Tripura High Court Rules ITC Cannot Be Denied to Bona Fide Purchasers Despite Supplier Default

Tripura High Court Rules ITC Cannot Be Denied to Bona Fide Purchasers Despite Supplier Default

Court Upholds Section 16(2)(c) But Protects Genuine Buyers

Landmark Ruling Strengthens Taxpayer Rights Under GST Framework

By Our Legal Correspondent

New Delhi: January 10, 2026:

In a significant judgment, the Tripura High Court has clarified the scope of Section 16(2)(c) of the Central Goods and Services Tax (CGST) Act, 2017. The Court held that while the provision itself is not unconstitutional, it cannot be applied to deny Input Tax Credit (ITC) to a bona fide purchaser who has complied with all legal requirements. The ruling comes as a relief to businesses and traders who often face difficulties when suppliers fail to deposit collected GST with the government.

Also Read: AI Manipulation of Photos and Videos: How Fake Refund Claims Expose Legal Gaps in India

The decision is expected to have wide implications across India, as disputes over ITC denial have become common in the GST regime.

Background of the Case

• The petitioner challenged the constitutionality of Section 16(2)(c), which requires that ITC can only be claimed if the supplier has deposited the tax with the government.
• The tax authorities had denied ITC to the petitioner, arguing that the supplier defaulted in depositing GST.
• The petitioner argued that it was impossible for a purchaser to verify whether the supplier had deposited the tax, and denying ITC amounted to punishing an innocent buyer.

Court’s Observations

The Division Bench of Chief Justice M.S. Ramachandra Rao and Justice S. Datta Purkayastha made several important observations:

• Section 16(2)(c) is valid law: The Court held that the provision is not unconstitutional and does not violate Articles 14, 19(1)(g), 265, or 300A of the Constitution.
• Bona fide purchasers must be protected: The Court emphasized that ITC cannot be denied to a genuine buyer who has a valid tax invoice and has paid GST to the supplier.
• Impossible burden on purchasers: The Court noted that buyers have no mechanism to verify whether suppliers have deposited tax, and imposing such a burden would be unreasonable.
• Provision read down: The Court restricted the application of Section 16(2)(c) only to cases involving fraud, collusion, or non-bona fide transactions.

Also Read: Passport Rules for Children and Dependents in India: Lessons from Kerala’s Premature Baby Case

Wider Judicial Trends

This ruling aligns with similar judgments across India:

• Delhi High Court (Bharti Airtel case): Held that ITC cannot be denied merely due to supplier default, stressing that GST is a consumption-based tax.
• Madras High Court: Observed that ITC denial should not penalize genuine taxpayers.
• Supreme Court (pending appeal): Experts believe the matter will eventually be settled by the Supreme Court, which may provide uniform clarity across states.

Impact on Businesses

• Relief for traders: Genuine buyers will not lose ITC due to supplier’s default.
• Encourages compliance: Suppliers will face stricter scrutiny, while buyers are safeguarded.
• Boosts confidence in GST system: Businesses can operate without fear of arbitrary ITC denial.

Also Read: Credit Card Rewards Under Tax Lens: How Spending Can Trigger Income Tax Notices in India

Expert Opinions

Tax experts have welcomed the ruling, calling it a “taxpayer-friendly judgment”. They argue that GST was designed to avoid cascading taxes, and denying ITC to genuine buyers defeats the purpose of the system.

Conclusion

The Tripura High Court’s ruling is a landmark in GST jurisprudence. By upholding the constitutionality of Section 16(2)(c) but protecting bona fide purchasers, the Court has struck a balance between legislative intent and taxpayer rights. This decision will likely influence future cases and may set the stage for a final resolution by the Supreme Court.

Suggested Keywords for SEO & Faster Searches

Also Read: Supreme Court Orders Nationwide Survey of Private Universities: Why Transparency in Higher Education Is Urgent

• Tripura High Court CGST Section 16(2)(c) ruling
• ITC denial supplier default judgment
• Bona fide purchaser GST ITC case
• Tripura HC GST ITC protection
• Input Tax Credit Supreme Court pending appeal
• GST ITC taxpayer rights India
• Section 16(2)(c) CGST Act explained
• Tripura HC ITC ruling 2026
• GST ITC fraud vs bona fide transactions
• Taxpayer protection under GST India

Also Read: Hindustan Unilever Faces ₹1,560 Crore Tax Demand: What It Means for Investors and FMCG Sector