In plain words: Section 16(2)(c) is the small clause with a big bite — it ties your input tax credit to the supplier actually paying the tax.
What the provision says
Section 16(2)(c) allows ITC only where the tax charged on your purchase has been actually paid to the government — in cash or through admissible credit — by the supplier.
Why it drives demands
When the department finds a supplier who did not pay, it issues notices to recover the ITC from the buyer, relying on this clause — often a large, unexpected demand on an honest business.
The buyer's defences
- Bona fides and due diligence — you verified the supplier and transacted genuinely.
- Proof of real supply — goods received, transport, payment through banking channels.
- Tax actually paid by you to the supplier.
- Arguments that the department should first recover from the defaulting supplier.
The judicial trend
Courts have increasingly protected the genuine buyer, indicating that a bona fide purchaser should not be automatically made to bear the supplier's default. But outcomes are fact-specific and the law is developing.
Practical protection
- Document every purchase thoroughly.
- Verify supplier compliance before and during dealings.
- Reconcile and act on 2B gaps quickly.
Frequently asked questions
What is Section 16(2)(c)? It conditions ITC on the supplier actually paying the tax.
Can my ITC be reversed under it? Yes — if the supplier didn't pay, subject to your defences.
Do bona fide buyers get relief? Courts increasingly protect them — but it is fact-specific and evolving.
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.