The Bombay High Court has admitted a constitutional challenge to Section 16(2)(c) of the CGST Act, 2017, the provision that makes a buyer’s Input Tax Credit (ITC) dependent on the supplier’s actual payment of tax to the government.
Thank you for reading this post, don't forget to subscribe!In the case of Christie’s India Private Limited v. Union of India & Ors., the court acknowledged the serious constitutional issue, citing conflicting judgments among various High Courts. The court has issued notice to the Attorney General, setting the stage for a full legal battle over the provision’s validity.
The Conflict: Buyer Penalized for Supplier’s Default
Christie’s India Private Limited, an auction house, was hit with a ₹1 crore GST demand (plus interest and penalty) under Section 16(2)(c) because their supplier allegedly defaulted on tax payments.
The Petitioner argued that the section violates Articles 14, 19(1)(g), and 300A of the Constitution, essentially penalizing the buyer for the seller’s fault—a position recently supported by the Gauhati High Court, which struck down the provision.
The matter is now crucial because:
- Divergent Views: The Kerala, Patna, and Madhya Pradesh High Courts have upheld the provision’s validity.
- Contrasting View: The Gauhati High Court recently ruled against it, stating it places an unreasonable burden on honest buyers, a departure that adds weight to the Petitioner’s argument.
Interim Protection Granted (with a Condition)
The Bombay High Court granted Christie’s India interim protection, staying the recovery proceedings related to the GST demand.
However, the stay is conditional: the Petitioner must deposit ₹20 lakhs with the Court within six weeks. The Court specifically denied an unconditional stay, holding that a co-noticee’s partial payment of ₹21 lakhs does not automatically discharge the Petitioner’s remaining liability.
Key Takeaway: The Bombay High Court’s decision to fully admit the challenge and note the High Court conflicts suggests a potential Supreme Court-level resolution may be necessary to settle the long-standing debate over the constitutional fairness of linking the recipient’s ITC to the supplier’s compliance.
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(Author can be reached at taxassistant529@gmail.com)
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