BACKGROUNDA group of petitioners (purchasing dealers) challenged Section 16(2)(c) of the CGST Act, 2017 as arbitrary, ultra vires, and violative of Articles 14, 19(1)(g), 265, and 300A of the Constitution of India. In the alternative, they prayed that the provision be read down so as to apply only to fraudulent or collusive transactions, thereby protecting bona fide purchasers. The common thread across all petitions was that ITC was being denied to them solely because their respective suppliers had failed to deposit the tax collected with the Government — a default entirely outside the purchaser's control or knowledge.COURT OBSERVATIONS (VERBATIM)On the SOR and the inseparable link between ITC and actual tax payment (Para 43):"The SOR emphatically mentions about 'input tax credit making it available in respect of taxes paid'. Thus, availment of ITC is intrinsically connected with the factum of 'taxes paid'."On the GST regime being distinct from the VAT regime (Para 60):"Therefore, considering the overall scheme of the Act, any 'reading down' (narrow interpretation) of Section 16(2)(c) would trigger cascading fiscal consequences. The legal position under the former VAT regime was materially different, as input tax credit was confined within the originating state. In contrast, the GST regime is destination-based; therefore, input tax credit must operate seamlessly across state lines for inter-State supplies, requiring strict compliance to maintain fiscal balance."On the purchasing dealer not being remediless (Para 62):"The scheme of ITC under the GST framework does not envisage a situation where the purchasing dealer is left remediless. The Revenue is empowered to initiate recovery proceedings against the supplier under Sections 73 and 74 of the CGST Act for failure to discharge tax liability in respect of the original transaction. Further, in terms of Rule 37A of the CGST Rules, 2017 once the supplier discharges such tax liability, the purchasing dealer becomes entitled to re-avail the credit in the immediately succeeding month. Thus, the statutory mechanism does not permanently deprive the purchasing dealer of ITC; rather, the credit is restored upon payment of tax into the Government treasury. Mere delay or hardship in availing ITC, therefore, cannot constitute a valid ground for reading down Section 16(2)(c) of the CGST Act."On double taxation argument (Para 63):"The contention regarding double taxation is misconceived. It is well settled that ITC is not a constitutional or vested right, but a statutory concession, subject to the conditions and restrictions prescribed under the Act. Where the statute provides for reversal and re-availment of credit, the same cannot be characterised as double taxation so as to invalidate the provision."On Section 16(2)(c) being clear and unambiguous (Para 67):"...in the present case, Section 16(2)(c) of the CGST Act is clear, self-explanatory, and unambiguous. Its plain reading does not give rise to any constitutional or legal infirmity. The underlying intent of the provision is that the Government cannot be deprived of revenue on account of illegal or defaulting conduct on the part of the supplier."On distinguishing DVAT provisions from CGST (Para 68):"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."On burden of proof under Section 155 (Para 70):"Thus, the purchasing dealer must discharge the initial burden of establishing eligibility to claim input tax credit. Such eligibility is intrinsically linked to the fulfilment of statutory conditions, including the deposit of tax by the supplier with the Government. The expression 'eligible' in Section 155 of the CGST Act cannot be construed as dependent upon a unilateral act of claim by the purchaser; rather, it has a direct nexus with the actual payment of tax by the supplier."On conjoint reading of Section 16(2) clauses (Para 80):"Thus, the Revenue cannot be directed to stop at clause (b), since eligibility for input tax credit is established only after the receipt of goods or services or both, and upon the tax charged in respect of such supply being duly paid to the Government. A registered person (dealer) cannot be held entitled to claim input tax credit unless all the conditions up to clause (c) are satisfied."On the doctrine of reading down not being applicable (Para 82):"We do not find that the provision of Section 16(2)(c) if read with the scheme of GST regime as discussed, conflicts with constitutional or legal principles. The provision of Section 16(2)(c) cannot be read in isolation, but has to read with attendant provisions as discussed hereinabove, which enables the government to secure its interest in revenue, by keeping a check on fraudulent transactions while maintaining the interest of genuine purchasers."On the Axel Kittel principle and a balanced approach (Para 87):"A balanced approach is needed, which finds place in the decision expressed by the European Court of Justice ('ECJ') in the case of Axel Kittel & Recolta Recycling SPRL (supra). Under this principle, the availment of ITC can be denied only if it is shown that the recipient knew or ought to have known that their purchase was connected with a fraudulent evasion of tax."On Government's obligation to act (Para 88):"Albeit, we acknowledge that the provisions of Section 16(2)(c) of the Act are to be viewed from a regulatory standpoint and are anchored in the legitimate objective of maintaining the integrity of the tax chain, preventing systemic revenue loss to the Government; however, it is high time that, in order to resolve the conundrum, the Government undertakes a comprehensive re-evaluation of the dicey situation which purchasers are facing. There is a pressing need for legislative amendments or clarifications to be issued within the GST framework to alleviate the disproportionate financial and administrative burdens currently placed upon purchasers who have an honest claim of ITC. Beyond mere policy changes, the Government should implement a robust, technology-driven tracking mechanism enabling verification of payments made by suppliers against specific invoices in real time, thereby insulating bona fide recipients from the defaults of their vendors."FINAL VERDICTSection 16(2)(c) of the CGST Act is neither read down nor declared ultra vires. The Court held the provision to be constitutionally valid, clear, and unambiguous when read conjointly with Sections 41(2), 53, and 155 of the CGST Act and Rule 37A of the CGST Rules, 2017. The writ petitions are listed for decision on individual merits. 👎 

BackgroundSumukha Ventures, a partnership firm based in Bengaluru, was subjected to proceedings initiated by both the audit authority and the enforcement authority under GST. The Deputy Commissioner of Commercial Taxes (Audit)-3.7 issued a Show Cause Notice dated 30.09.2025 (Form GST DRC-01, Reference No. ZD290925221988K). Thereafter, an Order-in-Original (Annexure-B) was passed by the same officer who had conducted the audit proceedings. The petitioner filed a Writ Petition under Articles 226 and 227 of the Constitution of India before the High Court of Karnataka challenging both the Show Cause Notice and the Order-in-Original. Court Observations (Verbatim)"It is submitted that such action is impermissible and being in violation of principles of natural justice, insofar as the authority while conducting audit has expressed its opinion and findings are recorded at one stage. It is submitted that once again if the same officer were to conduct the assessment proceedings, the authority would be guided by the findings made in the audit report.""Taking note that this identical question is often raised by assessees, it would be appropriate that this aspect has the benefit of adjudication by the appropriate authority. By keeping open all contentions raised, the matter is remitted to respondent No.2.""The petitioner to take their stand before respondent No.2, regarding the aspect of jurisdiction as raised in the present petition. Upon such objection being raised, it is open for the authority to obtain necessary orders on the administrative side from the authority which assigns i.e., the Joint Commissioner of Commercial Taxes (Administration) - respondent No.1.""Taking note of the nature of objection raised, the authority to record a finding of their aspect of jurisdiction as per the procedure referred to above and only thereafter, consider the proceedings on merits.""Needless to state, no steps to be taken on merits till finding is recorded in terms of the observations made." Final VerdictThe Order-in-Original (Annexure-B) was set aside and the matter was remitted to Respondent No. 2 (Deputy Commissioner) to first decide the question of jurisdiction — specifically whether the same officer who conducted the audit can also pass the adjudication order — before proceeding on merits. The petition was disposed of accordingly. Citations / Circulars ReferredReferenceDetailsCircular No. 31/05/2018-GSTDated 09.02.2018 (Annexure-AB) — referred by Petitioner regarding impermissibility of same officer conducting audit and adjudicationCircular No. 169/01/2022-GSTDated 12.03.2022 (Annexure-AC) — referred by Petitioner on same issue 

BackgroundA penalty of Rs. 4,03,26,803/- was imposed on the petitioner vide order dated 15.12.2025 under Sections 122(1)(A), 122(1)(x) and 122(1)(xvi) of the Central Goods and Services Tax Act, 2017, read with the State Goods and Services Tax Act, 2017 and Section 20 of the IGST Act, 2017. Crucially, prior to passing of the said order, no notice whatsoever was issued to the petitioner.Court Observations (Verbatim)"The impugned order is not only violative of the principles of natural justice but is also in conflict with the provisions of Section 75(4) of the Central Goods and Services Tax Act, 2017. Therefore, we have no hesitation in quashing the impugned order qua the petitioner."Final VerdictThe impugned penalty order was quashed. However, liberty was granted to the respondents to proceed afresh against the petitioner in accordance with law.  

BACKGROUNDThe petitioner, Manoja Kumar Nayak , engaged in transportation and works contract, availed Input Tax Credit (ITC) of Rs.4,39,970/- (IGST) during August–December 2017 on the strength of invoices issued by  Auxesia Traders, Kolkata . The said supplier was subsequently found to be a non-existent/fictitious entity, based on an Alert Notice No.11/2023-24 dated 19.03.2024 issued by DGGI, Kolkata Zonal Unit, and on the statement of its proprietor Shri Tamoji Bose recorded in 2019. Upon receipt of a letter dated 12.07.2024 from the Superintendent (Anti-Evasion), CGST & Central Excise, Rourkela Commissionerate, requesting reversal of the ITC, the petitioner proactively reversed the entire ITC of Rs.4,39,970/- through GSTR-3B returns filed for April 2023 (Rs.2,64,342/-) and June 2024 (Rs.1,75,128/-), well before issuance of the Show Cause Notice. The petitioner intimated this reversal to the Superintendent vide letter dated 17.07.2024, also pointing out that the Electronic Credit Ledger had a surplus balance exceeding the reversed amount at all material times, and therefore no interest under Section 50 was payable. Despite this, a Summary Show Cause Notice and Demand Show Cause Notice both dated 26.07.2024 were issued under Section 74 of the CGST Act. The petitioner filed a reply dated 30.01.2025 reiterating the voluntary reversal and surplus ECL balance. Ignoring the reply, the Adjudicating Authority passed Order-in-Original dated 03.02.2025 confirming demand of Rs.4,39,970/- (IGST), interest under Section 50, and penalty of Rs.4,39,970/- under Section 74 — solely on the basis of the DGGI Alert Notice, without any independent inquiry. Both petitioners (the second being M/s. Babamani Roadways & Borewells, similarly situated) filed writ petitions before the Orissa High Court challenging these orders. COURT OBSERVATIONS (Verbatim / Near-Verbatim)On mechanical invocation of Section 74 without independent inquiry:"The Adjudicating Authority without independent application of mind merely based on Alert Notice dated 19.03.2024 received from the DGGI, Kolkata Zonal Unit traversed his authority under Section 74 of the GST Act.""Thus, it can be seen from the approach made by the Adjudicating Authority that he blindly followed the Alert Notice of the DGGI, without undertaking any independent inquiry to ascertain credibility of such allegation qua the petitioner... Hence, discrediting such inchoate material being utilised for the purpose of raising demand of tax, interest and penalty under Section 74 this Court thus finds the determination of liability null and invalid in absence of any independent inquiry being carried out to verify the allegation contained in the Alert Notice of the DGGI.""Allegation against supplier vide Alert Notice No.11/2023-24, dated 19.03.2024 would not ipso facto empower the Adjudicating Authority to initiate action against the recipient (petitioner) under Section 74. The language employed in Section 74 suggests that strong and tangible material must be available on record to suggest that the petitioner had the conscious and active involvement in such dubious transactions."On supplier's default not ipso facto establishing recipient's fraud:"It may be highlighted that input tax credit could be availed erroneously or on a mistaken interpretation of law. Therefore, it would not be apposite to form an opinion that in each and every case where the supplier admits or defaults, it would lead to infer that the recipient fraudulently in order to evade tax has availed the input tax credit against fake/bogus invoices.""No inference or presumption or assumption can be deduced that mere availability of balance in the Electronic Credit Ledger would lead to suggest there was utilization."On the period of limitation and abuse of Section 74:"It is emerged from the chronology of events obtained on record that after the period of limitation stipulated in Section 73 is lapsed, the Adjudicating Authority has sought to initiate proceeding under Section 74... pertaining to transactions during August, 2017 to December, 2017, the proceeding under Section 74 is drawn up by issue of Summary of Show Cause Notice and Demand Show Cause Notice, both dated 26.07.2024 conspicuously after 8 years of the alleged transactions."On interest under Section 50:"The Clarification dated 17.07.2023 read juxtaposed with provisions of Rule 88B there is no ambiguity that when the Electronic Credit Ledger has sufficient balance left for adjustment of reversal of input tax credit no interest is chargeable or payable under Section 50."On penalty and double taxation:"Since there is no tax implication in the instant case, as the matter related to wrong availment of input tax credit on account of fake/bogus invoices issued by the supplier and the petitioner has reversed the alleged amount of input tax credit prior to initiation of proceeding under Section 74, the imposition of penalty cannot be a mechanical exercise of power and, thus such order is unsustainable.""Once it is conceded by the Revenue that the amount of input tax credit for a sum of Rs.4,39,970/- has been reversed, raising demand to the same without giving due credit to such reversal is unethical and without authority of law. In such an event, since net tax effect would be 'zero', thereby no penalty would be imposable."On bona fides of the petitioner:"Nonetheless, the petitioner has shown bona fide by reversing the amount of input tax credit the moment a letter from the Superintendent (Anti-Evasion) was issued bringing such conduct of the supplier to his notice." FINAL VERDICTBoth writ petitions allowed. The Order-in-Original dated 03.02.2025 passed under Section 74 — confirming demand of Rs.4,39,970/-, interest under Section 50, and penalty of Rs.4,39,970/- — is quashed. No order as to costs.   

Case Facts:The petitioner challenged the Order-in-Original dated 04.12.2025 cancelling its GST registration ab-initio. The allegation was that the petitioner availed fraudulent ITC from suppliers whose registrations were cancelled. The petitioner contended that relevant documents were furnished and transactions were bona fide, and cancellation was based only on suppliers’ status.Court Decision:The impugned order lacked cogent findings on whether ITC was validly availed in the normal course of business.Mere cancellation of suppliers’ registration cannot by itself justify cancellation of petitioner’s registration.The authority failed to examine documents and record findings on the alleged illegality of ITC.The order was arbitrary due to non-application of mind.The impugned order cancelling GST registration was set aside.Matter remanded for fresh consideration after granting hearing to the petitioner.Authorities permitted to continue investigation and take action in accordance with law.All contentions kept open.