Journal of Interdisciplinary History and Human Societies
Input Tax Credit and Supplier Compliance under GST: A Critical Legal Analysis
Abstract
Zeba
The Goods and Services Tax (GST) system was introduced in India to establish a unified and transparent indirect tax framework. A crucial component of the GST structure is the Input Tax Credit (ITC), which prevents cascading taxation and promotes a seamless flow of credit throughout the supply chain. However, the practical implementation of ITC regulations has resulted in considerable disputes, particularly in cases involving supplier defaults and inconsistencies in returns. According to Section 16(2)(c) of the Central Goods and Services Tax Act, 2017, a purchasing dealer’s entitlement to claim ITC depends on the supplier’s remittance of tax to the government. Consequently, legitimate taxpayers often face denial or reversal of ITC, even after fulfilling all their responsibilities.
This paper critically examines the legal framework regarding the denial of ITC due to supplier defaults and analyses the judicial approach adopted by Indian courts. The research utilizes both doctrinal and analytical methods to evaluate the real-world challenges that taxpayers encounter within the GST system. It argues that an excessive dependence on supplier compliance undermines the principle of seamless credit and places undue burdens on honest taxpayers. Furthermore, it reviews key judicial decisions and emphasizes the need for procedural and legislative reforms to balance revenue protection with taxpayer rights. The paper concludes that a more equitable and technologically advanced framework is vital for ensuring fairness, certainty, and effective GST implementation in India. The research is doctrinal and analytical in nature and is based on statutes, judicial decisions, and secondary legal sources. The paper advocates a balanced approach that protects government revenue while safeguarding bona fide taxpayers.