M/s Prime Metals v. CBIC & Ors. — SLP (C) No. 18577/2026 (SC, May 29, 2026)

Background

The dispute arose from the denial of Input Tax Credit (ITC) allegedly on account of non-compliance with Section 16(2)(c) of the CGST Act, 2017, which mandates that the tax charged in respect of a supply must have actually been paid to the Government.

What the Supreme Court Decided

The Supreme Court declined to interfere with the Rajasthan High Court's decision dismissing the writ petition on the ground of availability of an alternate statutory remedy. However, the Court expressly left open all legal remedies available to the petitioner, including issues relating to the validity of Section 16(2) of the CGST Act.

Directions Given

The Court granted liberty to the petitioner to file a statutory appeal within eight weeks along with the requisite pre-deposit, and directed that such appeal shall not be dismissed on the ground of limitation. Importantly, the Court recorded that issues relating to the validity of Section 16(2) of the CGST Act would remain open for consideration before the appropriate forum.

Why It Matters

The order assumes significance because the Supreme Court had earlier issued notice in the matter on 22 May 2026, leading many stakeholders to expect an authoritative pronouncement on the constitutional validity and practical operation of Section 16(2)(c). However, the Court ultimately chose not to adjudicate the constitutional challenge at this stage.

The larger question that continues to trouble GST jurisprudence remains unresolved: whether a genuine purchaser who has received goods or services, paid consideration and tax to the supplier, and complied with all statutory requirements can nevertheless be denied ITC solely because the supplier failed to discharge tax liability. Since taxpayers have no statutory mechanism to verify actual tax payment by suppliers beyond the information available on the GST portal, the provision continues to be criticised as imposing an impossible burden on bona fide recipients.

Current Status

The constitutional challenge remains alive and may ultimately require authoritative determination by the Supreme Court in an appropriate case. Until then, uncertainty surrounding denial of ITC for supplier defaults is likely to continue, leaving taxpayers and tax administrators dependent on evolving High Court jurisprudence and fact-specific adjudication