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| 1 | GST on Renting of Immovable Property – RCM Applicability | 04-09-2026 | The note summarises GST treatment of commercial an... | View Download |
| Article 04-09-2026 GST on Renting of Immovable Property – RCM ApplicabilityThe note summarises GST treatment of commercial and residential property rentals under FCM and RCM.It covers relevant Central Tax (Rate) notifications from 2017 to 2024.RCM applies to residential renting to registered persons and certain unregistered-to-registered commercial rentals.It also includes the 2022 GST Council clarification and 2024 corrigendum. | ||||
| 2 | Bona Fide to Compliant: How Maruti and Bhandari Redefine Section 16(2)(c) | 02-09-2026 | Introduction Every few years, a provision com... | View Download |
| Article 02-09-2026 Bona Fide to Compliant: How Maruti and Bhandari Redefine Section 16(2)(c)Introduction Every few years, a provision comes along that the Department wields like a hammer and the trade fears like a trapdoor. Section 16(2)(c) of the CGST Act has been that provision since 2017, the clause that makes a buyer`s input tax credit hostage to a seller`s conduct the buyer cannot control, cannot see, and cannot compel. For years, the trade`s fear was that the courts would leave this exactly as onerous as it reads on paper: pay your supplier, hope he pays the government, and if he doesn`t, lose your credit regardless of your own conduct. The Gujarat High Court`s judgment in Maruti Enterprise vs. Union of India, affirmed by the Hon`ble Supreme Court`s dismissal of the connected SLP in Bhandari Scrap Traders vs. Union of India & Ors. — has now closed that chapter, but not in the way most commentary is reading it. Both fora upheld the constitutional validity of Section 16(2)(c); the condition that tax must be paid by the supplier for the recipient to claim ITC is good law. But that is only half of what was decided. This article makes a direct claim, and defends it paragraph by paragraph from the judgment itself: the same judgment that upholds Section 16(2)(c) also tells the recipient exactly how that condition is satisfied, and once GSTR-2B reflects the invoice and GSTR-3B has been filed by the supplier, compliance is complete.The Supreme Court`s Refusal to Equate DVAT with GST — and WhyBhandari`s own writ petition, SCA No. 749/2025, was one of the batch of matters tagged with and disposed of through the Maruti common judgment dated 01-05-2026 (lead matter: R/Special Civil Application No. 18080 of 2023). The petitioners had leaned on On Quest Merchandising India (P) Ltd. vs. Government of NCT of Delhi the Delhi High Court`s DVAT-era ruling, subsequently affirmed by the Supreme Court itself in Commissioner of Trade & Tax, Delhi vs. Arise India Ltd. and again approved in Commissioner Trade & Tax, Delhi vs. Shanti Kiran India (P) Ltd., all of which had read down a similarly worded DVAT provision on the ground that a purchasing dealer could never verify whether his seller had deposited tax. This line of authority mattered because it did not merely rest on a High Court view; it carried the Supreme Court`s own imprimatur, twice over. If it had been transplanted into the GST framework, Section 16(2)(c) would have gone the same way. The Supreme Court, in the Bhandari order, declined to do so, holding:"The distinction and differences between the provisions of the Delhi Value Added Tax Act, 2004, and the Central Goods and Services Tax Act, 2017, brought out by way of a detailed analysis from paragraph 42 onwards in the impugned judgment along with the scheme of availing Input Tax Credit (ITC) under the GST regime, as set out in paragraph 56 of the impugned judgment, clearly demonstrate that there is no possibility of drawing parity between the provisions of the two enactments..."This is the entire ratio of the dismissal. And the reason the SC-affirmed DVAT line failed to transplant is instructive: the Gujarat High Court`s judgment does not merely note, as a matter of legislative bookkeeping, that Sections 41 and 53 exist in the CGST Act and had no counterpart under DVAT. It goes further; it actually works out, step by step, how Section 41 and Rule 37A operationalise Section 16(2)(c), thereby supplying precisely the verification mechanism whose absence was fatal to Section 9(2)(g) of the DVAT Act in On Quest, Arise India, and Shanti Kiran. It is this worked-out mechanism, not merely the fact of these provisions` existence, that the Supreme Court endorsed, and that is why even a twice-affirmed Supreme Court line under DVAT could not be carried over into GST.Para 56: The Chain That Changes EverythingPara 56 is the technical heart of the judgment. It sets out, form by form, exactly how ITC flows under GST and it is this documented, sequential, recipient-visible chain that the DVAT regime never had:"1. Invoice — The Supplier Dealer issues Tax Invoice for the supply of goods. [Section 31 r/w. Rule 46]" "2. GSTR-1 — The said Supplier Dealer files return in prescribed form, disclosing the outward supplies effected by him, including the amount of tax included therein. [Section 37 r/w. Rule 59(1)]" "3. GSTR-2A — The details of outward supplies furnished by supplier dealer in its GSTR-1 get auto-populated to the Purchasing Dealer. [Section 38 r/w. Rule 60(1)]" "4. GSTR-2B — Auto generated statement gets available to the Purchasing Dealer, containing the details of Input Tax Credit, solely on the basis of the details furnished by Supplier Dealer in its GSTR-1. [Section 38 r/w. Rule 60(7)]" "5. GSTR-3B — The said Supplier Dealer has to file return in prescribed form, paying the tax on the outward supplies. [Section 39 r/w. Rule 59(1)]" "6. GSTR-3B — The said Purchasing Dealer also files return in the prescribed form, for discharging his duty liability on his outward supplies... on the basis of the auto-generated statement in Form GSTR-2B..."Serial No. 5 is decisive: the supplier`s GSTR-3B is, in the Court`s own words, the return in which the supplier is "paying the tax on the outward supplies." GSTR-3B filing by the supplier is not a bureaucratic formality sitting next to the payment of tax — in this judgment`s own architecture, it is the act of paying the tax.Para 58: Section 41 Is Not Bolted On — It Is Part of the Entitlement ItselfAt Para 58, the Court makes a structural point:"At this stage, it is appropriate to refer to the provisions of Section 41, read in conjunction with Section 16(1) of the CGST Act. These provisions clarify that a purchasing dealer is entitled to avail of ITC, which is credited to their Electronic Credit Ledger maintained under Rule 86 of the CGST Rules, 2017 in Form GST PMT-02. Consequently, a purchasing dealer is entitled to credit for the tax charged on the supply of goods or services (the initial transaction) provided those goods or services are used, or intended to be used, in the course or furtherance of their business in subsequent transactions."Section 41 of the CGST Act, as substituted by the Finance Act, 2022, reads:"41. Claim of input tax credit and provisional acceptance thereof (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed, be entitled to avail the credit of eligible input tax, as self-assessed, in his return and such amount shall be credited on a provisional basis to his electronic credit ledger. (2) The credit of input tax availed by a registered person under sub-section (1) shall be eligible to be utilised only for payment of self-assessed output tax as per the return referred to in the said sub-section: Provided that where the credit of input tax availed by a registered person under sub-section (1) has been utilised for payment of self-assessed output tax as per the details furnished under sub-section (2) of section 39 in respect of any tax period and where such supplier has not paid the tax on such outward supply, the input tax credit availed in respect of such supply shall be reversed, along with applicable interest, in such manner as may be prescribed. Provided further that where the said amount of tax is paid by the said supplier, the registered person referred to in sub-section (1) above may re-avail the amount of credit reversed by him."Section 16(2)(c) uses the language of "payment." Section 41 uses the language of "return" and "filing." The Court has fused the two — Section 41, read with Section 16(1), is the mechanism through which "payment" under clause (c) is given legal content.Para 68: The Sentence That Decides the CaseAt Para 68, the Gujarat High Court explains why it distinguished On Quest Merchandising, and by extension Arise India and Shanti Kiran, and declined to follow the Tripura High Court`s decision in Sahil Enterprises, which had read down Section 16(2)(c) by following the On Quest line of authority:"On a close scrutiny of the scheme of the GST regime, it is evident that Section 16(2)(c) of the CGST Act cannot be equated with the VAT regime, particularly with Section 9(2)(g) of the DVAT Act, as examined by the Delhi High Court in On Quest Merchandising India (P) Ltd. (supra). It is also noticed that the Tripura High Court, while following in the case of On Quest Merchandising India (P) Ltd. (supra), has read down Section 16(2)(c) of the CGST Act on the ground of practical impossibility for the purchaser to ensure that the supplier has deposited tax. With respect, we are unable to agree with the said view. The Tripura High Court proceeded on the premise that ITC is intended solely to avoid double taxation under the CGST regime, but did not adequately consider the interplay of Sections 41 and 53 of the CGST Act read with Rule 37A of the CGST Rules, 2017."In our humble opinion, this passage cannot be reduced to a bare structural observation that Sections 41 and 53 merely "exist" in CGST while their counterpart is absent in DVAT. The Court goes further — at Paras 61, 74, 75 and 77 — to actually work out how that interplay functions and what it demands of the recipient. Section 16(2)(c), in other words, is not upheld as a standalone provision; it is upheld as read with Section 41 and Rule 37A, and the Court`s validation of clause (c) and its exposition of the Section 41/Rule 37A mechanism are two halves of a single, conjoint holding. Para 74: Two Holdings, Read TogetherThis is where that conjoint reading crystallises. At Para 74, the Court states:"Section 16(2)(c) mandates that the recipient ensure tax is paid to the government, yet it does not explicitly stipulate that payment must occur via Form GSTR-3B. FORM GSTR-3B is a self-declared summary return used to report and pay taxes. While it acts as the official record of the taxpayer`s tax liability and payment, it does not automatically prove that a supplier has paid tax to the government as required by Section 16(2)(c). Instead, the recipient must verify this via GSTR-2B and temporarily reverse ITC in GSTR-3B Table 4(B)(2) if the supplier has not paid it. Effective October 1, 2022, Section 41(2) specifically requires the recipient to reverse Input Tax Credit (ITC), plus applicable interest, if the supplier fails to deposit the tax. However, the proviso also establishes a mechanism for re-availing this credit once the tax is eventually paid."The Court answers a question Section 16(2)(c) itself is silent on — how is that payment to be validated by the purchaser? Its answer is GSTR-2B and GSTR-3B, and nothing beyond them.Our PositionThe positive, practical outcome of Maruti and Bhandari is a shift in the entire vocabulary of this debate. For years, the dispute over ITC denial was fought on the axis of "bona fide purchaser" versus "non-bona fide purchaser," a subjective, fact-heavy, litigation-prone inquiry into a recipient`s knowledge, intent, and diligence. That axis, in our view, is now obsolete. What the Gujarat High Court has done, and what the Supreme Court has endorsed by refusing to disturb it even against a twice-affirmed DVAT precedent, is replace that subjective test with an objective, document-based one: the axis is no longer bona fide versus non-bona fide it is compliant purchaser versus non-compliant purchaser.And compliance, on this judgment`s own terms, has a fixed, two-document content: the invoice must be reflected in the recipient`s GSTR-2B, and the supplier`s GSTR-3B for that period must have been filed. Where both conditions are met, the recipient has done what Section 16(2)(c), Section 41, and Rule 37A collectively require of them. If GSTR-3B has not been filed within the Rule 37A window, the recipient reverses; the moment it is filed and the supplier`s liability is discharged, the recipient re-avails, exactly as the proviso to Section 41(2) guarantees.We say this as our own considered position, and we say it clearly: Section 16(2)(c) survives as constitutional law, but it survives only in the form the Gujarat High Court gave it a form we read as fully discharged by GSTR-2B reflection and GSTR-3B filing. A recipient who satisfies both has, in our view, completed the compliance the Maruti judgment and the Bhandari order together prescribe. Whether this reasoning will hold every future Departmental demand at bay is a question the judgment itself leaves open. At Para 88, the Court calls on the Government to undertake its own re-evaluation and build better verification tools, which tells us this is a developing, not a fully closed, area of law. But as matters stand today, on the text of these two rulings read as one continuous whole, our determination is unambiguous: GSTR-2B and GSTR-3B compliance is the compliance the law asks for, and it should not, on this reasoning, be treated as anything less. Authored by Ashu Dalmia and places on record his appreciation for the research and drafting assistance provided by Ankita Jha. Disclaimer: This article reflects our own reading, interpretation, and professional determination of the Maruti Enterprise judgment (Gujarat High Court) and the Bhandari Scrap Traders SLP order (Supreme Court), based on the text of these judgments as available to us. It does not constitute legal advice and should not be relied upon or acted upon as such without independent professional consultation. Readers are advised to verify the current status of these judgments, including any review, curative, or further proceedings, before applying this analysis to any specific fact situation. | ||||
| 3 | Supplier’s Sin, Buyer’s Penalty Decoding Section 16(2)(c) of the CGST Act | 11-04-2026 | The concept of Input Tax Credit (ITC) lies at the ... | View Download |
| Article 11-04-2026 Supplier’s Sin, Buyer’s Penalty Decoding Section 16(2)(c) of the CGST ActThe concept of Input Tax Credit (ITC) lies at the very heart of the Goods and Services Tax regime. Designed to eliminate the cascading effect of taxation, ITC ensures that tax is levied only on value addition at each stage of the supply chain. Under this system, a registered person is entitled to claim credit of taxes paid on inputs and utilize the same against output tax liability. While the framework appears seamless in theory, its practical application has been fraught with disputes, particularly in the context of Section 16(2)(c) of the Central Goods and Services Tax Act, 2017. This provision, which mandates that tax charged on a supply must be “actually paid to the Government,” has become one of the most litigated aspects of GST law.Section 16(2) of the Central Goods and Services Tax Act, 2017, lays down four cumulative conditions for claiming ITC. Among them, clause (c) has generated the most significant litigation:Sec. 16 (2) “No registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,.... (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.”[1]Section 16(2) prescribes the conditions for availing ITC, and clause (c) introduces a significant departure from traditional tax principles by linking the entitlement of the recipient to the compliance behavior of the supplier. In essence, even if the recipient has fulfilled all contractual and statutory obligations, including payment of consideration along with tax to the supplier, the credit may still be denied if the supplier fails to deposit the tax with the Government. This creates a peculiar situation where the purchasing dealer bears the consequences of a default over which it has little or no control. The phrase “actually paid to the Government” thus assumes central importance, as it shifts the focus from the transaction between the parties to the ultimate flow of revenue into the public exchequer.The statutory position is reinforced by Rule 37A of the CGST Rules, 2017 (inserted vide Notification No. 26/2022-CT dated 26.12.2022). It provides the procedural mechanism for operationalising this condition. The Rule requires the recipient to reverse ITC (along with interest) if the supplier, despite furnishing the invoice details in GSTR-1, fails to filethe corresponding GSTR-3B return by 30th September following the end of the financial year in which the ITC was availed. The reversal must be effected in the recipient’s GSTR-3B on or before 30th November of that year. Upon the supplier’s subsequent compliance (filing GSTR-3B and paying tax), the recipient can re-avail the credit.Analogous provisions existed in the pre-GST VAT regime, Section 9(2)(g) of the Delhi Value Added Tax Act, 2004, Section 48(5) of the Maharashtra Value Added Tax Act, 2002, and Section 70 of the Karnataka Value Added Tax Act, 2003, all of which emphasised actual payment by the supplier or genuineness of the transaction.Judicial responses to these provisions have been varied. On one hand, certain courts adopted a liberal approach, recognizing the inherent limitations faced by purchasing dealers in verifying supplier compliance. On the other hand, a stricter line of reasoning emphasized that ITC is a statutory concession and can be regulated by imposing conditions deemed necessary to protect revenue.The Delhi High Court took a protective approach towards bona fide purchasers in its early rulings. In Shanti Kiran India Pvt Ltd v. Commissioner, Trade and Taxes (Delhi High Court, Division Bench, 04.01.2013), [2]the Court observed: “This Court is of the opinion that in the absence of any mechanism enabling a purchasing dealer to verify if the selling dealer deposited tax, for the period in question, and in the absence of notification in a manner that can be ascertained by men in business that a dealer’s registration is cancelled the benefit of input credit, under Section 9(1) cannot be denied.” The Court further noted that cancellations after the transactions and assumptions of collusion based solely on low tax deposits by suppliers were “unworthy of acceptance.” The Supreme Court, in The Commissioner of Trade and Tax, Delhi v. Shanti Kiran (Supreme Court, Division Bench, 09.10.2025), recorded the Delhi High Court’s finding that the purchasers were bona fide and entitled to ITC after verification.Building on this, the Delhi High Court in On Quest Merchandising India Pvt Ltd v. Government of NCT of Delhi (Delhi High Court, Division Bench, 26.10.2017) [3]applied the doctrine of reading down to Section 9(2)(g) of the DVAT Act. In paragraph 62, the Court held: “the expression ‘dealer or class of dealers’ occurring in Section 9 (2) (g) of the DVAT Act should be interpreted as not including a purchasing dealer who has bona fide entered into purchase transactions with validly registered selling dealers who have issued tax invoices in accordance with Section 50 of the Act where there is no mismatch of the transactions in Annexures 2A and 2B.” Paragraph 63 clarified that the Department is precluded from denying ITC to such bona fide purchasers and must instead proceed against the defaulting supplier, except where collusion is established under Section 40A. The Supreme Court declined to interfere in the challenge to this judgment in Commissioner of Trade and Taxes, Delhi v. Arise India Limited (Supreme Court, 10.01.2018).[4]The liberal approach found expression in decisions holding that a bona fide purchaser should not be penalized for the supplier`s default, particularly in the absence of a mechanism to verify tax payment. These judgments emphasized that once the purchasing dealer has ensured that the supplier is duly registered, obtained valid tax invoices, and made payment through legitimate channels, denial of ITC would result in undue hardship and effectively lead to double taxation. The courts also invoked the doctrine of reading down to interpret statutory provisions in a manner that preserves their constitutionality while protecting genuine transactions. This line of reasoning reflects a broader constitutional concern that fiscal statutes must operate fairly and not impose disproportionate burdens on compliant taxpayersIn contrast, other High Courts adopted a stricter view aligned with the statutory language. The Bombay High Court in Mahalaxmi Cotton Ginning Pressing & Oil Industries v. State of Maharashtra (Bombay High Court, Division Bench, 11.05.2012) [5]upheld the constitutional validity of Section 48(5) of the MVAT Act, which required actual deposit of tax in the treasury before set-off could be claimed. The Supreme Court dismissed the Special Leave Petition on 25.02.2013, affirming that ITC is a statutory concession subject to legislative conditions. Under Karnataka VAT, the Supreme Court in State of Karnataka v. Ecom Gill Coffee Trading Pvt Ltd (Supreme Court, Division Bench, 13.03.2023) [6]emphasised the purchaser’s burden under Section 70 of the KVAT Act. The Court held that mere production of invoices and payment to the supplier is insufficient; the purchasing dealer must prove the genuineness of the transaction through cogent material, including details of the vehicle, freight charges, acknowledgement of delivery, and actual physical movement of goods.The Karnataka High Court had earlier taken a more liberal view in State of Karnataka v. Tallam Apparels [7](Karnataka High Court, Division Bench, 26.02.2021), observing that account payee cheques and other documents demonstrated the transaction was not bogus, and non-remittance by the supplier could not penalise the purchaser. However, the Supreme Court’s decision in Ecom Gill clarified that the burden remains squarely on the purchaser to establish genuineness.The stricter judicial approach underscores the principle that ITC is not an inherent right but a benefit subject to the fulfillment of statutory conditions. This perspective gained significant momentum with judicial pronouncements emphasizing the burden of proof on the purchasing dealer to establish the genuineness of transactions. Courts adopting this view have held that mere production of invoices or proof of payment is insufficient. Instead, the dealer must demonstrate actual movement of goods, authenticity of the supplier, and overall legitimacy of the transaction. The emphasis on documentary evidence, logistical details, and financial trails reflects a heightened scrutiny aimed at curbing fraudulent practices such as fake invoicing and circular trading.In the GST era, several High Courts have examined the constitutional validity of Section 16(2)(c) itself. The Gauhati High Court in National Plasto Moulding v. State of Assam (Gauhati High Court, Division Bench, 26.06.2024[8]) held that the issue was squarely covered by the Delhi High Court’s On Quest judgment and set aside demands for bona fide transactions. The Tripura High Court, in Sahil Enterprises v. Union of India (Tripura High Court, Division Bench, 06.01.2026), [9]went further and noted that ITC is intended to avoid double taxation and that Parliament did not intend to punish a bona fide purchaser for the supplier’s default. Paragraph 47 expressly adopted the Delhi High Court’s reading-down approach, stating that Section 16(2)(c) “has to be read down as the Delhi High Court had done.” The Court concluded that the petitioner’s transaction was bona fide and not collusive, and therefore ITC could not be denied. The Karnataka High Court followed suit in Instakart Services Private Limited v. Union of India (Karnataka High Court, Single Bench, 09.02.2026),[10] disposing of the petition in terms of the Gauhati and Tripura judgments and reading down Section 16(2)(c) and Rule 36(4) to protect bona fide recipients.Across these judgments, courts have consistently stressed that the purchasing dealer must demonstrate bona fides to avail the protective interpretations. To establish that the purchaser is a bona fide recipient and that the transaction is genuine, the following categories of documents must be preserved and produced:Ø Valid tax invoices bearing the correct GSTIN of the supplier as on the date of supply;Ø Proof of payment through banking channels, preferably account payee cheques or electronic transfers, with bank statements and invoice references;Ø Evidence of actual receipt and physical movement of goods, including e-way bills, goods receipt notes (GRNs), transporter acknowledgements, vehicle registration details, and freight payment records;Ø Contemporaneous stock records, warehouse registers, and internal audit trails showing receipt, storage, and use of the inputs in taxable outward supplies;Ø Documentary proof of due diligence, such as screenshots or extracts from the GST portal verifying the supplier’s active registration at the time of transaction;Ø Reconciliation statements between the purchaser’s books, GSTR-2A/2B, and GSTR-3B.Recent judicial trends indicate an attempt to strike a balance between these competing considerations. Courts have increasingly recognized that a rigid application of the “actual payment” condition may defeat the very objective of GST by disrupting the seamless flow of credit. At the same time, they have not diluted the responsibility of taxpayers to exercise due diligence. The emerging jurisprudence suggests that while ITC cannot be denied mechanically, the burden on the recipient to establish the genuineness of the transaction remains substantial. This nuanced approach reflects an evolving understanding of the complexities inherent in a multi-stage tax system.A critical practical limitation must be recognised here. The recipient can verify only what is visible on the GST portal: the supplier’s GSTR-1 declaration (outward supply details), the auto-populated GSTR-2A/2B (ITC statement), and There is no mechanism for the recipient to trace or confirm whether the tax attributable to his specific invoice has been paid by the supplier to the Government. The recipient has no access to the supplier’s cash ledger, payment challans, or invoice-wise reconciliation with government receipts. This creates a situation of legal impossibility for the recipient to independently ensure compliance with the literal wording of Section 16(2)(c).In such circumstances, the doctrine of impossibility (analogous to Section 56 of the Indian Contract Act, 1872) and the principle of frustration of contract come into play. A statutory condition that requires performance beyond the recipient’s control and knowledge cannot be enforced to the recipient’s detriment when he has exercised all reasonable diligence. The recipient who(i) verifies the supplier’s active GSTIN on the date of supply,(ii) ensures payment through banking channels,(iii) reconciles GSTR-2A/2B with books, and(iv) maintains complete documentation, cannot be penalised for an event (supplier’s default in depositing tax on that exact invoice) that lies wholly outside his sphere of influence. This position finds strong resonance in the In Shanti Kiran India Pvt Ltd v. Commissioner, Trade and Taxes line of judgments, where courts have consistently protected bona fide purchasers. From a practical standpoint, the implications for businesses are significant. The entitlement to ITC is no longer a mere accounting exercise but a function of continuous compliance and risk management. Businesses must adopt robust mechanisms to verify the credentials of suppliers, maintain comprehensive documentation, and ensure alignment between financial records and statutory filings. The importance of reconciling data with auto-generated statements and promptly addressing discrepancies cannot be overstated. In this context, ITC compliance assumes the character of an ongoing obligation rather than a one-time claim.In conclusion, the evolution from the Delhi VAT Shanti Kiran (2013) and Arise India (2018) to the GST-era rulings and the Supreme Court’s 2025 affirmation in Commissioner v. Shanti Kiran India (P) Ltd. reflects a maturing jurisprudence. While the law rightly insists on an unbroken tax chain to curb fake invoicing, it cannot ignore commercial realities and the doctrine of impossibility. A recipient who follows the Shanti Kiran principles, verifying registration, ensuring banking payment, reconciling portal data, and maintaining impeccable records, has fulfilled his statutory and practical obligations. In such cases, Section 16(2)(c) and Rule 37A cannot be invoked to deny ITC merely because the supplier failed to deposit tax on the specific invoice, an impossibility the recipient cannot overcome.The Delhi High Court’s observation (echoed by the Supreme Court) remains the guiding star: a bona fide purchaser acting in good faith and producing valid invoices after due verification is entitled to ITC. The department cannot shift the entire risk of supplier default onto the recipient when the law and portal mechanics make exact verification impossible. ITC compliance is therefore not merely an accounting exercise but a continuous due diligence process. A bona fide purchaser, who has taken reasonable due diligence and can prove the genuineness of the transaction, has a strong case against denial of ITC. This balanced approach upholds both revenue protection and the fundamental fairness that underpins the GST regime. Authored by Ashu Dalmia and places on record his appreciation for the research and drafting assistance provided by Ankita Jha and Anshu Upadhyay. Disclaimer: This communication is intended for general informational purposes only and does not constitute legal, tax, financial, or other professional advice. No action should be taken based on the information contained herein without seeking independent professional advice appropriate to the specific facts and circumstances. No representation or warranty (express or implied) is made as to the accuracy, completeness, or reliability of the information contained in this communication, and no liability is accepted for any loss or damage arising directly or indirectly from reliance on this communication. [1] https://gstindia.biz/act/1/section/17[2] https://gstindia.biz/case-law/230[3] https://gstindia.biz/case-law/228[4] https://gstindia.biz/case-law/221[5] https://gstindia.biz/case-law/226[6] https://gstindia.biz/case-law/222[7] https://gstindia.biz/case-law/233[8] https://gstindia.biz/case-law/227[9] https://gstindia.biz/case-law/229[10] https://gstindia.biz/case-law/223 | ||||
| 4 | Search, Seizure, and Surveillance The Expanding Reach of Section 105 BNSS in Special Statutes | 25-02-2026 | IntroductionThe Bharatiya Nagarik Suraksha Sanhita... | View Download |
| Article 25-02-2026 Search, Seizure, and Surveillance The Expanding Reach of Section 105 BNSS in Special StatutesIntroductionThe Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS), which replaced the Code of Criminal Procedure, 1973 (CrPC), effective from July 1, 2024, introduces significant procedural reforms aimed at enhancing transparency, accountability, and the use of technology in criminal investigations. It has introduced a simple but seismic change to search-and-seizure practice in India. Key among these are Sections 105, 185, and 176(3), which mandate audio-video (AV) recording during searches and seizures, and require the involvement of a forensic expert in serious offenses. These provisions align with the constitutional mandate under Article 21 of the Indian Constitution, emphasizing fair investigation and trial as intrinsic to the right to life and liberty.This article examines critical aspects of these sections, including the mandatory nature of Audio video recording during searches, the submission of records to magistrates, the notification status of Section 176(3), the necessity of forensic experts in offences punishable by seven years or more, and the applicability of these provisions to special laws like the Central Goods and Services Tax Act, 2017 (CGST), Prevention of Money Laundering Act, 2002 (PMLA), and Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS Act). Drawing on recent judgments, we explore the implications for law enforcement and judicial processes.What Section 105 States: -Section 105 makes two things clear:The search and seizure process (including the inventory/list of seized items and witnesses signing it) shall be recorded by audio-video means (the statute even prefers a mobile phone); andThe recording must be forwarded to the District/Sub-Divisional/Judicial Magistrate First Class without delay. BNSS Section 105 explicitly mandates audio-video recording of the entire search and seizure process, including the preparation of the panchnama (list of seized items) and its signing by witnesses. This applies to searches under Chapter VII of BNSS or Section 185.Section 185, which deals with warrantless searches by police officers, reinforces this in its proviso to sub-section (2): "Provided that the search conducted under this section shall be recorded through audio-video electronic means, preferably by mobile phone."The use of the word ‘shall’ in both sections clearly indicates the legislative intent to make audio-video recording mandatory during the process of searching. Non-compliance could vitiate the proceedings, potentially leading to the exclusion of evidence or acquittal, as it undermines transparency and safeguards against manipulation. This introduces technology to bolster accountability, prevent fabricated recoveries, and align with modern democratic practices, echoing the fair trial mandate in Article 21.Judicial precedentsThe Supreme Court of India has repeatedly recognised the value of videography while cautioning that electronic recordings must meet authenticity and integrity thresholds. Judicial precedents support this mandatory view.In Shafhi Mohammad v. State of Himachal Pradesh (2018), the Supreme Court highlighted the role of videography in inspiring confidence in evidence collection. The Court emphasised that electronic evidence is admissible subject to safeguards and that procedural technicalities (like certificates under Section 65B Evidence Act) must not obstruct justice in cases where a party cannot produce such certificates. The Court endorsed the idea of a National SOP and a Committee of Experts to roll out videography in investigations. While this case predates BNSS, it underscores the transformative nature of such recordings, stating: "It will be wrong to deny to the law of evidence advantages to be gained by new techniques and new devices, provided the accuracy of the recording can be proved."The recent Anil Kumar Hajelay judgment (2024) indirectly reinforces the mandate by addressing infrastructure needs post-BNSS enactment. The Delhi High Court directed the GNCTD to expedite hybrid court setups, noting: "Section 105 of Bharatiya Nagarik Suraksha Sanhita (BNSS), 2023 This highlights the urgency of audio-video integration for fair trials.Rajesh Kumar Allahabad High Court (bail order, 29 Aug 2024), the bench granted bail partly because the prosecution record did not show compliance with Section 105 BNSS: there was no video capture of the seizure, and the recording was not forwarded to the magistrate. The court treated statutory non-compliance as an important factor weighing in favour of bail in a case triable by the magistrate.In summary, audio-video recording is unequivocally mandatory under BNSS Sections 105 and 185. Failure to comply may render the search invalid, as it violates statutory safeguards.Submit to the Concerned Magistrate Under Section 105BNSS Section 105 requires the police officer to "without delay forward such recording to the District Magistrate, Sub-divisional Magistrate or Judicial Magistrate of the first class." This reinforces the mandatory nature, preventing post-facto manipulation. In practice, submission is crucial for judicial oversight. Under Section 185(5), copies of records (including panchnama and seizure memos) must be sent to the nearest Magistrate "forthwith, but not later than forty-eight hours." Non-submission could lead to procedural irregularities, as seen in cases where delays and inconsistencies in memos contributed to the acquittal. Courts have consistently held that such forwarding operationalizes fair investigation under Article 21.While implementation varies across states, the law mandates prompt submission, and non-compliance may invite judicial scrutiny or evidence exclusion. Procedure for Investigation Under BNSS Section 176BNSS Section 176(3) mandates: "On receipt of every information relating to the commission of an offence which is made punishable for seven years or more, the officer in charge of a police station shall from such date, as may be notified within a period of Five years by the state government in this regard, cause the forensics expert to visit the crime scene to collect forensic evidence and also cause videography of the process on mobile phone or any other electronic device." This applies to serious offences, promoting scientific investigationThe section provides a five-year window to notify full implementation: "from such date, as may be notified within a period of five years by the State Government." However, the law is active from July 1, 2024, meaning partial or immediate compliance is expected where facilities exist. The proviso allows states without forensic facilities to utilize those of another state until developed.”Does Section 105 apply to searches conducted under special statutes such as the CGST Act, the PMLA, and the NDPS Act?This issue assumes enormous significance because these three statutes frequently involve coercive searches, high-stakes recoveries, custodial interrogation, and stringent bail conditions. The answer lies in understanding the interplay between general procedural law and special penal statutes.When Does BNSS Apply to Special Acts?The established procedural doctrine in Indian criminal law is: Criminal procedure under the general code applies to all offences unless the special statute provides a contrary or inconsistent procedure. This principle has repeatedly been affirmed by the Supreme Court of India, for example, in “Vishwa Mitter vs O. P. Poddar And Others on 30 September, 1983” SC stated “It would follow as a necessary corollary that unless in any statute other than the CRPC which prescribes an offence and simultaneously specifies the manner or place of investigating, inquiring into, trying or otherwise dealing with such offences, the provisions of the Crpc shall apply in respect of such offences and they shall be investigated, inquired into, tried and otherwise dealt with according to the provisions of the Crpc.”Therefore, the inquiry is not whether CGST, PMLA, or NDPS are “special laws.” They undoubtedly are. The real question is: Do these Acts exclude or contradict Section 105 BNSS? If not, Section 105 applies.Applicability of Section 105 BNSS to GST SearchesSection 67 of the CGST Act confers extensive powers upon the “proper officer” to conduct:Inspection of places of businessSearch of premisesSeizure of goods, documents, books, and thingsProvisional attachment (read with Section 83)Most importantly, Section 67(10) CGST provides:“The provisions of the Code of Criminal Procedure, 1973 relating to search and seizure shall, so far as may be, apply to search and seizure under this section.”Post 1 July 2024, references to CrPC must be read as references to BNSS.Thus, by legislative incorporation, the procedural safeguards of BNSS — including Section 105 — automatically apply to GST searches, unless expressly excluded.There is no exclusion in the CGST Act prohibiting videography.Therefore, Section 105 BNSS applies to GST searches by statutory command.Section 67 of the CGST Act grants officers powers for inspection, search, and seizure based on "reasons to believe" tax irregularities, with sub-section (10) explicitly adopting general criminal procedures from the provisions of the CrPC, now by the BNSS. Section 105 BNSS requires audio-video recording of the entire process, including inventory preparation and witness signatures, preferably via mobile phone, with prompt submission to a magistrate. This binding integration ensures GST searches adhere to these transparency measures.The evidentiary consequences in GST prosecutions are likely to be significant. Prosecutions under Section 132 of the CGST Act frequently rely upon documentary recoveries, digital devices, statements recorded under Section 70, and admissions allegedly made during search operations. Where the search forms the foundational fact leading to arrest or prosecution, non-compliance with Section 105 BNSS may invite challenge on grounds of procedural illegality. The issue will not merely be one of technical irregularity but of statutory breach. Courts may examine whether the absence of videographic recording undermines transparency, affects the voluntariness of statements, or creates doubt regarding the integrity of seizure.In economic offences where liberty is curtailed and reputational damage is immediate, procedural safeguards assume constitutional importance. In GST investigations, which are often departmental rather than police-led, this requirement introduces an additional layer of neutrality. Failure to forward the recording may expose the proceedings to challenge, particularly where the prosecution relies heavily on the search event.The procedural safeguards emphasized by the Supreme Court in Radhika Agarwal v. Union of India,2025 acquire renewed significance when read in light of Section 105 of the BNSS, 2023. In Radhika Agarwal, the Court scrutinized the exercise of search, summons and arrest powers under Section 67 of the Central Goods and Services Tax Act, 2017 and underscored that coercive fiscal investigations must adhere strictly to statutory discipline and constitutional guarantees under Articles 14 and 21. The incorporation clause in Section 67(10), which makes criminal procedure applicable “so far as may be” to GST searches, now necessarily imports the mandatory videography requirement under Section 105 BNSS. Consequently, the transparency concerns addressed judicially in Radhika Agarwal find legislative reinforcement through Section 105, as audio-video recording of search and seizure operations serves as an objective safeguard against allegations of coercion, procedural impropriety, or post-facto reconstruction of events in GST enforcement proceedings.Empirical compliance within GST enforcement appears robust, as evidenced by the Directorate of Revenue Intelligence (DRI) an arm of the Central Board of Indirect Taxes and Customs (CBIC) issuing a comprehensive Standard Operating Procedure (SOP) in 2024 explicitly mandating audio-video recording during searches under the new criminal laws, For Custom and NDPS act, which delineates protocols for initiating recordings at the search commencement.In practice, implementation may presently vary across jurisdictions. However, variability does not diminish obligation. As courts begin to examine GST prosecutions arising after 1 July 2024, compliance with Section 105 is likely to become a focal point of litigation. Assesses may contend that the absence of videography vitiates the search or weakens evidentiary credibility, while the Department may invoke doctrines of substantial compliance or absence of prejudice. The judicial response will evolve case by case, but the statutory mandate is unambiguous.II. Applicability to the PMLA, 2002The Prevention of Money Laundering Act, 2002 includes:Sections 17 and 18 for searches.Section 65, applying CrPC (now BNSS) unless inconsistent.Section 71 for overriding effect.This is a standard supplementary clause. PMLA requires "reasons to believe," sealed submissions, and authorization safeguards, but neither bans videography nor offers an alternative. Thus, no inconsistency exists.III. Applicability to the NDPS Act, 1985Nature of the StatuteThe Narcotic Drugs and Psychotropic Substances Act, 1985 features:Sections 42 and 43 for warrantless and public searches.Section 50 for personal search protections.Sections 52 and 52A for seizure protocols.NDPS jurisprudence insists on stringent adherence.It adds safeguards but does not bar general procedures like videography, which complements Sections 42 and 50 by enhancing transparency. In recovery-dependent NDPS cases, missing videography could raise doubts, intensify evidence scrutiny, and influence bail. Procedural precision is paramount in this strict-liability regime.Conclusion Section 105 BNSS represents a paradigm shift in the Indian criminal process: from paper-only seizure lists and testimony-dependent accounts to authenticated, time-stamped digital records that enhance transparency, protect rights, and strengthen judicial scrutiny. Its mandatory nature underscores a legislative commitment to accountability in police investigations.The CGST Act (express adoption of criminal procedure),The PMLA (subject to non-inconsistency clause),The NDPS Act (harmonious application with the strict compliance doctrine).The emerging legal landscape suggests that videography of searches is fast becoming not merely a statutory requirement but a constitutional expectation of fairness.In high-stakes prosecutions under CGST, PMLA, and NDPS, compliance with Section 105 may well determine:Credibility of recovery,Sustainability of prosecution,Success of bail applications,And ultimately, the integrity of conviction.The criminal process in India is no longer insulated from technological accountability. Section 105 ensures that search powers, among the most intrusive powers of the State, are exercised under the gaze of digital transparency and judicial oversight.As courts continue to enforce Section 105 and its implementing rules, law enforcement must adapt operationally to meet these norms. Proper implementation will not only bolster prosecution credibility but also protect citizens from false allegations and procedural abuses.In CGST, PMLA, and NDPS prosecutions, adherence could shape recovery validity, case viability, bail outcomes, and conviction integrity. India`s criminal process now demands technological oversight for intrusive state powers.In this sense, Section 105 is more than a procedural provision; it is a foundational trust-building measure in India’s evolving justice system. This article has been authored by Ashu Dalmia, with valuable research and drafting assistance provided by Ankita Jha & Anshu Upadhyay.Disclaimer: This communication is intended for general informational purposes only and does not constitute legal, tax, financial, or other professional advice. No action should be taken based on the information contained herein without seeking independent professional advice appropriate to the specific facts and circumstances. No representation or warranty (express or implied) is made as to the accuracy, completeness, or reliability of the information contained in this communication, and no liability is accepted for any loss or damage arising directly or indirectly from reliance on this communication. | ||||
| 5 | Automatic Accrual vs. Jurisdictional Control: The Evolving Law on GST Interest | 25-02-2026 | The interaction between Sections 73/74 and Section... | View Download |
| Article 25-02-2026 Automatic Accrual vs. Jurisdictional Control: The Evolving Law on GST InterestThe interaction between Sections 73/74 and Section 75 of the Central Goods and Services Tax (CGST) Act, 2017, has increasingly become a matter of judicial scrutiny, particularly on the issue of whether interest can be levied in a final adjudication order when it was neither specified nor quantified in the preceding Show Cause Notice (SCN). Revenue authorities often maintain that interest is an automatic statutory consequence of unpaid tax. In contrast, taxpayers assert that the SCN determines the outer limits of the adjudicating authority’s power, the so-called “jurisdictional ceiling”.The Statutory Conflict: Section 75(7) vs. Section 75(9)At the heart of this dispute are two sub-sections of Section 75, which provide general provisions relating to the determination of interest.· Section 75(7): “The amount of tax, interest and penalty demanded in the order shall not be in excess of the amount specified in the notice and no demand shall be confirmed on the grounds other than the grounds specified in the notice.”The Procedural Safeguard- This provision clearly mandates that the quantum of tax, interest, and penalty confirmed in the adjudication order cannot exceed what has been specified in the SCN. It further restricts confirmation of demand to the very grounds mentioned in the notice. In essence, it establishes a mandatory jurisdictional limit, ensuring that an assesses is not confronted with liabilities that were never proposed or disclosed.· Section 75(9): “The interest on the tax short paid or not paid shall be payable whether or not specified in the order determining the tax liability.”The Revenue’s Shield - Conversely, revenue authorities frequently rely on Section 75(9), which states that interest on short-paid or unpaid tax shall be payable whether or not specified in the order determining the tax liability. The Revenue argues that because interest is a statutory mandate, its absence in the SCN does not preclude its inclusion in the final order.At first glance, this provision appears to confer wide authority to recover interest even if it was not specifically referred to during adjudication. Authorities often invoke it to justify levying interest in final orders despite silence in the SCN. However, when read contextually and harmoniously, its scope becomes narrower. Section 75(9) addresses a limited situation — namely, where interest, though statutorily payable and forming part of proceedings, is omitted in the final order. Its object is to safeguard the compensatory character of interest under Section 50 and to prevent a drafting omission from extinguishing liability. It does not eliminate the requirement of proper notice, nor does it enlarge adjudicatory jurisdiction beyond what is proposed in the SCN.The SCN is the foundation of Adjudication; it defines the Lis between the department and the assesses. If the SCN neither proposes nor quantifies interest, the assesses is deprived of a meaningful opportunity to contest the period of delay, the rate of Interest or the computation Methodology. Such deprivation strikes at the core of natural Justice.Section 75(7) expressly includes “tax, interest, and penalty” within its scope. If Section 75(9) were interpreted to override Section 75(7), the limitation imposed by the latter, at least in respect of interest, would become meaningless. The legislature has consciously used inclusive terminology in Section 75(7), indicating that all three components are equally subject to the notice limitation. An interpretation permitting interest to be imposed without proposal in the SCN would effectively nullify the statutory restriction embedded in Section 75(7). Established principles of statutory construction require that provisions within the same section be harmonized so that none becomes redundant. A coherent interpretation, therefore, treats Section 75(7) as regulating the scope of adjudication. In contrast, Section 75(9) ensures that omission in the wording of an order does not extinguish a properly invoked interest liability.Quantification is Mandatory in the SCNA critical distinction was made by the Allahabad High Court in M/S Ziva Auto Sales vs. State of U.P. (2026) (Division Bench).The Court stated that “The contention of the GST authorities that Section 75(9) of Act, 2017 would apply and the interest on the short paid tax would be payable even though not specified in the order has no application in the present case, as it deals with the situation wherein the interest liability is not quantified in the order passed and not in the show cause notice.”The court clarified that Section 75(9) applies only to omissions in the order, not the SCN. If authorities knew of the interest liability during SCN issuance, failing to quantify it violates Section 75(7), rendering subsequent imposition unsustainable.Judicial Interpretations: Upholding the Sanctity of the SCNRecent judgments from various High Courts have clarified that the general statutory nature of interest cannot override the procedural requirement of Section 75(7).1. The "Jurisdictional Ceiling" Rule In M/S Bengal Engineering vs. State of West Bengal (2025), the Calcutta High Court (Division Bench)held that Section 75(7) operates as a strict jurisdictional ceiling. The court stated that “The principle is clear: the Adjudicating Authority cannot travel beyond the four corners of the Show Cause Notice. The Hon`ble Supreme Court has consistently held that statutory provisions prescribing limits to an authority`s power are mandatory and non-compliance with them renders the action ultra vires. The final demand, being in excess of the SCN, is legally dismantled. This vitiates the entire assessment order, as the increased demand lacks the necessary statutory foundation.”2. Arbitrariness of Unnoticed Demands In M/S Chaurasiya Zarda Bhandar vs. State of U.P. (2025) (Single Bench), the Allahabad HC quashed an order where the SCN proposed a tax liability but made no mention of interest or penalty. The court found that imposing these additional sums in the final order was arbitrary and against the specific provisions of Section 75(7). Similar conclusions were reached in M/S Shri Ram Trading Company and M/S Sai Computers, where demands exceeding the SCN amounts were labelled "ex facie contrary" to the Act.The Principle of Natural Justice and the Foundation of the CaseIt is a well-established legal principle that the SCN constitutes the foundation of the case. In CCE, Bhubaneswar-1 vs. M/s. Champdany Industries Ltd. (2009) (Division Bench), the Supreme Court held:“Apart from that, the point on Rule 3, which has been argued by the learned counsel for the Revenue, was not part of its case in the show-cause notice. It is well settled that unless the foundation of the case is made out in the show-cause notice, Revenue cannot in Court argue a case not made out in its show-cause notice.”This principle continues to hold field under GST. Unless the basis of a demand, including interest, is laid in the SCN, the authority lacks jurisdiction to confirm it in the adjudication order.While interest under GST may be mandated by law, it still must adhere to procedural fairness and transparency. Section 75(7) acts as a safeguard, requiring the department to clearly explain and specify its demands.Under GST as well, the SCN delineates the scope of dispute, and authorities cannot construct a fresh case in the order or before a court. Even statutory interest must be supported by a foundational notice to sustain jurisdiction.The current judicial trend suggests that:· Section 75(7) prevails over Section 75(9) in the context of the SCN.· If interest is neither specified nor quantified in the SCN, its later imposition in an order under Section 73(9) or 74(9) cannot be sustained.· The statutory character of interest does not empower authorities to bypass the mandatory requirement of notifying the assessee of the exact quantum being demanded.· Courts have, in substance, rejected the contention that Section 75(9) overrides the notice requirement. Instead, they have emphasized that Section 75(7) imposes a jurisdictional limitation and prevents adjudicating authorities from exceeding the four corners of the SCN. Section 75(9) does not create an independent adjudicatory power; it merely preserves the statutory liability of interest once properly invoked. Scope of Sec. 75(9)It is important to clarify that Section 75(9) is neither ultra vires nor otiose. The provision has a legitimate statutory role within the scheme of the CGST Act. Interest under Section 50 remains compensatory in nature and, in appropriate circumstances, particularly in cases of self-assessed tax reflected in returns, may accrue automatically. Section 75(9) ensures that such statutory liability does not evaporate merely because of an omission in the wording of an order. However, judicial pronouncements have consistently underscored that once adjudication under Sections 73 or 74 is invoked, the discipline of Section 75(7) governs the field, requiring that tax, interest, and penalty must be proposed within the four corners of the Show Cause Notice. The courts have therefore not invalidated Section 75(9); rather, they have confined its operation to situations where liability otherwise stands lawfully crystallised.Section 75(9) is neither ultra vires nor redundant; it unquestionably has a statutory role within the GST framework. Yet the real question remains in what precise factual situations will courts permit its independent invocation, and where will they insist that the discipline of the Show Cause Notice prevails? Authored by Ashu Dalmia and places on record his appreciation for the research and drafting assistance provided by Ankita Jha and Anshu Upadhyay. Disclaimer: This communication is intended for general informational purposes only and does not constitute legal, tax, financial, or other professional advice. No action should be taken based on the information contained herein without seeking independent professional advice appropriate to the specific facts and circumstances. No representation or warranty (express or implied) is made as to the accuracy, completeness, or reliability of the information contained in this communication, and no liability is accepted for any loss or damage arising directly or indirectly from reliance on this communication. | ||||
