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Rajasthan HC: Supplier Insolvency Doesn’t Waive ITC Conditions
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Rajasthan High Courttaxinsolvency

Rajasthan HC: Supplier Insolvency Doesn’t Waive ITC Conditions

October 14, 2026

Rajasthan High Court ruled that insolvency of a supplier under IBC does not excuse compliance with Section 16(2)(c) GST conditions for claiming ITC, even if tax remains unpaid.

Rajasthan HC Upholds ITC Conditions Despite Supplier Insolvency

The Rajasthan High Court rejected a taxpayer’s claim to Input Tax Credit (ITC) on grounds that the supplier was under insolvency proceedings under the Insolvency and Bankruptcy Code (IBC). The Court held that failure to meet the twin conditions under Section 16(2)(c) of the CGST Act — filing of return and payment of tax by the supplier — cannot be waived merely due to insolvency.

The taxpayer argued that since the supplier was unable to pay GST due to asset freezes during IBC resolution, the ITC denial resulted in unjust double taxation. The Court, however, affirmed that the statutory conditions for ITC eligibility are strict and must be fulfilled irrespective of the supplier’s financial status.

This ruling underscores that ITC availability is linked to actual tax payment into government records. Businesses sourcing goods/services from financially distressed suppliers must assess ITC eligibility carefully and may need to renegotiate commercial terms to protect tax credits.

Citations

  • CGST Act, 2017, Section 16(2)(c)
  • IB Code, 2016
Practice Areas:taxinsolvency

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