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Kerala High Court: Favorable ITC Conditions and Retrospective Benefits u/s 16(4)

Abhishek Raja , Last updated: 08 June 2024  

The case involves M/S M. Trade Links challenging certain provisions of the Central Goods and Services Tax Act (CGST) and State Goods and Services Tax Act (SGST) before the High Court of Kerala. The primary contention is against Sections 16(2)(c) and 16(4) of the CGST and SGST Acts, which deal with the conditions for availing Input Tax Credit (ITC).


The GST regime was introduced in India to streamline indirect taxes, reduce cascading effects, and create a unified national market. The GST Council and various amendments laid the foundation for the current tax structure. Despite its benefits, certain provisions, especially those related to ITC, have been contentious.


Section 16(2)(c): This section stipulates that a registered person can claim ITC only if the tax charged on the supply has been actually paid to the government by the supplier. Section 16(4): Limits the time frame within which ITC can be claimed to the earlier of the due date for filing the return for September of the following financial year or the date of filing the annual return.

Kerala High Court: Favorable ITC Conditions and Retrospective Benefits u/s 16(4)


The petitioner challenged Sections 16(2)(c) and 16(4) of the Central GST Act, 2017, regarding the denial of Input Tax Credit (ITC) due to suppliers' non-payment of GST.


The petitioner argued that denying ITC based on the suppliers' failure to remit GST, despite the petitioner having valid tax invoices and proof of payment, is unfair. They contended that it is impossible for recipients to ensure suppliers' compliance.

  • Unfair Burden on Recipients: The petitioners argue that it is unfair to deny ITC to recipients who have already paid the tax to their suppliers, solely because the suppliers failed to remit the tax to the government. This places an unreasonable burden on the recipients to ensure compliance by suppliers.
  • Violation of Constitutional Rights: Denial of ITC due to supplier default is seen as a violation of Article 19(1)(g) (right to practice any profession or to carry on any occupation, trade, or business) and Article 14 (right to equality) of the Constitution of India. It also affects the business operations of recipients, impacting their right to property under Article 300A.
  • Doctrine of Impossibility: It is impossible for recipients to ensure that suppliers remit the tax. Hence, the maxim "lex non cogit ad impossibilia" (the law does not compel a man to do what he cannot possibly perform) should apply.
  • GSTR-2A and ITC Eligibility: The auto-populated GSTR-2A form is a dynamic document and should not be the sole basis for denying ITC. Technical glitches or delays in updating this form should not impact the entitlement of ITC.


The respondent maintained that ITC claims should be contingent upon the actual payment of taxes to the government by suppliers, emphasizing that the law places the onus on recipients to verify suppliers' compliance.


The petitioners referenced Circular No.183/15/2022-GST and a CBIC press release clarifying that discrepancies between GSTR-2A and GSTR-3B should not impact the entitlement to ITC.

The petitioner relied on various case laws to support their argument:

  • Godrej & Boyce Manufacturing Company Pvt. Ltd. v. Commissioner of Sales Tax [(1992) 3 SCC 624]: This case discussed the nature of tax credits as concessions subject to conditions.
  • Union of India v. VKC Footsteps (India) Pvt. Ltd. [(2022) 2 SCC 603]: This case involved the issue of refund of unutilized ITC and the restrictive conditions under the GST law.
  • Willowood Chemicals v. Union of India [2018 58 GSTR 310 (Guj)]: This judgment held that tax credit claims must be within prescribed time limits to avoid revenue disruption.


The Kerala High Court ruled that denying ITC to bona fide recipients due to suppliers' non-compliance is unjust. The court mandated that actions should be taken against defaulting suppliers rather than penalizing recipients.

  • ITC as a Right: The court acknowledged that ITC is a right of the registered person under the GST regime, provided they comply with the conditions laid out in the Act.
  • Compliance Burden: The court agreed that the compliance burden should not unfairly fall on the recipients, especially when they have fulfilled their obligations by paying the tax to suppliers.
  • Need for Equitable Measures: The judgment emphasized the need for measures that ensure compliance without penalizing bona fide recipients. It suggested that the tax authorities should take stringent action against defaulting suppliers rather than denying ITC to compliant recipients.

The High Court of Kerala delivered a judgment addressing the issues raised by the petitioners, highlighting the importance of a fair and just tax system. The court underscored the necessity for a balanced approach in implementing the GST provisions, ensuring that genuine taxpayers are not unduly burdened due to the defaults of others. The ruling aimed to safeguard the constitutional rights of taxpayers while maintaining the integrity of the GST framework.

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Published by

Abhishek Raja
(Practising CA)
Category GST   Report



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