Section 16 of GST Delhi HC Flags Wrongful ITC Claims
The Delhi High Court recently issued a strong warning on wrongful ITC claims under GST, stating such misuse under Section 16 of CGST Act could cause an “enormous dent” in the credibility of the GST regime. This remark came in a petition challenging GST proceedings related to Input Tax Credit (ITC) availment.
Let’s break down what this means for Indian taxpayers and businesses—and how to stay compliant.
What Is Section 16 of CGST Act?
Section 16 governs eligibility and conditions for availing Input Tax Credit (ITC).
Key points include:
- ITC is available only when goods/services are received.
- Supplier must have paid tax to the government.
- Taxpayer must possess a valid tax invoice.
Why Delhi High Court’s Observation Matters
Key Highlights from the HC ruling:
- “Wrongful availment of ITC is one of the biggest menaces in the GST ecosystem.”
- It directly impacts revenue mobilisation and trust in the system.
- The court upheld the department’s right to scrutinise and reject ineligible ITC.
ITC Misuse: Common Red Flags Noticed by GST Dept
| Issue | What It Means | Risk |
|---|---|---|
| Fake Invoices | No actual supply; just paper transactions | ₹ Cr. level frauds |
| GSTR-2A/2B mismatch | Availing ITC not reflecting in auto-populated forms | ITC reversal + interest |
| Supplier default | Supplier hasn’t filed returns or paid tax | You lose ITC |
| Bogus vendors | ITC from non-existent businesses | Penal proceedings |
Compliance Checklist: Avoid ITC Disallowance
✔ Verify supplier is active and filing returns
✔ Cross-check GSTR-2B vs purchase register monthly
✔ Ensure invoices meet all Rule 46 requirements
✔ Do not rely on back-dated invoices post Sept of next FY
✔ Reconcile books quarterly and file accurate GSTR-3B
Expert Tip:
“Use GSTIN health check tools to verify supplier compliance before availing ITC. Prevention is easier than reversal with 24% interest.”
Subheading With Keyphrase:
Impact of Wrongful ITC Claims Under GST on Your Business
- Immediate reversal with 18–24% interest
- Show-cause notices under Section 73/74
- Blocking of ITC ledger under Rule 86A
- Risk of penalty + prosecution under Sections 122–132
- Future ITC claims come under suspicion
Government Action on ITC Misuse
- DGGI crackdowns on fake ITC syndicates
- AI-based risk profiling of suspicious ITC claims
- Rule 36(4) restricts provisional ITC to 5%
- CBIC Circulars mandate 2B-based ITC eligibility
🔗 Official link:
GST Law – CGST Act Section 16
Summary
Wrongful ITC claims under GST Section 16 are under scrutiny by Delhi HC. Non-compliant businesses may face reversals, penalties, and ledger blocks. Here’s how to stay safe.
FAQs
Q1. Can ITC be claimed if the supplier doesn’t pay tax?
A: No. Under Section 16(2)(c), ITC is available only if the supplier has paid GST to the government.
Q2. What happens if ITC is wrongly claimed?
A: It will be reversed with interest (18–24%), and penalties may follow under GST law.
Q3. Is GSTR-2A or GSTR-2B used for ITC eligibility?
A: From Jan 2022 onwards, GSTR-2B is the legal reference point for ITC availment.