ITC in Commercial Disputes: A Growing Concern in Delhi
In the world of commercial transactions, especially in Delhi’s bustling trading and manufacturing circles, Input Tax Credit (ITC) under the GST regime was meant to be a seamless benefit. Yet in practice it has become a double edged sword, particularly when invoices are disputed.
I have seen countless cases where buyers (or their accountants) claim ITC on invoices where actual supply is under serious dispute, either goods were never delivered, quality was rejected, or the transaction itself is contested in civil or commercial suits. The common excuse? “Sir, GSTR-2B mein aa raha hai, toh claim kar dete hain.”
This mechanical approach is not just risky, it is legally flawed and commercially suicidal.
Section 16 Of The CGST Act: The Misunderstood Provision
Section 16(1) and 16(2) lay down the conditions for availing ITC. The provision essentially says that a registered person is entitled to ITC only if:
- He has received the goods or services,
- The supplier has charged GST,
- The tax has been paid by the supplier to the Government, and
- The recipient has furnished the return under Section 39.
The moment a recipient claims ITC in his GSTR-3B (and it reflects in GSTR-2B), the GST department treats it as if the supply has been accepted and received. Many departmental officers and even some courts have started relying on this as near-conclusive evidence of delivery.
The Dangerous Judicial Shortcut
In several GST proceedings and even in overlapping commercial disputes, we see arguments like: “Since the buyer has claimed ITC, he cannot now turn around and say goods were not supplied.”
If this logic is stretched, then why bother with a full-fledged civil trial for recovery of money or damages?
What About Documentary Evidence?
- Invoices
- Purchase orders
- E-way bills
- Bilty
- LR
- Delivery challans
- Quality inspection reports
- Site visits
Just pull out the buyer’s GSTR-2B and GSTR-3B, and game over!
This cannot be the intent of the law. GST is a tax statute meant for revenue collection and credit flow. It is not a substitute for the Indian Contract Act, Sale Of Goods Act, or the Evidence Act in determining whether a contractual obligation was actually performed.
My Original Thoughts As A Commercial Lawyer
Having handled dozens of high-value commercial disputes involving GST angles in Delhi courts, I strongly believe this over-reliance on Section 16 is a lazy and dangerous shortcut.
ITC Is A Tax Concession, Not An Admission Of Fact
Claiming ITC is an act done to avail a statutory benefit. It does not amount to an unequivocal admission under Section 17 of the Indian Evidence Act that goods were actually received and accepted without dispute. Such admission, if any, is always rebuttable when the buyer proves fraud, mistake, non-delivery, or rejection.
Accountants Vs Legal Implications
Most accountants treat GST filing as a compliance checkbox. They see GSTR-2B match and claim ITC. They rarely understand that in a civil suit for recovery or damages, this single act can be used against the client to argue waiver or estoppel. This is where legal oversight is missing.
Why Bother With E-Way Bill, Bilty, Or Actual Delivery Proof Then?
Exactly. If courts start treating ITC claim as conclusive proof of supply, then all documentary evidence under the Sale Of Goods Act becomes redundant. This defeats the entire purpose of a fair trial.
Risk Of Double Whammy
| Scenario | Consequence |
|---|---|
| If buyer claims ITC and later reverses it (after dispute) | He faces interest plus penalty under GST. |
| If he does not reverse it | The opponent in civil suit uses it as a weapon. |
Lose-lose situation created by poor advice.
Recent Judicial Trends (2025-2026)
While GST High Courts have rightly read down Section 16(2)(c) to protect bona fide buyers from supplier defaults, the same protection is not being extended when the dispute is between buyer and seller in civil or commercial suits. Civil courts still tend to treat GST returns as strong contemporaneous evidence.
This inconsistency needs to be addressed. The Supreme Court must eventually clarify that GST compliance documents are not conclusive proof in contractual disputes unless corroborated by independent evidence of actual performance.
Practical Advice For Businesses, Accountants & Lawyers
- Never claim ITC blindly on disputed or doubtful invoices.
- Immediate reversal of ITC (with interest if applicable) is the safest route when supply is contested.
- Maintain a separate file for every high-value transaction: PO, invoice, e-way bill, transport proof, payment screenshots, rejection notes, etc.
- Accountants must consult the legal team before claiming ITC on any invoice above a threshold (say ₹5-10 lakh).
- In commercial suits, always plead and prove that ITC claim was made under mistake or bonafide belief and has since been reversed.
Conclusion
Section 16 of the CGST Act is a tax provision, not a proof of delivery mechanism. Treating it as conclusive evidence in commercial disputes is not only legally incorrect but also commercially unfair. It encourages lazy litigation and punishes the vigilant buyer who relied on his accountant or system-generated data.
The law must draw a clear line. GST returns may be relevant evidence, but they can never replace the foundational documents of a contract and actual performance.
Until the higher judiciary settles this, businesses must err on the side of caution, because in commercial law, one wrong ITC claim can cost you the entire suit.
Written By: Advocate Himanshu Koyarh – Delhi High Court & District Courts, Specialising in Commercial, Arbitration & GST Litigation
Email: [email protected], Website: www.trustlexpartners.com
