Section 16(2)(C) And The Pre-October 2022 Transition: The Unexplored Litigation Window

The article analyzes Input Tax Credit (ITC) litigation under Section 16(2)(c) of the CGST Act regarding supplier defaults. While the Gujarat High Court in Maruti Enterprise (affirmed by the Supreme Court in Bhandari Scrap Traders) upheld the section's constitutionality, the Tripura High Court in Sahil Enterprises read it down to protect bona fide recipients.

Crucially, an unexplored litigation window (July 2017–September 2022) remains. Retrospective omission of matching machinery (Sections 42/43) created a practical impossibility of compliance before Rule 37A existed. Additionally, Rule 36(4) explicitly permitted claiming unmatched ITC buffers, giving taxpayers viable period-specific defences.

1. Introduction

A regular recurring fact pattern in GST enforcement cases relating to alleged fake invoicing matter runs as follows. A registered recipient purchases goods or services from a registered supplier, pays the invoice value together with GST, and takes credit of that tax as Input Tax Credit(ITC). An investigation subsequently reveals that the supplier never deposited the tax so collected, it may have filed “Nil” GSTR 3B returns, gone missing/ not available at the time of physical verification on subsequent date by GST authorities,