The Gauhati High Court issued a significant ruling regarding the denial of Input Tax Credit (ITC) under the Goods and Services Tax (GST) framework in the case involving M/s McLeod Russel India Limited. The petitioner, a company engaged in tea manufacturing, faced a denial of ITC due to alleged non-compliance by its suppliers with certain statutory requirements, despite the company fulfilling all substantive conditions under Section 16 of the CGST Act. These conditions included possessing valid tax invoices, actual receipt of goods, and their use in business operations.
The central issue was whether ITC could be denied to a recipient who has met all necessary conditions, solely due to the supplier's procedural lapses. The court ruled that Section 16 provides a statutory right to ITC once the recipient fulfills the substantive conditions. It emphasized that a purchasing dealer should not be penalized for the supplier's procedural failures unless there is evidence of collusion or fraud. The court noted that denying ITC under such circumstances would undermine the GST regime's objective of ensuring a seamless credit flow.
Read More: GST - Delhi High Court: Allegations of fraudulent ITC availment involve disputed facts and evidence, rendering them unsuitable for writ jurisdiction; Directed to pursue appellate remedy [Order attached]
Consequently, the court deemed the proposed denial of ITC to the petitioner unsustainable in law and granted relief in favor of the petitioner. This decision underscores the importance of distinguishing between substantive compliance by recipients and procedural lapses by suppliers, reinforcing the protective measures for bona fide recipients within the GST system.
Order Date: 09 December, 2025
Parties: M/s McLeod Russel India Limited v. Union of India & Ors.
Facts –
- The petitioner, a registered company engaged in tea manufacturing, availed Input Tax Credit on inward supplies used in the course of business based on valid tax invoices and actual receipt of goods.
- The GST department initiated proceedings proposing denial of ITC on the ground that the suppliers had allegedly failed to comply with certain statutory requirements, including filing of returns and tax payment.
- The petitioner contended that it had fulfilled all substantive conditions under Section 16 of the CGST Act and that denial of ITC due to supplier default was arbitrary.
- Aggrieved by the proposed denial of ITC despite compliance with statutory requirements, the petitioner approached the High Court.
Issue –
- Whether Input Tax Credit can be denied to a bona fide recipient who has satisfied all conditions under Section 16 of the CGST Act solely due to non-compliance by the supplier?
Order –
- The Court held that Section 16 grants a statutory right to ITC once the recipient fulfills the prescribed substantive conditions, including possession of tax invoices, receipt of goods, and use in business.
- It was observed that the purchasing dealer cannot be penalised for procedural or statutory lapses committed by the supplier when there is no allegation of collusion or fraud.
- The Court clarified that denial of ITC on such grounds would defeat the very object of the GST regime and disrupt seamless credit flow.
- The provisions of Section 16(2)(aa) is read down till the time CBIC comes out with any practical solution to the problem posed by making the availability of ITC to the bona fide purchaser contingent on factors which are totally in the hands of a supplier and not the purchaser.
- Accordingly, the impugned action proposing denial of ITC was held to be unsustainable in law, and relief was granted in favour of the petitioner.
