Case Of: M/S Sahil Enterprises
Issued By: Tripura High Court
Order No: WP(C) No.688 of 2022
Date: 6th Jan 2026
Download Order
The petitioner, M/s Sahil Enterprises, a registered dealer engaged in the trade of rubber products, purchased goods from a registered supplier during the period July 2017 to January 2019 and paid GST aggregating to approximately ₹1.11 crore on such purchases.
While the supplier duly reported the outward supplies in GSTR-1, it failed to discharge its tax liability by filing nil returns in GSTR-3B, resulting in non-payment of tax collected from the petitioner.
Following investigation against the supplier, the GST authorities blocked the petitioner’s electronic credit ledger and issued a show cause notice under Section 73, proposing denial and recovery of ITC with interest and penalty solely on account of the supplier’s default.
The petitioner challenged the action contending that it had no statutory mechanism to verify whether the supplier had actually remitted tax, and that denial of ITC in a bona fide transaction was arbitrary, unreasonable, and violative of constitutional protections.
The High Court held that while Section 16(2)(c) of the CGST Act is constitutionally valid, it cannot be interpreted mechanically to deny ITC to a bona fide purchaser merely because the supplier failed to file returns or deposit tax.
The Court observed that the provision fails to distinguish between genuine purchasers who have complied with all statutory requirements and collusive or fraudulent transactions, and therefore must be read down to apply only in cases involving lack of bona fides or intent to defraud revenue.
Emphasising that the law does not require a purchaser to do the impossible, the Court held that a buyer cannot be expected to predict or control a supplier’s future non-compliance, particularly when outward supplies are duly reported.
Accordingly, the Court set aside the impugned order and directed restoration of ITC amounting to ₹1.11 crore, reiterating that denial of credit to bona fide purchasers for supplier defaults is legally unsustainable under GST.