The Role and Validity of GST Section 16(2)(c)
The Goods and Services Tax (GST) Act introduced in 2017 aims to streamline indirect taxation in India. Among its provisions, Section 16(2)(c) has been a topic of contention, particularly regarding its constitutional validity. This section requires recipients of goods or services to ensure that the tax due has actually been paid to the government by the supplier, as a condition for claiming input tax credit (ITC).
The Kerala High Court recently upheld this provision’s validity in the case [Nahasshukoor v. Assistant Commissioner II Circle, Alappuzha and Others [2024] 123 GSTR 44 KER], ensuring the stability and functionality of the GST system. Let’s delve into this significant judgment and its implications.
Why Was Section 16(2)(c) Challenged?
Taxpayers argued that the requirement placed undue burden on recipients to verify tax payments made by suppliers, over whom they have no direct control. They contended that the provision violated the principles of natural justice and unfairly penalised recipients for the supplier’s default.
However, the Kerala High Court disagreed, referencing its previous judgment in Nahasshukoor v. Assistant Commissioner II Circle, Alappuzha and Others, and observed the following:
- Legitimate Purpose:
Section 16(2)(c) safeguards government revenue by ensuring suppliers fulfil their tax obligations. - Effective GST System:
The provision promotes a robust GST ecosystem by deterring fraudulent ITC claims. - No Unfair Burden:
While the section imposes responsibility on recipients, it also incentivises due diligence in supplier selection.
The Court’s Analysis
In [2025] 170 taxmann.com 252 (Kerala HC), the court emphasised that Section 16(2)(c) serves a critical role in ensuring compliance. It ruled that:
- The provision aligns with the broader objectives of the GST Act.
- Safeguarding government revenue is a legitimate and reasonable expectation.
- Upholding this section does not violate constitutional principles, as it ensures accountability across the supply chain.
Implications for Taxpayers
- Due Diligence:
Recipients must now be vigilant in ensuring their suppliers comply with tax regulations. Checking GST compliance history and filing patterns becomes essential. - Digital Compliance Tools:
Businesses can leverage digital tools to track supplier filings and reduce the risk of non-compliance. - Enhanced Taxpayer Accountability:
This judgment reinforces the need for mutual accountability in a seamless GST framework.
Actionable Steps for Businesses
| Step | Description |
|---|---|
| Verify Supplier Status | Use GSTN portals to check supplier compliance. |
| Document Transactions | Maintain accurate records to support ITC claims. |
| Utilise Technology | Adopt GST compliance software to monitor supplier tax filings. |
| Educate Teams | Train staff on GST rules and the importance of verifying supplier details. |
| Engage Experts | Consult tax professionals to navigate complex compliance scenarios. |
Closing Thoughts
The Kerala High Court’s validation of Section 16(2)(c) underscores the importance of compliance and mutual responsibility in India’s GST regime. While the judgment may appear stringent, it fortifies the system against revenue loss and ensures fair practices across the supply chain.
By adopting proactive measures, businesses can not only comply with the law but also contribute to a more transparent and efficient GST ecosystem.