In plain words: one of the harshest realities of GST is that a genuine buyer can lose input tax credit simply because the supplier didn't pay the tax.
Why this happens
The GST law conditions ITC on the tax actually being paid to the government by the supplier. So if your supplier collected GST from you but never paid it, the department may seek to deny or reverse your ITC — even though you paid in good faith.
The core provision
This flows from Section 16(2)(c), which requires that the tax charged has been actually paid for you to claim ITC — a condition largely outside the buyer's control.
Why buyers feel it is unfair
- The buyer paid the tax to the supplier.
- The buyer cannot force the supplier to deposit it.
- Yet the buyer bears the loss.
Where the courts stand
This has been heavily litigated. Several courts have shown sympathy to the bona fide buyer — suggesting the department should first pursue the defaulting supplier, and that a genuine buyer who did due diligence should not be automatically penalised. The position is evolving and fact-specific, so check the current law.
How honest buyers protect themselves
- Verify the supplier's GST registration and filing status.
- Pay through banking channels and keep proof.
- Retain evidence of genuine receipt of goods/services.
- Reconcile ITC with GSTR-2B and follow up on gaps.
Frequently asked questions
Can I lose ITC if my supplier didn't pay? The law allows denial under Section 16(2)(c), though courts have given relief to bona fide buyers.
Is this settled? No — it is evolving; check the current position.
How do I protect myself? Verify suppliers, keep proof of genuine purchases, reconcile with 2B.
How Vakil Help Desk helps
Vakil Help Desk advises businesses and individuals on GST summons, searches, arrests and bail, show-cause notices, ITC disputes and fake-invoice allegations — and represents clients before the GST authorities, appellate forums and High Courts. If you have received a GST summons or notice, or are facing arrest, we can help you respond.
This article is for general legal awareness, not individual legal advice. GST law, the thresholds for arrest and prosecution, and the case law on arrest and attachment keep evolving, and the right step depends on your facts and the current position. Please consult a lawyer before responding to a GST summons, notice or arrest.