form GSTR-2A/2B and supplier’s non-compliance under Section 37/38 was irrational. It was submitted that purchasers could not ensure supplier compliance in Form GSTR-1 filings. The Department of Revenue maintained that ITC entitlement was subject to statutory conditions designed to curb fraud. The matter was accordingly placed before the High Court.

High Court Held

The High Court held that Section 16(2)(aa) must be read down to prevent denial of ITC to bona fide recipients solely due to supplier non-compliance in GSTR-1 and non-reflection in GSTR-2A/2B. The Court interpreted that while ITC entitlement must be established, it must be linked exclusively to supplier compliance. The tax collected by the seller was ultimately borne by the buyer, not included in the sale price. While the buyer must establish entitlement to the credit, it is unfair to deny it solely because the supplier failed to comply. It concluded that authorities under CGST must allow the petitioner to substantiate the bona fide status before denying credit.

List of Cases Referred to

• Suncraft Energy (P.) Ltd. v. Asstt. Commissioner, State Tax [2023] 153 taxmann.com 81/99 GST 400/77 GSTL 55 (Calcutta) (para 10)
• Diya Agencies v. State Tax Officer [2023] 154 taxmann.com 421/[2024] 82 GSTL 169 (Kerala) (para 10)
• Commissioner Trade and Tax Delhi v. Shanti Kiran India (P.) Ltd. [2025] 179 taxmann.com 665 (SC) (para 10)
• Asstt. Commissioner of State Tax v. Suncraft Energy (P.) Ltd. [2023] 157 taxmann.com 352/[2024] 101 GST 308/80 GSTL 225 (SC) (para 10)
• On Quest Merchandising India (P.) Ltd. v. Government of NCT of Delhi [2017] 87 taxmann.com 179/64 GST 623/[2018] 10 GSTL 182 (Delhi) (para 11).