Tripura High Court reads down Section 16 ( 2 ) (C ) Genuine buyers cannot be punished for fault of suppliers
Date & Year of Judgment
10 February 2026
This is one of the most significant post-GST constitutional interpretations of Section 16(2)(c), directly addressing denial of ITC due to supplier default.
Case Reference
M/s Malaya Rub-Tech Industries vs. Union of India & OthersWP(C) No. 849 of 2022
Before the Tripura High Court
1. Main Issue Involved
Whether ITC can be denied to a bona fide purchasing dealer under Section 16(2)(c) solely because the selling dealer failed to deposit the tax collected from the purchaser with the Government.
The Court examined whether Section 16(2)(c) imposes an impossible compliance burden on a genuine purchaser.
2. Sections and Rules Discussed
Section 16(2)(c), CGST Act, 2017
Section 73, CGST Act
Constitutional validity tested on Article 14
Reference to earlier Division Bench decision in Sahil Enterprises (Tripura HC)
The constitutional lens of Article 14 was used to interpret and restrict the operational scope of Section 16(2)(c).
3. Facts of the Case
The petitioner purchased inputs from Respondent No. 7 between 08.03.2018 and 30.11.2018 and claimed ITC.
The department issued a show cause notice dated 14.01.2021 under Section 73 alleging wrongful ITC claim of ₹22,09,964/- on the ground that the supplier had not deposited tax.
An order dated 17.02.2022 confirmed denial of ITC.
The petitioner contended:
Transactions were bona fide.
Taxes were paid to supplier.
Materials were utilized in manufacture.
It had no mechanism to compel supplier to deposit tax.
The denial of ITC was based purely on supplier’s default, not on any allegation of collusion or fraud by the purchaser.
4. Petitioner’s Submissions
Section 16(2)(c) cannot penalize a purchaser for supplier’s failure.
The provision creates an impossible obligation.
Transaction was bona fide and fully documented.
SCN was vague and contradictory.
Relied on recent Division Bench judgment in Sahil Enterprises (Tripura HC, 06.01.2026).
The petitioner framed the issue as constitutional disproportionality rather than mere statutory interpretation.
5. Department’s Position (Implied from Record)
ITC conditional upon supplier depositing tax.
Since tax was not deposited by supplier, ITC was inadmissible.
Proceedings initiated under Section 73.
The department relied on literal reading of Section 16(2)(c) without examining purchaser’s bona fides.
6. Analysis and Findings of the Court
The Court extensively relied on its earlier Division Bench ruling in Sahil Enterprises and held:
Parliament failed to distinguish between:
Bona fide purchasers, and
Collusive or fraudulent purchasers.
A purchasing dealer cannot:
Predict whether supplier will deposit tax, or
Compel supplier to deposit tax after transaction.
Imposing such burden would be:
Onerous,
Disproportionate,
Vulnerable under Article 14.
Therefore, Section 16(2)(c) must be read down:
Constitutional validity upheld,
But ITC denial permissible only where transaction is not bona fide, collusive, or fraudulent.
The Court observed that if fraud existed, proceedings should have been under Section 74, not Section 73.
The Court transformed Section 16(2)(c) from an absolute condition into a fraud-sensitive provision through reading down.
7. Final Judgment / Operative Directions
Writ Petition allowed.
Order dated 17.02.2022 set aside.
Respondents directed to allow ITC of ₹22,09,964/- forthwith.
No costs.
The Court granted outright restoration of ITC, signalling strong judicial protection for bona fide purchasers.
8. Similar / Related Judgments & Counter Judgments
Supporting Judicial Trend
Delhi High Court in Arise India Ltd. (VAT regime – similar principle)
Several High Courts emphasizing bona fide purchaser protection
Tripura HC Division Bench in Sahil Enterprises
Counter Position
Supreme Court in Ecom Gill Coffee Trading Pvt. Ltd. — where transactions were found unsupported or non-genuine.
Courts are increasingly distinguishing between fraudulent ITC claims and genuine trade transactions affected by supplier default.
9. CA BTA Insights (Professional Takeaway)
This judgment is extremely significant for ITC litigation strategy:
Strong defence in cases where:
ITC denied solely due to supplier default.
No allegation of collusion or fraud exists.
Important to demonstrate:
Invoice, e-way bill, payment through banking channel,
Utilization in business,
GSTR reflection.
If department invokes Section 73 without alleging fraud, this judgment becomes directly applicable.
Particularly powerful in constitutional writ matters challenging blanket ITC denial.
This ruling positions bona fide purchaser protection as a constitutional safeguard rather than a mere equitable consideration. Copy of the Judgement is attached.