Generally, no. Section 16(2)(c) of India’s Central Goods and Services Tax Act (CGST Act) makes actual payment of the tax charged on a supply to the Government a condition of input tax credit (ITC). Paying the supplier and receiving a genuine invoice does not, by itself, prove that this condition has been met.
On 24 July 2026, the Supreme Court in Bhandari Scrap Traders v. Union of India dismissed petitions challenging this condition and upheld the Gujarat High Court’s conclusion that section 16(2)(c) was not shown to be unconstitutional or in need of being read down. The result is the current national statutory position, although the outcome of a particular demand still depends on the invoice, tax period, evidence and procedural record.
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The short answer: supplier non-remittance can affect your ITC
Input tax credit is a conditional statutory benefit, not an unconditional refund of the GST shown on an invoice. Section 16(1) gives a registered person a general entitlement to credit for input tax on goods or services used, or intended to be used, in the course or furtherance of business. Section 16(2) then imposes conditions that must be satisfied.
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One of those conditions, in section 16(2)(c), is that the tax charged on the supply must have been actually paid to the Government. The payment may be in cash or through utilisation of admissible input tax credit in respect of that supply. If the supplier charged GST but did not account for it to the Government, the recipient may face denial or recovery of the corresponding ITC even when the recipient paid the supplier and acted honestly.
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That does not mean every notice alleging supplier default is automatically correct. The department’s allegation, the supplier’s reporting and payment records, the relevant version of section 16, and the evidence in the assessment file all matter. But a recipient generally cannot preserve the credit merely by proving that the purchase was bona fide.
Do not confuse the two kinds of GST non-payment
The CGST Act deals with two different failures. They involve different parties, different statutory provisions and different consequences.
| Who failed to pay? | Relevant rule | What it concerns | Typical consequence |
|---|---|---|---|
| The supplier did not pay the GST charged on the supply to the Government | Section 16(2)(c) | Whether the tax charged has actually reached the Government, in cash or through admissible ITC utilisation | The recipient’s ITC can be denied or recovered, subject to the facts and procedure of the case |
| The recipient did not pay the supplier the value of the supply plus tax | Second proviso to section 16(2) | Whether the recipient paid the supplier within 180 days from the invoice date | The recipient must pay back or add the related credit to output liability with applicable interest; credit can be taken again after payment |
Meeting one condition does not prove that the other has been met. A business may have paid its supplier in full while the supplier failed to remit GST. Conversely, a supplier may have remitted the tax while the recipient has left the invoice unpaid for more than 180 days.
What section 16(2)(c) requires
Section 16(2)(c) focuses on the tax charged on the supply, not simply on the commercial payment between buyer and seller. The statutory test is actual payment to the Government. The Act recognises payment in cash and payment by utilisation of admissible input tax credit attributable to that supply.
This condition operates alongside the other requirements in section 16(2). Depending on the tax period and amendments then in force, the recipient must also consider:
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- A prescribed tax invoice, debit note or other permitted document under clause (a).
- Supplier furnishing and communication of invoice details as addressed by clause (aa) and section 37.
- Actual receipt of the goods or services, including the statutory treatment of supplies received in lots or instalments where applicable.
- Filing of the recipient’s return under clause (d).
- Any restrictions, blocked-credit rules, time limits or other conditions applicable to the period in which the credit was claimed.
Use the version of section 16 and the rules that applied to the relevant supply and return period. GST provisions have been amended, and a current text may not describe the law that governed an older invoice.
What the Supreme Court decided in July 2026
In Bhandari Scrap Traders v. Union of India, order dated 24 July 2026, the Supreme Court dismissed petitions challenging section 16(2)(c). The Court accepted the Gujarat High Court’s conclusion that no sufficient ground had been shown to invalidate the provision or to read it down.
The Court also treated the CGST Act’s credit design as materially different from the Delhi VAT scheme considered in earlier bona fide-purchaser litigation. A recipient therefore cannot simply import the reasoning from those Delhi VAT cases and argue that an honest purchase, by itself, defeats the GST condition.
The Court stated: “In that view of the matter, the High Court was fully justified in holding that no grounds were made out to declare Section 16(2)(c) of the CGST Act as unconstitutional or read down the provisions thereof.”
The order settles the constitutional challenge considered there; it does not decide every factual or procedural dispute that can arise in an individual assessment. A business must still examine what the department alleges, whether supplier tax payment or reporting is actually disputed, which statutory period applies and whether the notice or order followed the required process.
The separate 180-day payment rule
The second proviso to section 16(2) addresses a different risk: the recipient has not paid the supplier. If the recipient fails to pay the supplier the value of the supply plus the tax within 180 days from the invoice date, the recipient must pay back an amount equal to the ITC availed, with interest under section 50, in the prescribed manner.
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A free scan shows the junk files, broken settings and background clutter dragging Windows down - then fixes them in one click.Free scan · Windows 10 & 11The corresponding rules describe the adjustment as an addition to output tax liability in the relevant return. Interest runs from the date the credit was availed until the amount added to output liability is paid. Once the recipient pays the supplier, the recipient becomes entitled to avail the credit again, subject to the other statutory conditions.
The 180-day condition is therefore not a cure for supplier non-remittance. It asks whether the recipient paid the supplier; section 16(2)(c) asks whether the supplier’s tax was actually paid to the Government.
The official CBIC FAQ states that this 180-day payment condition does not apply where tax is payable under reverse charge. Check the reverse-charge classification before calculating a 180-day reversal. Reverse charge does not, however, eliminate the need to satisfy the other conditions applicable to the credit.
How to analyse a disputed invoice
When a supplier’s GST payment is questioned, work invoice by invoice rather than assuming that an entire period is affected. The following sequence separates the legal questions.
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- Identify the tax period and statutory version. Record the invoice date, date of supply, return period and the version of section 16 and the rules that applied then.
- Confirm the supply and document. Match the invoice or debit note to the purchase order, goods-received note, service evidence and accounting entry. Check GSTINs, tax rate, taxable value and tax amount.
- Check receipt and business use. Preserve transport records, delivery acknowledgements, service completion evidence and records showing use or intended use in the business.
- Check invoice communication and returns. Review the supplier’s invoice reporting, the recipient’s auto-populated records where available, the recipient’s return and any correction or amendment trail.
- Separate payment paths. Determine whether the recipient paid the supplier within 180 days and whether the supply was under reverse charge. Keep bank statements, payment advices, set-off agreements and credit notes.
- Address the supplier-remittance allegation. Ask exactly what the notice says: missing invoice reporting, mismatch, cancellation, non-filing, non-payment or a specific demand against the supplier. These are not interchangeable facts.
- Respond within the document’s deadline. A show-cause notice, adjudication order, appeal and writ proceeding have different requirements. Follow the deadline and filing route stated in the actual document, obtaining professional advice for a live dispute.
Evidence that can help, and what it cannot prove
Commercial records can establish that a real transaction occurred and that the recipient met several section 16 conditions. They do not automatically prove that the supplier paid the tax to the Government.
| Record | What it can support | Limit |
|---|---|---|
| Tax invoice, purchase order and goods-received note | Identity, value and receipt of the supply | Does not itself prove supplier remittance |
| Bank statement or payment advice | Payment from recipient to supplier and timing | Shows commercial payment, not payment of GST to Government |
| Return data and invoice-communication records | Reporting history and possible mismatch explanations | Availability or appearance of an invoice is not conclusive proof of tax payment |
| Supplier correspondence, registration records and reconciliation | Efforts to resolve errors and identify the disputed invoices | Good faith alone does not remove section 16(2)(c) |
| Departmental or supplier payment evidence | Direct support for whether tax reached the Government | Must be tied to the specific supply and period |
Keep a reconciliation that links each disputed invoice to the supplier’s GSTIN, taxable value, tax amount, reported status, payment status if known, and the credit claimed. This makes it possible to challenge an incorrect aggregation without claiming that every supplier default is harmless.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Examples: how the two rules operate
Recipient paid, supplier did not remit
A company receives goods, pays the invoice including GST, records the purchase and claims ITC. The supplier later fails to deposit the tax. The company has evidence of receipt and payment, but those facts do not satisfy section 16(2)(c) if the tax was not actually paid to the Government. The company should examine the department’s invoice-level evidence and the applicable law, but cannot rely solely on bona fide-purchaser status.
Recipient leaves the invoice unpaid for 200 days
A recipient claims ITC and does not pay the supplier the value plus tax within 180 days of the invoice. The second proviso is triggered, unless the supply falls within the reverse-charge exclusion. The recipient must add back the amount equal to the credit availed with applicable interest in the prescribed return mechanism. After paying the supplier, the recipient may avail the credit again, assuming the other conditions remain satisfied.
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Reverse-charge supply
Where tax is payable under reverse charge, the CBIC FAQ says the 180-day payment condition does not apply. The recipient should still verify the reverse-charge liability, payment of that tax, documentation, receipt and return requirements. The exclusion prevents applying the 180-day supplier-payment test mechanically; it is not a blanket exemption from GST compliance.
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Invoice appears in reporting data but supplier’s tax status is disputed
An invoice may have been reported or communicated and still become part of a dispute about the supplier’s filing or payment. Preserve the reporting history and the commercial evidence, then respond to the precise allegation. Do not treat an electronic match as conclusive proof that section 16(2)(c) has been met.
Common mistakes to avoid
- Using the 180-day rule as an answer to supplier default. It concerns recipient-to-supplier payment, not supplier-to-Government remittance.
- Assuming an honest purchase guarantees ITC. The Supreme Court’s July 2026 ruling rejected that broad constitutional challenge under the CGST framework.
- Applying today’s text to an old invoice without checking amendments. Determine the law for the relevant tax period.
- Relying only on portal visibility. Reporting or communication helps establish a record but may not prove actual tax payment.
- Ignoring procedure. A response to a notice must address its allegations, evidence and deadline; a general statement that the purchase was genuine may be inadequate.
- Reversing credit without calculating the correct period and interest. For a 180-day failure, follow the prescribed return mechanism and the interest rule tied to the date the credit was availed.
What a business should do now
For routine compliance, add supplier-risk checks to invoice reconciliation: monitor reporting and mismatch status, obtain tax-period-specific confirmations where commercially practical, and flag invoices approaching the 180-day payment deadline. Keep proof of receipt, payment and return filing in a linked record rather than in separate, unsearchable files.
If a demand has already been issued, preserve the notice and all annexures, identify every disputed invoice, map each allegation to section 16(2)(c) or the 180-day proviso, and calculate the amount and interest separately. Review the matter with a qualified Indian GST professional who can assess the applicable statutory version, evidence and available procedural remedies. No general article can determine a particular business’s entitlement without those facts.
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If I paid my supplier in full, can the department still deny ITC?
Yes. Full payment supports the separate recipient-to-supplier payment condition, but section 16(2)(c) also requires the supplier’s tax on the supply to have been actually paid to the Government. The result in a particular case depends on the notice, evidence and applicable tax-period law.
Does the 180-day rule apply to every GST invoice?
No. It concerns failure to pay the supplier the value plus tax within 180 days and, according to the CBIC FAQ, does not apply where tax is payable under reverse charge.
Did the Supreme Court decide every dispute about supplier default?
No. Its 24 July 2026 order upheld section 16(2)(c) against the constitutional challenge before it. Invoice-level facts, reporting, payment evidence and procedural issues still have to be examined in each assessment.
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