the essay of 18 February 2026 · the untouched capture
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<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" "http://www.w3.org/TR/html4/loose.dtd"> <html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=utf-8"> </head> <body bgcolor="#FFFFFF"> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">FEBRUARY 18, 2026</font></strong></font></font></p> <p align="center"><font color="#FF6633" face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong> The Impossible Credit</strong></font></p> <p align="center"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif"><u><strong>By Vijay Kumar</strong></u></font></font></p> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> <a href="https://www.nacin.gov.in/Documents/e-Books/ITC-V1-26-03-2025-F3.pdf"> HANDBOOK ON INPUT TAX CREDIT</a> by the premier NATIONAL ACADEMY OF CUSTOMS, INDIRECT TAXES & NARCOTICS (NACIN) Palasamudran, states: </font></font></p> <blockquote><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">INPUT TAX CREDIT (ITC in short), the word itself, may send jitters to the officers & shivers to the taxpayers in India. </font></font></p><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">Recognizing the pivotal role of ITC in the GST framework, this handbook has been meticulously compiled to serve as a comprehensive guide for both new entrants and seasoned professionals in the GST domain. </font></font></p></blockquote> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">First of all, <em>Input Tax Credit</em> is not a word and it is surprising that the outstanding academy for GST in the country feels that the expression causes jitters among officers and shivers among taxpayers. When the top academy feels so, it has to be so especially when it is certified that the handbook has been <em>meticulously</em> compiled. </font></font></p> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">Input Tax Credit should have been simple, easy-flowing and natural feature of GST – yet it causes jitters and shivers! Does NACIN teach its probationers to be jittery about Input Tax Credit so that taxpayers shiver? </font></font></p> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">Here is an ITC story – jitters and shivers included. Our taxpayer is a partnership firm registered under the CGST carrying on rubber business in various parts of the country including the State of Tripura. For carrying out its business, it had to purchase certain raw materials on which it duly paid the GST and used the material in the course of manufacturing of the finished products, and therefore it was entitled to Input Tax Credit [ITC]. </font></font></p> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">But here is the catch! Our taxpayer paid the applicable GST to the supplier but did that supplier pay that GST to the government? How does our taxpayer know? He had nothing beyond a<em> bona fide</em> belief that the tax has reached the government. Is he expected to go round and investigate whether the tax has been paid by the supplier to the government? </font></font></p> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">Anyway, the Department got jittery and issued a Show Cause on 14.01.2021 stating that for the tax period stretching from August, 2017 to July, 2019, the due tax has either not been paid or paid short or refunded or released erroneously or the ITC was wrongly availed or wrongly utilized, and asked him to show cause why Rs.22,09,964.04 should not be recovered from him. Thereafter, an order dt.17.02.2022 was passed by the CGST Assistant Commissioner that the taxpayer had unauthorizedly claimed ITC and directed the petitioner to make the payment of the above-mentioned amount. </font></font></p> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">Challenging this order, the taxpayer is before the Tripura High Court. The High Court last week set aside the impugned order and directed the Department to forthwith allow the ITC. <em>(MALAYA RUB-TECH INDUSTRIES vs UNION OF INDIA - <strong><a href="https://taxindiaonline.com/searchcaselaw/details?id=191657&type=caselaw&keyword=null" target="_blank">2026-TIOL-315-HC-TRIPURA-GST</a></strong>)</em> </font></font></p> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">This was not the first time this issue was decided by a High Court – for that matter even the Tripura High Court had decided the same issue a month ago on <em>January 06, 2026 in SAHIL ENTERPRISES vs UNION OF INDIA - <strong><a href="https://taxindiaonline.com/searchcaselaw/details?id=191006&type=caselaw&keyword=null" target="_blank">2026-TIOL-62-HC-TRIPURA-GST</a></strong></em>. </font></font></p> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">Section 16 of the CGST Act deals with eligibility and conditions for taking ITC. The section to the extent relevant states: </font></font></p> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif"><strong><em>Section 16. Eligibility and conditions for taking input tax credit. - </em></strong></font></font></p> <blockquote><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person. </font></font></p><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless, - </font></font></p><blockquote><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed; </font></font></p><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37; </font></font></p><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">(b) he has received the goods or services or both. </font></font></p></blockquote><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">Explanation. - For the purposes of this clause, </font></font></p><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">xxxxxxxx </font></font></p><blockquote><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">(ba) the details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted; </font></font></p><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">(c) subject to the provisions of section 41, the tax charged in respect of such supply <font color="#ff0000">has been actually paid to the Government</font>, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and </font></font></p><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">(d) he has furnished the return under section 39: </font></font></p></blockquote></blockquote> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">GST is paid by the purchaser to a supplier on purchase of goods and/or services. The purchaser then avails the tax paid to the supplier as ITC in its Electronic Credit Ledger and offsets its partial liability by using the said ITC. </font></font></p> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">The concept of ITC is to avoid burden of double taxation on the taxpayer. </font></font></p> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">Section 16(2) (c) allows ITC to the purchaser only when the supplier had discharged the output liability through cash or by using ITC. But if the supplier has not paid the tax to the Government, the purchaser is not eligible to avail ITC. </font></font></p> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">The fact that there is no mechanism with the recipient of goods to verify whether the supplier has discharged its liability to the Government, or not, is not disputed. It is also not disputed that it is not possible for a purchaser to keep a check on activities of its supplier or ensure that the latter makes over to the Government, the GST paid to him by the purchaser. </font></font></p> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">It was contended before the High Court that: - </font></font></p> <blockquote><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">1. To deny the ITC benefit to a purchaser like the petitioner, who is a bona fide purchaser, and who has paid the GST to the supplier, is arbitrary and unreasonable and violates Art.14, 19(1) (g) and Art.300-A of the Constitution of India. </font></font></p><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">2. For a mistake on the part of the supplier to transfer the tax collected from purchaser to the Government, the purchaser cannot be found fault with. Otherwise, it would be penalizing a person for a mistake of another person. </font></font></p><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">3. By denying the purchaser ITC and making the purchaser pay the tax to the Government again, amounts to double collection when he has already paid to the supplier and it violates Art.265 of the Constitution of India. </font></font></p></blockquote> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">The High Court found considerable force in the contention of the petitioner and observed: </font></font></p> <blockquote><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">1. There is a failure by the Parliament, while enacting Section 16 (2)(c) of the Act, to make a distinction between purchasing dealers who have bona fide transacted with the selling dealer by taking all precautions as required by the Act and those that have not. </font></font></p><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">2. Therefore, there is need to restrict the denial of ITC only to the selling dealers who had failed to deposit the tax collected by them and not punish bona fide purchasing dealers. </font></font></p><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">3. The purchasing dealer cannot be asked to do the impossible, i.e., to identify a selling dealer who will not deposit with the Government, the tax collected by him from purchasing dealers, and avoid transacting with such selling dealers. </font></font></p><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">4. Section 16(2)(c) of the Act requires the purchasing dealer to somehow ensure that the selling dealer does, in fact, deposit the tax collected from the purchasing dealer; and if the selling dealer fails to do so, undergo the risk of being denied the ITC. </font></font></p><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">5. It would be extremely difficult for a purchasing dealer to ensure that the selling dealer deposits the GST collected from him with the Government. </font></font></p><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">6. So, section 16(2)(c) of the Act places an onerous burden on a bona fide purchasing dealer. </font></font></p><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">7. If the law seeks to visit disproportionate consequences to a bona fide purchasing dealer, it will become vulnerable to invalidation on the touchstone of Article 14 of the Constitution. </font></font></p><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">8. It is a fundamental rule of law of taxation that, unless otherwise expressly provided, income cannot be taxed twice. </font></font></p><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">9. There cannot be dispute that the concept of Input Tax credit is introduced to ensure that there is no burden of double taxation on a taxpayer. </font></font></p></blockquote> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">This issue was before several High Courts and the Courts were divided. </font></font></p> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">The Tripura High Court held that: </font></font></p> <blockquote><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">(a) Section 16(2) (c) of the Act is not violative of Art.14, 19(1) (g) or 265 or 300-A of the Constitution of India; </font></font></p><p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">(b) But Section 16(2) (c) of the Act ought not to be interpreted to deny ITC to purchasers in a bona fide transaction like the petitioner and it should be <strong>read down</strong> and applied only where the transaction is found to be not bona fide or is a collusive transaction or fraudulent transaction to defraud the revenue. </font></font></p></blockquote> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">The Delhi High Court [<em>On Quest Merchandising India Pvt. Ltd. <strong><a href="https://taxindiaonline.com/searchcaselaw/details?id=131338&type=caselaw&keyword=null" target="_blank">2017-TIOL-2251-HC-DEL-VAT</a></strong></em>] had observed :-<em> It is trite that a law that is not capable of honest compliance will fail in achieving its objective. If it seeks to visit disobedience with disproportionate consequences to a bona fide purchasing dealer, it will become vulnerable to invalidation on the touchstone of article 14 of the Constitution.</em> </font></font></p> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">If the Government truly wishes to prevent fraud, it must build a proper system of invoice matching and ensure recovery from the supplier who pockets the tax without depositing it. Hunting the recipient, who has already paid in good faith, is not enforcement-it is persecution. The law should chase the defaulter, not punish the compliant. </font></font></p> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif"><img src="https://admin.taxindiaonline.com/UploadedFiles/Customs/CaseLaws/2026/JestGST18022026.JPG.jpeg" style="height:522px; width:377px"/></font></font></p> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">And so, the taxpayer bows, the supplier exits, the officer enters. The handbook applauds - -Jitters & Shivers takes a standing ovation. </font></font></p> <p align="justify"><font color="#ff0000"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">Until next week</font></font></font></p> <p align="justify"><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif">Comments/feedback welcome at <u><a href="mailto:vijaywrite@tiol.in">vijaywrite@tiol.in</a></u> or 9848111243 (WhatsApp) </font></font></p> </body> </html>