A Division Bench dismissed Sumetco Alloys’ constitutional challenge to Section 16(2)(c), held ITC is a statutory facility with conditions, and left contested factual questions and Section 74 proceedings to the statutory appeal process.
Rajasthan HC held Section 16(2)(c) constitutional: payment of tax by supplier can validly be a condition for claiming input tax credit (ITC).
The Court relied on the reversal and re-availment mechanism under Section 41 (read with Sections 73 and 74) to address arbitrariness concerns.
Bench allowed Sumetco 30 days to file a plea and directed credit of Rs 50 lakh deposited via Form GST DRC-03 against the pre-deposit.
# Case summary
Court (Division Bench of Justices Arun Monga and Ashutosh Kumar) dismissed Sumetco Alloys Private Limited's writ challenge to Section 16(2)(c) of the Central Goods and Services Tax Act, 2017. The company contested a GST demand of Rs. 56.44 crore for FY 2020-21 to 2023-24 and argued that it had legitimately claimed input tax credit backed by invoices, payments, e-way bills and transport documents.
The Bench held that ITC is not a constitutional right but a statutory facility available only upon compliance with the conditions in Section 16(2). The Court found no constitutional infirmity in Section 16(2)(c) and rejected Sumetco's attempt to read down the provision to protect bona fide purchasers. The Bench placed reliance on the Supreme Court decision in Bhandari Scrap Traders v. Union of India when reaching that conclusion.
# Why the court upheld the provision
# Procedural posture and contested facts
The department issued a show cause notice under Section 74 alleging bogus invoices, fake supplies and multi-layered paper transactions without actual movement of goods. The High Court observed the presence of disputed factual allegations in the 33-page SCN and concluded those matters required detailed analysis of evidence. Because of that, the Court held writ proceedings were not the appropriate forum to decide the factual issues and declined to interfere with the Section 74 proceedings.
# Natural justice and appellate route
# Orders and immediate directions
The writ petition was disposed of. The Court gave Sumetco 30 days to submit a plea (presumably in the statutory processes). It also directed the tax department to give credit for Rs 50 lakh that Sumetco had already deposited via Form GST DRC-03 as the statutory pre-deposit.
# Practical point for taxpayers
This decision reinforces that eligibility for ITC depends on meeting statutory conditions. Where authorities allege supplier default, reversal and re-availment under Section 41 and recovery provisions under Sections 73 and 74 are the statutory mechanisms for resolving entitlement. Challenges that rely on disputed facts are likely to be directed into adjudication and statutory appeal channels rather than resolved via writ petitions.
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