A trader in Srinagar buys goods worth lakhs from a registered supplier, pays the full invoice amount including GST, receives a proper tax invoice, and files his returns on time. Months later, he receives a Show Cause Notice from the GST Department: he is advised to reverse Input Tax Credit (ITC) along with interest at the rate of 18%, because the supplier never deposited that tax with the Government. The trader did nothing wrong. He had no way of knowing his supplier would default. Yet the law holds him responsible. Is that fair? Can it even be constitutional?

This exact question travelled from an Assessing Officer’s desk all the way to the Supreme Court of India — and in July 2026, the Court gave its final word. Every taxpayer, tax consultant, and departmental officer dealing with GST needs to understand what was decided and why.The provision at the heart of the dispute

Section 16(2)(c) of the CGST Act, 2017 lays down one of the conditions for claiming ITC: the tax charged on a supply must have actually been paid to the Government by the supplier — either in cash or through his own credit ledger — before the recipient (buyer) can claim Input Tax Credit for it. Simply holding a valid invoice, having received the goods, and having paid the supplier is not enough. If the supplier pockets the GST amount instead of depositing it with the Government, the buyer’s ITC is denied, even though the buyer paid in good faith.For years, traders across the country argued this was grossly unfair — punishing an honest buyer for someone else’s default over which he has no control, since a buyer cannot see his supplier’s GSTR-3B filings or bank account.

How the case reached Supreme CourtThe case that finally settled the........

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