High Court Reads Down Section 16(2)(aa): Protection for Bona Fide Buyers under GST.

Judgment: Mcleod Russel India Limited vs Union of India & Others
Court: Gauhati High Court (Assam)
Order Date: 9 December 2025
Bench: Hon’ble Chief Justice Mr. Ashutosh Kumar & Hon’ble Justice Mr. Arun Dev Choudhury

Link For Court Order : https://drive.google.com/file/d/1uhq4ghFTcE6TT_f6hQEjHTxxxQ8nUch6/view?usp=sharing

Background

Section 16(2)(aa) of the CGST Act requires that, for a buyer to claim Input Tax Credit (ITC), the supplier must furnish invoice details in their GSTR-1 and the same must be communicated to the recipient in GSTR-2B

This provision, added by the Finance Act 2021, aims to link ITC eligibility to supplier compliance and curb fraudulent claims.

The petitioner argued that this condition is unfair and arbitrary because a buyer has no control over whether the supplier uploads invoices in GSTR-1 on time

Key Legal Question

Can ITC be denied to a bona fide buyer solely because the supplier failed to upload invoice details in GSTR-1, even though the buyer has paid the tax and holds a valid invoice?

Section 16(2) - Conditions for Claiming ITC

Arguments by the Petitioner

1. Impractical Burden: A buyer cannot control a supplier’s GSTR-1 compliance.
2. Double Taxation Risk: Denial of ITC forces a bona fide buyer to pay GST twice - once to the supplier and again on disallowance.
3. Violation of GST Objective: GST seeks to tax only value addition and avoid cascading effects.
4. Inconsistency: CBIC Circulars 183/15/2022 & 193/05/2023 allowed relief till 31-12-2021 for non-reflected ITC - no reason for disallowing after 01-01-2022 

Government’s Stand

• Section 16(2)(aa) is a compliance measure, not a penalty.
• It ensures that ITC is availed only after the supplier has reported the transaction, preventing fraudulent credits and fake billing.
• ITC is a conditional concession, not a right.

Court’s Observations & Findings

1. Purpose of GST: GST is a value-added tax; denying credit to bona fide buyers violates the core principle of avoiding double taxation
2. Impossible Condition: Buyers cannot control supplier filing of GSTR-1; placing that burden is unreasonable.
3. Protection for Bona Fide Buyers: Before disallowing ITC, tax officers must allow the buyer to prove their bona fides using invoices, payment proof, and delivery records.
4. Temporary Relief: Section 16(2)(aa) is upheld as valid but read down temporarily until the CBIC creates a practical administrative solution to ensure buyers are not penalized for supplier defaults 

Court Direction (Operative Part)

Practical Impact for Tax Consultants & Businesses

1. Before ITC Denial:
2. During Scrutiny or Audit:
3. For Consultants & CAs:

Illustrative Examples

Comparative Judgments Referenced

Key Takeaway

• The Gauhati High Court has introduced a “fairness filter” into the application of Section 16(2)(aa).
• ITC cannot be denied outright just because of supplier non-compliance.
• Bona fide buyers must get an opportunity to prove that they paid GST and acted in good faith.

Until the CBIC creates a mechanism to reconcile supplier defaults fairly, this judgment serves as a protective precedent for genuine taxpayers.

✍️ Author:

Dr. Muhammed Mustafa C T
Senior Tax Consultant | Managing Director - BRQ Associates
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