📌 Introduction: Why Section 16(2)(c) Matters Now
In today's complex GST landscape, businesses must constantly revisit compliance requirements. A key provision that demands attention is Section 16(2)(c) of the CGST Act—governing when Input Tax Credit (ITC) can be claimed. In 2024, courts and industry experts have scrutinized whether requiring suppliers to have paid GST before a recipient can claim ITC is fair. This article breaks down Section 16(2)(c), debate surrounding it, practical tips, and what businesses should do.
Section 16: Eligibility for Input Tax Credit—A Quick Recap
Under Section 16(1), every registered taxable person can claim ITC paid on business-related goods/services. However, Section 16(2) places conditions:
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Possession of a valid tax invoice or debit note (16(2)(a))
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Receipt of goods or services (16(2)(b))
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Tax must have been paid to the government by the supplier (16(2)(c))
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Filing of relevant GST return under Section 39 (16(2)(d))
Failure in any of these makes ITC ineligible.
Deep Dive: What’s at Stake with Section 16(2)(c)
⚖️ Legal Backdrop
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Sub-section (c) reads: “tax charged … has been actually paid to the Government …”
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Courts have weighed in:
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Kerala High Court upheld validity, stating it's necessary to protect revenue and prevent tax leakage .
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However, many argue it’s unreasonable, punishing buyers who lack visibility into supplier compliance, violating Article 14 (equality before law)
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Madras High Court took a strict view, reinforcing the buyer's obligation
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📈 Key Debate Points
| Viewpoint | Key Argument |
|---|---|
| Revenue Protection | Ensures government receives tax; prevents cascading tax losses |
| Buyer Burden | Buyers can’t reliably confirm if suppliers paid tax before ITC deadline . |
| Judicial Confirmation | HC rulings support both constitutionality and enforcement of Section 16(2)(c) . |
Practical Tips for Businesses
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Verify Supplier Returns
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Use GSTR-2B/2A and Form 3B to confirm supplier has filed and paid GST.
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Schedule Invoice Matching
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Reconcile incoming invoices monthly vs. portal data to catch mismatches early.
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Use Self-Provisioning (Section 41)
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Claim provisional ITC in your return, then finalize once suppliers comply
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Track August-Sep 2021 Changes
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Section 16(5) extended claim period for FY 2017–21 until Nov 30, 2021 taxguru.in.
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Circular 237/2024 addresses claiming retroactive ITC
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Be Prepared for Reversals
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If payment to supplier (invoice value + tax) isn’t made within 180 days, you must reverse ITC plus interest
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Legal Review
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For contentious cases, seek legal advice or consider judicial appeals.
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Real Example: The “Steel Parts” Scenario
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Buyer purchases parts worth ₹1 lakh + ₹18,000 GST.
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Buyer claims ₹18,000 ITC in July.
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Supplier fails to file returns/pay GST until September due to cash-flow issues.
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Buyer must reverse the ITC + interest until supplier pays.
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If resolved and paid, buyer can re-claim once supplier’s compliance is visible.
📊 Overview – Section 16 Positioning
| Condition | Section | Requirement |
|---|---|---|
| Invoice possession | 16(2)(a) | Must have valid GST-compliant invoice |
| Goods received | 16(2)(b) | Physical/digital receipt required |
| Tax actually paid | 16(2)(c) | Supplier must have deposited GST |
| Return filed | 16(2)(d) | File GSTR-3B for claiming month |
| Time limit | 16(4) | Claim before 30 Nov follow-up FY or annual return |
What’s New in 2024?
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Section 16(5): Extended ITC eligibility deadline for FY 2017–18 to 2020–21
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Circular 237/2024: Guidelines on rectifying orders and availing ITC under Section 16(5)/(6)
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Courts continue to favor the Government's stance, leaving burden on recipients to verify supplier compliance.
Conclusion: Keep ITC Safe & Compliant
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Section 16(2)(c) remains a crucial yet complex element of GST ITC eligibility.
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Buyers must proactively monitor supplier compliance using portal tools, match invoices, adhere to payment timelines, and seek professional advice in disputes.
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With recent legal updates, it’s a good time to revisit your ITC processes, ensuring nothing slips through.
FAQs (For SEO & Clarity)
1. What happens if supplier delays GST payment?
You must reverse ITC plus interest until compliance is visible. Once supplier pays, you can re-claim.
2. Can I still claim ITC for FY 2020 after Nov 2021?
No. Section 16(5) extended only until Nov 30, 2021 for FY 2017–21. Post-deadline claims aren't allowed.
3. How to check supplier paid GST?
Verify via GSTR-2B, GSTR-2A, and supplier's GSTR-3B filings monthly.
4. Is buyer penalized for supplier non-compliance?
Yes. Without supplier’s payment, buyer must reverse ITC with interest, and may lose the credit permanently.
5. What if supplier never paid GST?
Then ITC is permanently blocked and may attract notice; best to avoid depending on such suppliers.
Keywords: Input Tax Credit, Section 16(2)(c), GST ITC eligibility, tax paid by supplier, GST compliance, ITC reversal, Section 16(5), Circular 237/2024.
