Under the general rule in India’s CGST Act, a buyer cannot treat an invoice and payment to the supplier as enough to establish input tax credit (ITC) if the tax charged on the supply was not actually paid to the Government. Section 16(2)(c) makes Government receipt of the tax a separate condition. Courts have taken differing, fact-specific approaches in disputes involving bona fide buyers, so the statutory rule and any court-based argument should be considered separately.
What section 16 requires
Section 16(2) of the Central Goods and Services Tax Act, 2017, sets conditions that must be met for a registered person to claim ITC. For supplier non-remittance, the key provision is section 16(2)(c): “the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply”.
This is distinct from the buyer’s own payment to the supplier. The buyer must also meet other applicable conditions, including holding the prescribed tax document, receiving the goods or services, and furnishing the return required under section 39. Under section 155, the registered person bears the burden of proving eligibility for ITC.
Supplier non-remittance and the 180-day rule are different
| Situation | Rule engaged | Practical effect |
|---|---|---|
| The buyer paid the supplier, but the supplier did not pay the tax to the Government. | Section 16(2)(c): tax charged on the supply must actually be paid to the Government. | The buyer’s ITC is exposed under the general statutory rule. Payment to the supplier does not by itself prove that this condition was met. |
| The buyer did not pay the supplier the value of the supply plus tax within 180 days of the invoice date. | The second proviso to section 16(2). | The proportionate credit relating to the unpaid amount is added to the buyer’s output tax liability with interest through the prescribed process. The buyer may avail that credit again after paying the supplier. |
| The supplier did not report the invoice, or it is absent from the relevant recipient statement. | Reporting and documentary conditions, together with the rules applicable to the relevant tax period. | Check the invoice and return records as well as other eligibility conditions; statement appearance alone does not establish eligibility. |
CBIC’s FAQ says that credit reversed under the 180-day rule can be reclaimed when the buyer pays the supplier the value and tax. That rule concerns the buyer’s payment to the supplier; it does not substitute for the separate requirement that the supplier’s tax reach the Government.
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What to check in GSTR-2B
Use GSTR-2B to review supplier-filed invoice information and reconcile it with purchase records and tax invoices. It is a reconciliation tool, not a complete legal safe harbor: the GST portal’s advisory cautions that ITC can be ineligible for reasons beyond the limited cases it displays as unavailable.
- Match the invoice details in GSTR-2B against the supplier’s invoice and your purchase records.
- Check that the goods or services were received and that the transaction is supported by relevant contracts, orders, and delivery or movement records.
- Review the relevant supplier and buyer return information, including GSTR-1 and GSTR-3B, for the tax period at issue.
An invoice appearing in GSTR-2B does not, by itself, establish that the supplier discharged the tax or that every other condition for credit has been met.
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Can the buyer deposit the supplier’s GST directly?
No. CBIC’s sectoral FAQ says the buyer cannot pay the GST component directly into the supplier’s Government account to create the matching credit entry. The FAQ does not provide a workaround that lets the buyer replace the supplier’s remittance.
What the court decisions mean for bona fide buyers
The statutory wording is not the only consideration in a dispute: courts have addressed whether credit should be denied to a buyer who acted in good faith when a supplier defaulted. These decisions differ in jurisdiction and procedural status, and a ruling from one High Court should not be treated as a nationwide amendment to the Act.
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| Authority and date | Reported position | How to read it |
|---|---|---|
| Kerala High Court, Mall of Joy Pvt Ltd v Union of India, 4 June 2024 | The court discussed section 16(2)(c) as requiring the tax charged on a supply to be paid to the Government, and addressed the statutory reporting framework. | A Kerala High Court decision supporting the significance of supplier remittance; it is not a Supreme Court ruling. |
| Tripura High Court Division Bench, reported by LiveLaw on 6 January 2026 | The report describes the court as reading down section 16(2)(c) for a bona fide purchaser, limiting denial to non-bona-fide, collusive, or fraudulent transactions. The reported facts included buyer payment, supplier-reported sales, and the transaction appearing in returns. | A reported state High Court approach on its facts, not a general amendment to the Act. The decision was reported as under appeal in July 2026. |
| Supreme Court disposition concerning the Gujarat High Court ruling, as reported by EY on 29 July 2026 | EY reported that the Supreme Court dismissed an appeal and upheld the Gujarat High Court’s refusal to declare section 16(2)(c) unconstitutional or read it down. | This is EY’s account of the disposition, not a basis to say the Supreme Court resolved every fact-specific bona fide buyer dispute or made the Tripura ruling final nationwide. |
For a particular dispute, the transaction’s genuineness, whether the buyer paid and received the supply, the supplier’s reporting and tax position, the buyer’s records, and the jurisdiction and status of relevant proceedings can all matter. The cases do not eliminate the need to assess the applicable law and facts for the specific return period or notice.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Records to assemble for a claim or notice
Keep records that establish both the commercial transaction and the buyer’s compliance. They support the buyer’s position but do not change section 16(2)(c)’s requirement that tax be paid to the Government.
Quick Recap
Best Value
- Easy to Use Financial Records Organizer: This spiral-bound document folder features 12 pockets, to keep your receipts and records easily accessible in one place.
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Rank #4
- Comprehensive Tax Package Inclusions: The pack includes 1 all in one income tax organizer, 1 sheet of tax category pre printed label sticker, 1 common tax category list, 12 alphabet labels, giving you everything you need for tax preparation
- Build to last: Our tax record organizer is mainly made of plastic, waterproof, tear resistant, and resistant to deformation, while maintaining flexibility, secure button closure design facilitates access and placement of documents while ensuring safe placement of documents, and the closed bottom keeps the file in place
- Large capacity: This tax document organizer has 13 pockets, each holding about 40 sheets of paper, it can be flexibly expanded and shrunk as the number of files increases, holding a total of about 500 sheets of paper, ideal for organizing and protecting important documents, paperwork, bills, tax records, receipts, invoices and more
- Pre Printed Labels and Customizable labels: these pre printed label stickers have common tax categories, such as Medical Expenses, Employment Income, Rental Income, and more, we also included alphabet labels and customizable labels for your personal uses, please note that the customizable labels do not come with adhesive
- Broad uses: this expandable file folder organizer is proper for organizing various financial and tax related documents, with strippable labels and divider labels for sorting, making your tax preparation more systematic and managed, ideal for annual tax returns, document storage and filing, professional tax services, and tax agencies
- Tax invoice or debit note, purchase order, and contract.
- Proof of receipt of goods or services, including movement or delivery records where relevant.
- Bank or other payment evidence showing what was paid to the supplier, including the tax amount.
- Supplier registration details and invoice-reporting status.
- GSTR-2B and GSTR-3B reconciliations, along with relevant return information.
- Correspondence with the supplier about a discrepancy, non-reporting, or tax demand.
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