*Landmark Tripura High Court Judgment on Input Tax Credit:*
In a significant ruling delivered on January 6, 2026, the Tripura High Court in *M/s Sahil Enterprises v. Union of India (WP(C) No.688 of 2022)* addressed the contentious issue of *denying Input Tax Credit (ITC) to bona fide purchasing dealers* when their *suppliers fail to deposit GST collected* from them with the government.
The dispute centered on whether *Section 16(2)(c) of the Central Goods and Services Tax Act, 2017*, which conditions ITC availment on actual payment of tax by the supplier to the government, *violates Articles 14, 19(1)(g), 265, and 300-A* of the Constitution.
The petitioner, *M/s. Sahil Enterprises, a rubber products trader,* had purchased goods from
M/s Sentu Dey between *July 2017 and January 2019,* paying GST amounting to Rs. 1,11,60,830.
Upon *investigation,* authorities discovered that while the supplier *had filed Form GSTR-1 showing outward supplies, they filed ‘Nil’ GSTR-3B returns, failing to deposit* the collected tax with the government.
Consequently, the Assistant Commissioner *invoked Section 73 of the Act, blocked* the petitioner’s ITC balance, and issued a *demand-cum-show cause notice* on January 7, 2021, ultimately *confirming the demand* through an order dated May 17, 2022.
The petitioner contended that *as a bona fide purchaser who paid GST and possessed valid tax invoices*, denying ITC amounted to double taxation and *punished them for the supplier’s misconduct* a transaction *beyond their control given the absence of any mechanism to verify* whether suppliers deposit collected taxes.
The department *defended the provision* under Section 16(2)(c), arguing that ITC is a *statutory benefit subject to conditions*, including actual tax payment to the government, and that courts should *exercise judicial restraint* in invalidating taxation statutes. They emphasized that the legislative intent was clear: *only tax actually received by the government qualifies for ITC credit,* maintaining the integrity of the GST chain mechanism. They contended that purchasers have the *alternative remedy of suing errant suppliers for recovery.*
The Division Bench comprising Chief Justice adopted a nuanced approach by *reading down Section 16(2)(c)* rather than striking it down entirely. The court recognized that while the provision *serves legitimate revenue purposes*, its blanket application creates manifest injustice by placing an *”onerous and impossible burden”* on bona fide purchasing dealers who have no mechanism to verify supplier compliance.
Applying the principle from *B.R. Enterprises v. State of U.P.*, the court held that *reading down provisions* to save them from *unconstitutionality is an accepted interpretative* method.
The court extensively relied on the Delhi High Court’s reasoning in *Quest Merchandising India Pvt. Ltd. v. Government of NCT of Delhi* and its subsequent approval by the Supreme Court in *M/s Arise India Ltd.* and *Commissioner of Trade and Tax, Delhi v. M/s Shanti Kiran India (P) Ltd.*, where similar provisions under the Delhi VAT Act were read down to exclude bona fide purchasers.
The Tripura High Court aligned with the Gauhati High Court’s decisions in *National Plasto Moulding v. State of Assam* and *McLeod Russel India Ltd. v. Union of India*, which followed the same interpretative approach.
The judgment *notably distinguished itself from contrary decisions* by the Kerala, Patna, Madhya Pradesh, Madras, and Andhra Pradesh High Courts, which *upheld Section 16(2)(c) without reading it down*.
The Tripura High Court observed that those decisions *failed to appreciate the practical impossibility* faced by purchasers and *overlooked the binding precedents* established by the Supreme Court’s approval.
The court’s final decision struck a careful balance: *it upheld the constitutional validity of Section 16(2)(c), rejecting facial unconstitutionality challenges,* but *read it down to exclude its application to bona fide purchasing dealers* who transact with validly registered suppliers issuing proper tax invoices *where no collusion, fraud, or revenue evasion is established*. The court specifically noted that the department had invoked Section 73 (applicable to non-fraudulent cases) *rather than Section 74 (for fraud cases)* against the petitioner, confirming the transaction’s bona fide nature. Accordingly, the court *set aside* the Assistant Commissioner’s order dated May 17, 2022, and *directed immediate restoration of ITC* to the petitioner.
*Well…..*
This landmark judgment *establishes* critical principles:
(1) *bona fide purchasers cannot be penalized for suppliers’ defaults* when they have fulfilled all documentary
and
(2) On procedural requirements, *ITC denial must be restricted to cases involving fraud,* collusion, or willful misrepresentation;
while tax administration must *pursue defaulting suppliers rather than punishing compliant purchasers.*
The decision *provides nationwide persuasive authority* for similarly situated taxpayers challenging ITC denials under Section 16(2)(c), *particularly where transactions are genuine* and suppliers’ non-compliance occurs *without purchaser knowledge* or complicity.
The GST regime’s foundational principle of *avoiding cascading taxation* cannot be defeated by *imposing impossible compliance burdens* on genuine dealers.