{"id":11346,"date":"2026-10-03T19:03:41","date_gmt":"2026-10-03T19:03:41","guid":{"rendered":"https:\/\/www.caindelhiindia.com\/blog\/?p=11346"},"modified":"2026-10-03T19:22:43","modified_gmt":"2026-10-03T19:22:43","slug":"sc-itc-credit-depends-on-supplier-tax-payment","status":"publish","type":"post","link":"https:\/\/www.caindelhiindia.com\/blog\/sc-itc-credit-depends-on-supplier-tax-payment\/","title":{"rendered":"SC: ITC Credit Depends on Supplier Tax Payment"},"content":{"rendered":"<h2><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-11349\" src=\"https:\/\/www.caindelhiindia.com\/blog\/wp-content\/uploads\/2026\/10\/Screenshot-2026-10-04-002135.png\" alt=\"Credit Now Depends on Your Supplier's Tax Payment\" width=\"866\" height=\"459\" srcset=\"https:\/\/www.caindelhiindia.com\/blog\/wp-content\/uploads\/2026\/10\/Screenshot-2026-10-04-002135.png 730w, https:\/\/www.caindelhiindia.com\/blog\/wp-content\/uploads\/2026\/10\/Screenshot-2026-10-04-002135-300x159.png 300w\" sizes=\"(max-width: 866px) 100vw, 866px\" \/><\/h2>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_58 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6ac2041430b5d\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6ac2041430b5d\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.caindelhiindia.com\/blog\/sc-itc-credit-depends-on-supplier-tax-payment\/#Supreme_Court_Settles_the_ITC_Debate_Your_Credit_Now_Depends_on_Your_Suppliers_Tax_Payment\" title=\"Supreme Court Settles the ITC Debate: Your Credit Now Depends on Your Supplier&#8217;s Tax Payment\">Supreme Court Settles the ITC Debate: Your Credit Now Depends on Your Supplier&#8217;s Tax Payment<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.caindelhiindia.com\/blog\/sc-itc-credit-depends-on-supplier-tax-payment\/#The_Legal_Framework_A_Valid_Invoice_and_a_Paid_Bill_Are_Not_Enough\" title=\"The Legal Framework: A Valid Invoice and a Paid Bill Are Not Enough\">The Legal Framework: A Valid Invoice and a Paid Bill Are Not Enough<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.caindelhiindia.com\/blog\/sc-itc-credit-depends-on-supplier-tax-payment\/#Why_the_%E2%80%9CBona_Fide_Purchaser%E2%80%9D_Defence_No_Longer_Works\" title=\"Why the &#8220;Bona Fide Purchaser&#8221; Defence No Longer Works\">Why the &#8220;Bona Fide Purchaser&#8221; Defence No Longer Works<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.caindelhiindia.com\/blog\/sc-itc-credit-depends-on-supplier-tax-payment\/#Risk_of_supplier_default_now_sits_with_the_buyer\" title=\"Risk of supplier default now sits with the buyer\">Risk of supplier default now sits with the buyer<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.caindelhiindia.com\/blog\/sc-itc-credit-depends-on-supplier-tax-payment\/#Claiming_Reversing_and_Re-availing_ITC_A_Step-by-Step_Compliance_Guide\" title=\"Claiming, Reversing and Re-availing ITC: A Step-by-Step Compliance Guide\">Claiming, Reversing and Re-availing ITC: A Step-by-Step Compliance Guide<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.caindelhiindia.com\/blog\/sc-itc-credit-depends-on-supplier-tax-payment\/#Claiming_the_credit\" title=\"Claiming the credit\">Claiming the credit<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.caindelhiindia.com\/blog\/sc-itc-credit-depends-on-supplier-tax-payment\/#Tracking_the_suppliers_payment\" title=\"Tracking the supplier&#8217;s payment\">Tracking the supplier&#8217;s payment<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.caindelhiindia.com\/blog\/sc-itc-credit-depends-on-supplier-tax-payment\/#Reversing_the_credit_if_the_supplier_defaults\" title=\"Reversing the credit if the supplier defaults\">Reversing the credit if the supplier defaults<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.caindelhiindia.com\/blog\/sc-itc-credit-depends-on-supplier-tax-payment\/#Re-availing_the_credit_once_the_supplier_pays\" title=\"Re-availing the credit once the supplier pays\">Re-availing the credit once the supplier pays<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.caindelhiindia.com\/blog\/sc-itc-credit-depends-on-supplier-tax-payment\/#Three_technical_points_to_tighten_before_publishing_since_readers_may_rely_on_the_details\" title=\"Three technical points to tighten before publishing, since readers may rely on the details:\">Three technical points to tighten before publishing, since readers may rely on the details:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.caindelhiindia.com\/blog\/sc-itc-credit-depends-on-supplier-tax-payment\/#Practical_Steps_to_Safeguard_Your_Business\" title=\"Practical Steps to Safeguard Your Business\">Practical Steps to Safeguard Your Business<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"Supreme_Court_Settles_the_ITC_Debate_Your_Credit_Now_Depends_on_Your_Suppliers_Tax_Payment\"><\/span><span style=\"color: #000080;\"><strong>Supreme Court Settles the ITC Debate: Your Credit Now Depends on Your Supplier&#8217;s Tax Payment<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Few GST disputes are as frustrating as this one. A genuine business pays its vendor in full, GST included. Months later, it receives a demand notice and its working capital is blocked, because the vendor kept the tax and never filed its returns. For years, taxpayers argued that an honest buyer should not suffer for a supplier&#8217;s default.<\/p>\n<p>On 24 July 2026, the Supreme Court of India settled the question. In <em>Bhandari Scrap Traders v. Union of India<\/em>, the Court upheld the Gujarat High Court&#8217;s decision and confirmed that Section 16(2)(c) of the CGST Act is constitutionally valid.<\/p>\n<p>The rule that follows is simple. Your input tax credit depends on whether your supplier actually pays the tax to the Government.<\/p>\n<p>Below, we cover the legal framework, why the defences businesses relied on earlier no longer hold, and how to manage ITC reversals from here on.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"The_Legal_Framework_A_Valid_Invoice_and_a_Paid_Bill_Are_Not_Enough\"><\/span><span style=\"color: #000080;\"><strong>The Legal Framework: A Valid Invoice and a Paid Bill Are Not Enough<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Under GST, input tax credit is not a vested right. It is a statutory benefit, available only when every condition in the law is met. Many businesses assumed that once they had the paperwork and had paid the vendor, their credit was safe.<\/p>\n<p>The Supreme Court has made clear that the conditions in Section 16(2) are cumulative, so all of them must be met together. A buyer claiming ITC must satisfy each of the following:<\/p>\n<ul>\n<li><span style=\"color: #000080;\"><strong>Section 16(2)(a):<\/strong><\/span> Hold a valid tax invoice or debit note.<\/li>\n<li><span style=\"color: #000080;\"><strong>Under Section 16(2)(aa):<\/strong><\/span> The invoice must appear in the buyer&#8217;s GSTR-2B, meaning the supplier has reported it.<\/li>\n<li><span style=\"color: #000080;\"><strong>Section 16(2)(b):<\/strong><\/span> goods or services must actually have been received.<\/li>\n<li><strong><span style=\"color: #000080;\">Under Section 16(2)(c)<\/span>:<\/strong> The supplier must actually have paid the tax on that supply to the Government.<\/li>\n<li><span style=\"color: #000080;\"><strong>Section 16(2)(d):<\/strong> <\/span>buyer must have filed its own return.<\/li>\n<\/ul>\n<p>U\/s 155, the burden of proving eligibility for ITC rests on the person claiming it. Paying the full invoice value, GST included, through proper banking channels does not by itself secure the credit. If the supplier fails to deposit the tax, the credit can still be reversed.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Why_the_%E2%80%9CBona_Fide_Purchaser%E2%80%9D_Defence_No_Longer_Works\"><\/span><span style=\"color: #000080;\"><strong>Why the &#8220;Bona Fide Purchaser&#8221; Defence No Longer Works<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>During the litigation, taxpayers relied on the principle <em>lex non cogit ad impossibilia<\/em>: the law does not require a person to do the impossible. Their argument was that a buyer cannot see a supplier&#8217;s GSTR-3B and has no way to make the supplier pay its tax.<\/p>\n<p>The Court did not accept that VAT-era rulings could be carried over to GST. It agreed with the Gujarat High Court that the Delhi VAT Act and the CGST Act are built on different statutory schemes. Under the CGST Act, the buyer&#8217;s honesty or good faith does not save the credit if the supplier has not actually paid the tax. In practice,<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Risk_of_supplier_default_now_sits_with_the_buyer\"><\/span><span style=\"color: #000080;\">Risk of supplier default now sits with the buyer<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>First, add the full citation. Bhandari Scrap Traders v. UOI &amp; Ors., SLP(C) also reported as Readers &amp; clients take a blog more seriously when it cites properly.<\/p>\n<p>Second, add the balancing point. The Court did not leave buyers without any remedy. It noted that Sections 41, 73 and 74 of the CGST Act give a purchasing dealer a statutory route to re-avail reversed ITC, subject to the prescribed conditions, once the supplier clears the outstanding tax. Mentioning this fits well with your re-availment section.<\/p>\n<p>An important related point deserves attention. Some commentators have noted that while the judgment upheld Section 16(2)(c) as a valid statutory condition for availing ITC, it did not expressly require recipients to independently obtain proof that the supplier has actually deposited the tax. According to this interpretation, compliance is intended to operate through the GST return-filing framework and mechanisms such as Rule 37A. Keeping this in mind, the original statement that \u201cyour credit remains provisional\u201d has been refined to language that remains accurate under either interpretation of the judgment. Additionally, clauses (aa) and (d) have been incorporated so that the discussion covers all conditions prescribed under Section 16(2) in a complete and comprehensive manner.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Claiming_Reversing_and_Re-availing_ITC_A_Step-by-Step_Compliance_Guide\"><\/span><span style=\"color: #000080;\"><strong>Claiming, Reversing and Re-availing ITC: A Step-by-Step Compliance Guide<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The Court pointed out that buyers do not lose their credit for good when a supplier defaults. Section 41 of the CGST Act, together with Rule 37A, lets the credit be reversed and later restored. The mechanism only protects you if your returns follow its deadlines exactly.<\/p>\n<p>When a supplier fails to pay its tax, your accounts team should follow these four steps.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Claiming_the_credit\"><\/span><span style=\"color: #000080;\"><strong>Claiming the credit<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>ITC can be taken in your GSTR-3B for the period in which you have both the invoice and the goods or services. The invoice must also appear in your GSTR-2B, which shows the supplier has declared the sale in its GSTR-1. If the invoice is not in GSTR-2B, do not claim the credit yet.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Tracking_the_suppliers_payment\"><\/span><span style=\"color: #000080;\"><strong>Tracking the supplier&#8217;s payment<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>An invoice showing up in GSTR-2B only means the supplier reported the sale. It does not mean the supplier paid the tax. The key date to track is <strong>30 September after the end of the financial year<\/strong> in which you took the credit. By then, the supplier must have filed the matching GSTR-3B and deposited the tax.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Reversing_the_credit_if_the_supplier_defaults\"><\/span><span style=\"color: #000080;\"><strong>Reversing the credit if the supplier defaults<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>If the supplier has not filed its GSTR-3B by 30 September, Rule 37A requires you to reverse the credit you claimed against its invoices.<\/p>\n<ul>\n<li><span style=\"color: #000080;\"><strong>Reversal deadline:<\/strong><\/span> The reversal must be made by <strong>30 November<\/strong> of the same year.<\/li>\n<li><span style=\"color: #000080;\"><strong>Where to report it:<\/strong><\/span> Show the reversed amount in <strong>Table 4(B)(2)<\/strong> of GSTR-3B.<\/li>\n<li><strong><span style=\"color: #000080;\">Cost of missing the deadline<\/span>:<\/strong> If the credit is not reversed by 30 November, it becomes recoverable from you as tax. Interest under Section 50 of the CGST Act, currently 18% a year, is payable on top.<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"Re-availing_the_credit_once_the_supplier_pays\"><\/span><span style=\"color: #000080;\"><strong>Re-availing the credit once the supplier pays<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The reversal only delays your credit; it does not take it away. Once the supplier files its pending GSTR-3B and pays the tax, Section 41 lets you take the credit back.<\/p>\n<ul>\n<li><strong>Time limit:<\/strong> Re-availment under Rule 37A is not subject to the Section 16(4) deadline. You can reclaim the credit whenever the supplier complies.<\/li>\n<li><strong>Where to report it:<\/strong> Claim the credit in <strong>Table 4(A)(5)<\/strong> of GSTR-3B. Also show it in <strong>Table 4(D)(1)<\/strong>, so the return records it as a reclaim of credit reversed earlier. Do this in the return for the month the supplier complies.<\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"Three_technical_points_to_tighten_before_publishing_since_readers_may_rely_on_the_details\"><\/span><span style=\"color: #000080;\">Three technical points to tighten before publishing, since readers may rely on the details:<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ol>\n<li><strong>Interest is not a penalty.<\/strong> Section 50 interest is compensatory, so I called it interest above. Under Section 50(3), the 18% rate applies only where the wrongly availed ITC was also <strong>utilised<\/strong>. Credit that was availed but never utilised does not attract this interest.<\/li>\n<li><strong>The &#8220;no time bar&#8221; point.<\/strong> This is the widely held view, but it rests on interpretation more than an express statutory exemption. If the judgment states it directly, cite the relevant paragraph. Otherwise, write &#8220;is generally understood not to apply&#8221; to stay on safe ground.<\/li>\n<li><strong>QRMP taxpayers.<\/strong> The steps apply to quarterly filers as well. Tables 4(B)(2) and 4(D)(1) are reported in the return for the relevant tax period, whether monthly or quarterly.<\/li>\n<\/ol>\n<h2><span class=\"ez-toc-section\" id=\"Practical_Steps_to_Safeguard_Your_Business\"><\/span><span style=\"color: #000080;\"><strong>Practical Steps to Safeguard Your Business<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>After the Supreme Court&#8217;s ruling in <em>Bhandari Scrap Traders<\/em>, buyers can no longer treat a supplier&#8217;s GST compliance as the supplier&#8217;s problem alone. If the vendor fails to pay its tax, the buyer&#8217;s input tax credit can be at risk. In practice, every business now has to police its own supply chain. Taking a supplier&#8217;s word for it is no longer enough, and the following changes are needed now, not at year-end.<\/p>\n<ul>\n<li><span style=\"color: #000080;\"><strong>Check vendors before you deal with them:<\/strong><\/span> Before onboarding a supplier or awarding a contract, review its GST track record. Look at its return filing history, registration status and any gaps in compliance. A vendor who defaults can turn into a credit reversal, plus interest, on your books.<\/li>\n<li><strong><span style=\"color: #000080;\">Reconcile GSTR-2B every month<\/span>:<\/strong> Ad hoc or manual invoice matching will no longer hold up. Your accounts team should match GSTR-2B against the purchase register every month. This shows which suppliers have reported your invoices and paid the tax, and which have not.<\/li>\n<li><span style=\"color: #000080;\"><strong>Build protection into vendor contracts:<\/strong> <\/span>Add clauses in which suppliers warrant their GST compliance and agree to indemnify you if credit is denied because of their default. As a safeguard, consider holding back the GST portion of each invoice. Release it only once you confirm the supplier has filed its return and deposited the tax.<\/li>\n<\/ul>\n<p>The message from the Supreme Court is clear: a genuine transaction alone does not protect your credit; a compliant supply chain matters just as much. Handling ITC reversals and replying to show cause notices under Sections 73 and 74 requires careful documentation and timely action. Reviewing your vendor base and reconciliation process early is the most reliable way to stay ahead of a demand.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Supreme Court Settles the ITC Debate: Your Credit Now Depends on Your Supplier&#8217;s Tax Payment Few GST disputes are as frustrating as this one. A genuine business pays its vendor in full, GST included. Months later, it receives a demand notice and its working capital is blocked, because the vendor kept the tax and never &hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[1287],"tags":[],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/posts\/11346"}],"collection":[{"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/comments?post=11346"}],"version-history":[{"count":5,"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/posts\/11346\/revisions"}],"predecessor-version":[{"id":11351,"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/posts\/11346\/revisions\/11351"}],"wp:attachment":[{"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/media?parent=11346"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/categories?post=11346"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/tags?post=11346"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}