The Delhi High Court has deferred hearing a batch of petitions challenging the constitutional validity of Section 16(2)(c) of the Central Goods and Services Tax (CGST) Act, 2017, concerning denial of Input Tax Credit (ITC) to purchasing dealers where the supplier has failed to discharge the corresponding tax liability.
The Bench of Justice Prathiba M. Singh and Justice Shail Jain took note of the Supreme Court’s recent affirmation of the Gujarat High Court’s decision upholding Section 16(2)(c).
The petitioners argued that their challenge relates specifically to the statutory framework that existed before October 1, 2022, when Section 41 of the CGST Act underwent significant amendments. The Court consequently directed that the matters be listed after August 25, 2026. The batch has been listed for September 1, 2026, at 2:30 PM.
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The central controversy concerns Section 16(2)(c) of the CGST Act, which links entitlement to ITC with payment of the tax charged in respect of the relevant supply to the Government.
The petitions raise an important question concerning the extent to which a purchasing dealer can be made responsible for a supplier’s failure to discharge tax. The dispute is particularly significant where the purchaser claims to have undertaken a genuine transaction and complied with the conditions applicable to availing ITC, but the supplier subsequently defaults in payment of the tax.
The Delhi High Court’s batch includes petitions filed by several taxpayers and associations, including matters concerning Bharti Telemedia Limited and other connected petitioners.
During the hearing, counsel appearing for the respondents placed before the Delhi High Court the judgment of the Gujarat High Court in Maruti Enterprises v. Union of India, reported as 2026 SCC OnLine Guj 4013.
The Gujarat High Court had upheld the constitutional validity of Section 16(2)(c) of the CGST Act. The respondents also informed the Delhi High Court that the Gujarat High Court’s decision had subsequently been affirmed by the Supreme Court on July 24, 2026, in Bhandari Scrap Traders v. Union of India, SLP(C) No. 23931/2026.
The Supreme Court, while dismissing the special leave petitions, agreed with the Gujarat High Court’s analysis and rejected the challenge to Section 16(2)(c). It specifically noted the differences between the Delhi Value Added Tax Act, 2004 and the CGST Act and held that the two statutory schemes could not be treated as equivalent for determining ITC entitlement where the supplier fails to pay the requisite tax.
An important aspect of the Supreme Court’s reasoning was its distinction between the earlier Delhi VAT framework and the GST regime.
The Court noted that the Gujarat High Court had undertaken a detailed analysis of the differences between the Delhi VAT Act and the CGST Act, along with the statutory scheme governing availment of ITC under GST. According to the Supreme Court, these differences prevented a purchasing dealer under the CGST Act from being placed on the same footing as a bona fide purchasing dealer under the Delhi VAT legislation when the supplier had failed to pay the tax.
The Supreme Court further took note of Section 41 of the CGST Act and Sections 73 and 74. It observed that under the statutory framework, a purchasing dealer could re-avail the reversed ITC after the supplier had discharged the tax liability. On this reasoning, the Supreme Court found no basis to declare Section 16(2)(c) unconstitutional or to read down the provision.
Despite the Supreme Court’s affirmation of the Gujarat High Court judgment, the petitioners before the Delhi High Court argued that the controversy in their petitions was materially different.
Their principal submission was that Maruti Enterprises had considered the statutory scheme as it stood after October 1, 2022, following amendments introduced by the Finance Act, 2022, including amendments to Section 41 of the CGST Act.
According to the petitioners, their challenge relates to the earlier statutory regime, i.e. the position prevailing before October 1, 2022. They specifically relied upon the version of Section 41 that existed at that time, under which ITC was credited on a provisional basis. Their contention was that the subsequent amendments to the statutory scheme could not automatically resolve the constitutional challenge concerning the earlier regime.
This distinction is therefore at the heart of the proceedings now pending before the Delhi High Court.
The respondents, while opposing the petitioners’ attempt to distinguish the Gujarat judgment, relied upon the Kerala High Court’s decision in M. Trade Links v. Union of India, reported as 2024 SCC OnLine Ker 2744.
The respondents pointed out that the Kerala High Court had adopted a view similar to that of the Gujarat High Court even in relation to the period preceding the 2022 amendments.
The reliance on the Kerala High Court ruling adds another dimension to the dispute, as the petitioners’ argument that the pre-October 2022 statutory framework requires separate consideration is met with judicial precedent taking a similar approach even for the earlier period.
At the hearing, the petitioners also informed the Delhi High Court that another challenge pending before the Supreme Court could have a bearing on the issues raised in the present petitions.
Specific reference was made to the Tripura High Court decision in Sahil Enterprise v. Union of India, reported as (2026) 154 GSTR 108 (Tri.). The petitioners informed the Court that the matter was coming up before the Supreme Court on August 25, 2026, and sought listing of the Delhi High Court matters thereafter.
The Delhi High Court did not decide the constitutional challenge at this stage. Instead, it directed that the connected matters be listed on September 1, 2026, at 2:30 PM.
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