Case Summary & Key Observations
The petitioner, M/s McLeod Russel India Limited, a public limited company engaged in the production and supply of tea, challenged the constitutional validity of Section 16(2)(aa) of the CGST Act, 2017 and the AGST Act, 2017. The challenge arose on the ground that the said provision makes the availment of Input Tax Credit (ITC) by a recipient conditional upon the supplier furnishing invoice details in Form GSTR-1, which are thereafter reflected in the recipient’s GSTR-2A / GSTR-2B.
The petitioner contended that compliance with Section 16(2)(aa) is beyond the control of the purchaser, as the GST law does not provide any mechanism enabling a recipient to compel the supplier to correctly file GSTR-1. Denial of ITC to a bona fide purchaser, despite payment of tax to the supplier, was argued to be arbitrary, irrational, and contrary to the fundamental objective of GST, namely avoidance of cascading effect of taxes.
The Court observed that there may be numerous genuine situations where the supplier fails to upload or correctly report invoices, even though tax has been duly paid through GSTR-3B. Penalising the purchaser in such cases would effectively shift the incidence of tax from the supplier to the buyer, resulting in double taxation, which is inconsistent with the scheme of GST.
While recognising the legislative intent behind Section 16(2)(aa) to curb fraudulent ITC claims and promote supplier compliance, the Court held that the provision, if applied mechanically, places an onerous and inequitable burden on the purchasing dealer. The Court also took note of earlier decisions protecting bona fide purchasers, including Suncraft Energy Pvt. Ltd., Diya Agencies, and Shanti Kiran India (P) Ltd., affirmed by the Supreme Court.
Accordingly, the Court declined to declare Section 16(2)(aa) unconstitutional but read down the provision, holding that ITC cannot be denied to a bona fide purchaser solely due to supplier’s default without granting an opportunity to establish genuineness of the transaction through invoices and supporting documents. This interpretation shall operate until CBIC provides a practical mechanism addressing this systemic issue.
Ratio Decidendi
Section 16(2)(aa) of the CGST/AGST Act cannot be applied in a manner that results in automatic denial of Input Tax Credit to a bona fide purchaser due to the supplier’s failure to upload invoice details in GSTR-1; before denying ITC, the purchaser must be afforded an opportunity to prove the genuineness of the transaction through documentary evidence.
Practical Takeaway
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ITC cannot be mechanically denied merely due to non-reflection of invoices in GSTR-2A / GSTR-2B when the purchaser is bona fide.
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Tax authorities must provide an opportunity of verification to the recipient before denying ITC on account of supplier default.
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The judgment is particularly relevant for disputes involving GSTR-1 vs GSTR-2B mismatches, where no allegation of fake or bogus invoices exists.
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The ruling has persuasive value and may be relied upon in replies to SCNs, appeals, and writ petitions, subject to facts of each case.
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The protection does not extend to fraudulent transactions and remains operative until CBIC introduces a practical compliance mechanism.
Full Judgment
WP(C) No. 5725 of 2022 – M/s McLeod Russel India Limited vs Union of India & Ors., decided on 09.12.2025 by the Gauhati High Court.