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1Scan for outdated or missing drivers - takes under a minute2Repair Windows errors before they cause bigger problems3Fix the driver behind crashes, sound loss and screen glitchesYes, a GST authority may deny input tax credit (ITC) on the statutory ground that the supplier did not pay the tax to the government, even where the recipient says the transaction was genuine. Section 16(2)(c) of the Central Goods and Services Tax (CGST) Act makes payment of the tax charged on the supply a condition for credit. In Bhandari Scrap Traders v. Union of India (Supreme Court, 24 July 2026), the Court upheld that condition and declined to read it down.
That does not make every denial automatically valid. The department must identify the actual failure alleged—no supply, defective documentation, supplier non-payment, fraud, or a filing and time-limit issue—and apply the correct statutory provision to the evidence. The Tripura High Court’s more protective approach in Sahil Enterprises remains important, but it is not a uniform nationwide rule after the Supreme Court’s decision.
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What the law requires before ITC becomes available
Input tax credit is not an unconditional refund of GST shown on an invoice. Section 16(1) of the CGST Act gives a registered person the ability to claim credit for eligible inward supplies used or intended for business, subject to the Act’s conditions and restrictions. Section 16(2) then makes that eligibility conditional.
| Condition | What it concerns | Why it matters in a dispute |
|---|---|---|
| Prescribed tax document | The recipient must possess the required invoice or other prescribed document. | An invoice that is absent, invalid or inconsistent can be a separate ground for denial. |
| Receipt of goods or services | The recipient must actually receive the supply. | Transport records, goods-receipt entries, stock records or service-delivery evidence may be relevant. |
| Tax payment to government | Section 16(2)(c) requires that the tax charged on the supply be paid to the government. | Actual receipt does not, by itself, prove that the supplier discharged its tax liability. |
| Return filing | The recipient must furnish the applicable return, subject to the statutory scheme. | A filing failure is different from a dispute about whether the supply occurred. |
These conditions should not be compressed into a single “invoice matching” test. A recipient may prove that goods arrived and were paid for yet still face an allegation that the supplier did not pay the output tax. Conversely, a supplier’s default does not automatically prove that no goods or services were supplied. The notice and order should be examined condition by condition.
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“Genuine supply” and “supplier paid the tax” are different questions
In ordinary language, a genuine purchase means that the parties made a real transaction and the buyer received what was ordered. For section 16 purposes, that is only part of the analysis. The department may ask two separate questions:
- Did the supplier actually provide the goods or services, and did the recipient receive them?
- Did the supplier pay the tax charged on that supply to the government as required by section 16(2)(c)?
Evidence answering the first question does not conclusively answer the second. A bank transfer, delivery record or stock entry can support the reality of the transaction, but none is a statutory guarantee that the supplier remitted GST. The available judgments also do not create a universal checklist under which one document automatically preserves credit.
This distinction is critical when reading a show-cause notice. An allegation that the supplier was a “non-existent” entity or that no goods moved is materially different from an allegation that a real supplier made the sale but later failed to pay tax. The defence, evidence and statutory provision may differ in each situation.
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The Tripura High Court’s bona fide-purchaser approach
What Sahil Enterprises decided
In M/s Sahil Enterprises v. Union of India (Tripura High Court, 6 January 2026), the court considered a challenge involving a buyer that claimed to have acted bona fide. The judgment recorded that the respondents did not dispute that the recipient lacked a mechanism to verify whether the supplier had discharged its tax liability.
The court stated: “The fact that there is no mechanism with the recipient of goods to verify whether the supplier has discharged its liability to the Government, or not, is not disputed by respondents.” On that reasoning, it treated a bona fide buyer differently from a participant in a fraudulent transaction and read down section 16(2)(c) in the case before it.
What that reasoning does—and does not—mean
Sahil Enterprises illustrates a strong purchaser-protection argument: a buyer may have paid the invoice, received the goods and exercised ordinary commercial care, while lacking access to the supplier’s tax-payment records. On that view, imposing the supplier’s default on the buyer can appear disproportionate.
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It was, however, a High Court decision in a particular factual and statutory setting. It did not establish that every recipient in India is immune from section 16(2)(c), nor did it remove the need to prove actual receipt, documentation and good faith. The Supreme Court later considered the argument in a different case and expressly distinguished the Tripura analysis.
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Bhandari Scrap Traders upheld section 16(2)(c)
In Bhandari Scrap Traders v. Union of India (24 July 2026), the Supreme Court upheld the Gujarat High Court’s rejection of a constitutional challenge to section 16(2)(c). It found no basis to declare the provision unconstitutional or to read it down in the manner sought by the petitioner.
The Court also explained that the CGST and Delhi Value Added Tax (VAT) statutory schemes are different. Decisions protecting bona fide purchasers under the Delhi VAT framework could not simply be transplanted to a CGST purchaser when the supplier failed to pay the tax. The statutory wording, allocation of responsibilities and remedies must be examined under the GST legislation itself.
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How the Court treated Sahil Enterprises
The Supreme Court noted that a special leave petition concerning the Tripura decision had been entertained, then distinguished Sahil Enterprises because the Tripura High Court had not undertaken the same statutory analysis. That means the Tripura judgment remains a significant argument in an appropriate case, but it cannot be presented as the controlling national rule that a bona fide purchaser always keeps ITC.
A Delhi High Court judgment in Treco Wire India Private Limited v. Additional Commissioner (29 September 2026) described Bhandari Scrap Traders as rejecting the reading-down challenge and affirming the Gujarat High Court. It is a subsequent indication of application, while the Supreme Court judgment remains the primary authority.
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The Supreme Court’s ruling does not give an officer permission to use a vague “invoice mismatch” label for every case. A defensible order should connect the facts to the statutory condition invoked. When a notice arrives, classify the allegation before gathering documents.
| Department’s possible allegation | Question the recipient should address | Typical supporting material |
|---|---|---|
| No actual supply or receipt | Were the goods delivered or services performed for the business? | Purchase orders, transport or e-way records where applicable, goods-receipt notes, stock ledgers, consumption records and service-delivery records. |
| Defective or absent document | Was the prescribed tax invoice or other document held and was it accurate? | Original invoice, amendments, purchase order and accounting entries. |
| Supplier did not pay tax | Is the denial based specifically on section 16(2)(c), and what evidence does the order cite about supplier payment or return compliance? | Supplier registration and return status at the relevant time, correspondence and any material disclosed in the proceeding. |
| Collusion, fraud or accommodation entry | What conduct is said to connect the recipient to the alleged fraud? | Commercial communications, payment trails, delivery evidence and records showing ordinary due diligence. |
| Return or time-limit problem | Is the dispute about filing or the statutory deadline rather than transaction genuineness? | Filed returns, electronic acknowledgements and the dates relevant to section 16(4) and any applicable extension. |
These records are evidence, not automatic safe harbours. Their value depends on consistency, timing and the allegation actually made. A document created after the dispute may carry less weight than a contemporaneous entry supported by independent records.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.A practical method for responding to a notice
- Quote the precise allegation. Identify the paragraph that says the supply was not received, the invoice was invalid, the supplier failed to pay tax, fraud occurred or a return deadline was missed. Do not answer all theories as though they were identical.
- Map each allegation to section 16. State whether the department relies on the document condition, receipt condition, section 16(2)(c), return filing or another restriction. Ask the officer to disclose the material relied upon if the notice is conclusory.
- Build a transaction file. Assemble the invoice, purchase order, contract, bank payment including GST, transport or e-way documentation where relevant, goods-receipt and stock records, and service-delivery evidence. Preserve original electronic metadata where available.
- Separate supplier facts from recipient conduct. Explain what was known and verifiable when the purchase was made, including registration details and ordinary commercial communications. Do not claim that a supplier’s later default proves the purchase was fictitious.
- Address tax payment directly. If the allegation is only that the supplier did not remit tax, respond to the statutory basis and the evidence cited. Proof of delivery should be presented as proof of receipt, not inaccurately described as proof of government remittance.
- Check the order’s reasoning and procedure. An adjudication order should deal with the recipient’s documents and submissions, identify the statutory breach and explain the computation. A conclusion that merely repeats a notice may provide a separate procedural ground in appeal.
- Protect limitation and appeal rights. Record the date of service, the response deadline and the applicable appeal period. Substantive arguments do not extend a missed procedural deadline.
Where time limits fit into the analysis
GST Council Circular No. 237/31/2024-GST discusses section 16(5) and section 16(6), which were inserted with retrospective effect from 1 July 2017, and specified extensions to the section 16(4) time limit in the circumstances covered by those provisions. Those amendments may matter where the department says a claim was filed late.
They do not answer whether the supply was genuine or whether the supplier paid tax under section 16(2)(c). A taxpayer should therefore keep the limitation argument separate from the evidence on receipt and supplier compliance. Combining them can obscure a strong response to the actual allegation.
Common mistakes that weaken a recipient’s case
- Relying on “I am bona fide” alone. Good faith is a factual position supported by records; it is not a substitute for the statutory conditions.
- Treating delivery as proof of tax remittance. Delivery supports receipt, while section 16(2)(c) concerns payment to the government.
- Assuming a supplier default proves a fake supply. The two propositions require different evidence and should not be conflated.
- Using VAT precedents without checking the statute. The Supreme Court specifically warned that the Delhi VAT framework cannot simply be applied to CGST.
- Ignoring jurisdiction and later developments. The position after Bhandari Scrap Traders is materially different from relying only on the Tripura decision. The procedural status of any related special leave petition should be checked before filing a new challenge.
- Submitting a document dump. Organize evidence by invoice and by allegation, with a short explanation of what each record proves.
How to understand a missing GSTR-2B entry
Recipients often ask whether ITC can be claimed when a purchase does not appear in GSTR-2B. A missing auto-populated entry is a warning to investigate supplier reporting, invoice details and return timing; it is not, by itself, a complete legal analysis of receipt, documentation or tax payment. The recipient should reconcile the invoice and books, seek clarification from the supplier, and respond to the specific statutory ground cited by the department. Nothing in the Supreme Court’s ruling turns GSTR-2B into a standalone substitute for the conditions in section 16.
Bottom-line legal position in 2026
After Bhandari Scrap Traders, GST authorities are not required to accept a blanket rule that a recipient’s proof of genuine purchase defeats section 16(2)(c). The Supreme Court upheld the tax-payment condition and rejected the constitutional reading-down challenge before it. A recipient can still contest a particular denial by showing actual supply, valid documents, payment, ordinary commercial conduct, and defects in the department’s allegation or reasoning.
The decisive question is therefore not simply, “Was the purchase genuine?” It is: Which section 16 condition is said to fail, what facts prove or disprove that failure, and what does the controlling law require in the relevant jurisdiction? That analysis should be applied to the notice, the evidence and the current procedural status of the case rather than to a universal bona fide-purchaser slogan.
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