Buyers to Bear the Consequences of Suppliers’ GST Payment Defaults

In a significant ruling, the Gujarat High Court has upheld the rule that buyers can be denied Input Tax Credit (ITC) if suppliers fail to deposit Goods and Services Tax (GST).

In the case of Maruti Enterprise vs Union of India and related petitions, a division bench comprising Justice A.S. Supehia and Justice Pranav Trivedi, in its judgment delivered on May 1, upheld the constitutional validity of Section 16(2)(c) of the Central Goods and Services Tax (CGST) Act.

The court observed that ITC is a statutory right subject to prescribed conditions and not an absolute or vested right.

This ruling poses a major risk for industries. Even buyers who comply with tax regulations, may suffer due to payment defaults by their suppliers. The judgment is expected to increase compliance costs and put additional pressure on the working capital of businesses operating with multi-level supply chains.

According to Deloitte, “This decision reinforces the compliance-driven interpretation of ITC under GST. It confirms that ITC eligibility is inseparably linked to the actual tax payment made by suppliers. Therefore, supplier defaults continue to remain a persistent risk even for genuine recipients.”

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