Background

Purchasing dealers challenged Section 16(2)(c) before the Gujarat High Court and sought a reading down on the lines of the Delhi VAT decisions, so that bona fide purchasers are not penalised for the supplier’s default. The Gujarat High Court (01.05.2026) upheld the provision and refused to read it down. Before the Supreme Court, the petitioners relied on the Tripura High Court decision in Sahil Enterprises, which had read the provision down and against which a special leave petition has been entertained.

Final Verdict

The Supreme Court dismissed the special leave petitions and affirmed the Gujarat High Court. It noted that the Tripura High Court had not undertaken the comparative exercise done by the Gujarat High Court. The detailed analysis of the two statutes showed that there is no possibility of drawing parity between the provisions of the two enactments, so as to treat a purchasing dealer under the CGST Act on par with a purported bonafide purchasing dealer under the Delhi VAT Act for ITC when the supplier fails to pay tax. The Court also relied on Section 41 and Sections 73 and 74, under which the purchaser can re-avail reversed ITC once the supplier is made to discharge the tax. It held that the High Court was fully justified in holding that no grounds were made out to declare Section 16(2)(c) unconstitutional or to read it down.