The Goods and Services Tax Appellate Tribunal, Bengaluru Bench, has upheld an input tax credit demand of ₹1,35,231 against a purchasing dealer who failed to establish that its suppliers had actually paid the tax to the Government. 

The bench of Prabhakaran P.M. (Judicial Member) and Ravi Jesuraj S. [Technical Member (State)] has observed that invoices and bank payments to a supplier do not, by themselves, satisfy the condition prescribed under Section 16(2)(c) of the Central Goods and Services Tax Act, 2017.

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The proceedings originated from scrutiny of the assessee’s returns for financial year 2018–19. The department found that the ITC claimed in GSTR-3B exceeded the credit reflected in GSTR-2A.

The discrepancy comprised IGST of ₹1,32,655 and CGST and SGST of ₹1,288 each, taking the total disputed credit to ₹1,35,231.

After issuing a scrutiny notice and considering the taxpayer’s response, the department issued a show cause notice under Section 73. Its case was that the taxpayer had claimed credit on supplies for which the suppliers had not paid tax to the Government.

The notice did not allege fictitious invoices, non-receipt of goods, fraud, wilful misstatement or suppression.

The taxpayer attributed the mismatch to two suppliers—M/s Naveen’s in Chennai and M/s Classic Power Company in Bengaluru—who had allegedly failed to file GSTR-1.

The principal transaction concerned the purchase of a portable fire pump from the Chennai supplier for ₹14 lakh, including GST of ₹1.50 lakh. The taxpayer maintained that it had paid through banking channels and subsequently exported the goods.

The taxpayer argued that a bona fide purchaser should not lose ITC because of a supplier’s default. It relied on the purchase order, supplier invoice, bank payment records and export documents to establish the genuineness of the transaction.

It also contended that the demand arose from a mechanical comparison of GSTR-3B and GSTR-2A, contrary to the procedure prescribed in Circular No. 183/15/2022-GST.

The department opposed the appeal, submitting that the conditions under Section 16(2) are cumulative and that Section 155 places the burden of proving ITC eligibility on the claimant. It stressed that the taxpayer had not produced a supplier certificate confirming payment of tax.

The Tribunal held that Section 16(2)(c) requires the tax charged on the supply to have actually been paid to the Government. Payment of the invoice amount, including tax, to the supplier does not independently establish compliance with that requirement.

In considering the taxpayer’s reliance on the Karnataka High Court’s decision in Instakart Services, the Tribunal referred to the subsequent Supreme Court order in Bhandari Scrap Traders v. Union of India, dated July 24, 2026.

According to the Tribunal, the Supreme Court’s reasoned dismissal of the challenges to the Gujarat High Court’s decision in Maruti Enterprise contained binding legal declarations supporting the application of Section 16(2)(c) as enacted. On that understanding, the Bench declined to read down the provision in favour of the purchasing dealer.

The Tribunal concluded that the taxpayer had to prove supplier tax payment once the Revenue put it on notice with the relevant supplier details.

The Bench accepted that, for 2018–19, a shortfall in GSTR-2A did not conclusively establish that the supplier had failed to pay tax. It noted that neither Section 16(2)(aa) nor Rule 36(4) was in force during the disputed financial year.

The Tribunal explained that Circular No. 183/15/2022-GST provided a mechanism for examining such discrepancies for 2017–18 and 2018–19.

Under that mechanism, where the difference relating to an individual supplier exceeds ₹5 lakh, a certificate from a Chartered Accountant or Cost Accountant is required. Where the difference does not exceed ₹5 lakh, a certificate from the supplier is sufficient to establish the relevant supply and tax payment.

In this case, the difference relating to each supplier was below ₹5 lakh. However, no supplier certificate was produced.

The Tribunal recorded that the taxpayer also failed to furnish either supplier’s GSTR-3B, an accountant’s certificate or documentary correspondence seeking confirmation of tax payment. Although counsel stated that repeated attempts to reach the supplier had failed, the necessary supporting evidence remained absent.

The Tribunal acknowledged shortcomings in the original adjudication. The adjudicating authority had neither referred to Circular No. 183/15/2022-GST nor called for the supplier certificate.

However, it held that the lapse did not warrant interference on the facts of this appeal. The taxpayer had not attended any of the three personal hearings before the adjudicating authority. The first appellate authority subsequently applied the circular and expressly identified the missing certificate.

Even before the Tribunal, the taxpayer could not produce evidence of supplier tax payment and did not seek additional time when specifically questioned.

The Bench therefore found that the taxpayer had received repeated opportunities to establish eligibility and had not demonstrated actual prejudice from the initial procedural omission.

The Tribunal also examined the taxpayer’s assertion that the goods had moved from Chennai to Dabaspet and were subsequently exported through Ahmedabad.

It found that no e-way bill, lorry receipt, freight payment record, goods receipt note or stock register had been produced to establish those movements.

The documents also contained unexplained differences. The supplier invoice described a fire pump under an HSN code associated with knitted clothing accessories and charged GST at 12%. The export documents used a control-panel classification, while the shipping bill described a control panel and recorded Gujarat as the State of origin.

The Tribunal expressly refrained from finding fraud or collusion. It also did not conclude that the exported goods were necessarily different goods. Its finding was that the documents, without an explanation or supporting movement records, failed to establish the link between the purchase and the export.

The Bench clarified that absence of an e-way bill does not automatically defeat ITC in every case. Where it is unavailable, movement may be proved through other reliable contemporaneous evidence. No such evidence had been produced here.

It further emphasised that proof of receipt would address Section 16(2)(b), but would still not establish supplier tax payment under Section 16(2)(c).

Although the Tribunal upheld the liability to interest, it accepted the taxpayer’s objection to the absence of a calculation.

The original order had directed recovery at applicable rates without providing a working or recording a finding on utilisation of the disputed credit.

The Bench directed the proper officer to calculate interest under Rule 88B(3). Under the approach explained in the order, interest applies from utilisation until reversal or payment, with utilisation determined by the electronic credit ledger balance falling below the wrongly availed amount.

The calculation must be communicated to the taxpayer before recovery.

The Tribunal separately upheld the ₹33,266 penalty, holding that the statutory penalty under Section 73(9) does not depend on a finding of fraud or intent to evade tax.

The Tribunal observed that good administration requires officers to examine suppliers’ tax data before confirming a demand against a purchaser and to pursue defaulting suppliers with equal diligence.

It directed that the order be forwarded to the Principal Commissioner of Central Tax, Bengaluru North-West Commissionerate, including for transmission of relevant information to the authorities having jurisdiction over the suppliers.

The Bench preserved the taxpayer’s right to re-avail credit to the extent the suppliers subsequently pay the tax, subject to the applicable conditions and time limits under the proviso to Section 41(2).

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