Resolving the Conundrum of Input Tax Credit under GST: Striking a Balance for Genuine Claimants

The implementation of the Goods and Services Tax (GST) in many countries is aimed to streamline the tax regime and eliminate the cascading effect of taxes.

One of the fundamental concepts of GST is Input Tax Credit (ITC), which allows businesses to claim credit for the taxes paid on inputs or input services or capital goods. However, the interpretation and application of Section 16(2)(c) of the Central Goods and Services Tax Act, 2017 (‘CGST Act’), pertaining to the payment of tax by the supplier as a prerequisite for claiming such ITC, has sparked a debate regarding the denial of ITC to bona fide claimants, especially when such denial is not attributable to any lapse on the part of the claimant.

This article explores the conflicting perspectives and proposes a balanced approach to ensure fairness for all stakeholders.

THE LEGAL PROVISION

Section 16(2)(c) stipulates that a recipient of goods or services can avail ITC only if the tax charged on the supply of goods or services has been actually paid to the Government by the supplier. The strict interpretation of this provision places an onerous burden on the claimant to verify whether the supplier has remitted the tax, potentially leading to the denial of ITC even to bona fide claimants who have already paid the tax to the supplie