Section 16 is the gateway to input tax credit — the mechanism that makes GST a tax on value added. Credit is allowed on supplies used in business, but only if every condition in sub-section (2) is met and the claim is made within the time in sub-section (4). The most contested condition — that the supplier must actually have paid the tax — has now been upheld by the Supreme Court.
Key points
- Under section 16 of the CGST Act, 2017 a registered person may take credit of tax on supplies used or intended to be used in the course or furtherance of business, subject to the conditions in section 16(2).
- The conditions are: a tax invoice or debit note; the invoice reflected in GSTR-2B (from 01.01.2022); receipt of the goods or services; credit not restricted under section 38; the tax actually paid to the Government by the supplier; and the recipient's own return filed.
- In Bhandari Scrap Traders v Union of India (2026) the Supreme Court upheld section 16(2)(c): credit is available only if the supplier has actually paid the tax, and the provision is not to be read down in favour of bona fide purchasers.
- If the recipient does not pay the supplier within 180 days of the invoice, an amount equal to the credit must be paid back with interest, and may be re-availed when payment is made.
- Credit must be taken by 30 November following the financial year or the annual return, whichever is earlier (section 16(4)); for 2017–18 to 2020–21 credit taken in returns filed up to 30.11.2021 is protected by section 16(5).
The provisions
16(1)Entitlement
Statutory text
(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.
*Enforced w.e.f. 1st July, 2017.
16(2)The six conditions and the 180-day rule
Statutory text
(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,-
(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;
1[(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;]
(b) he has received the goods or services or both.
2[Explanation.- For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services-
(i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
(ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person;]
3[(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;]
(c) subject to the provisions of 4[section 41 5[***]], the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
(d) he has furnished the return under section 39:
Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment:
Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be 9[paid by him along with interest payable under section 50], in such manner as may be prescribed:
Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him 10[to the supplier] of the amount towards the value of supply of goods or services or both along with tax payable thereon.
1. Inserted (w.e.f. 1st January, 2022 vide Notification No. 39/2021-C.T., dated 21st December, 2021) by s. 109 of The Finance Act, 2021 (No. 13 of 2021).
2. Substituted (w.e.f. 1st February, 2019) for "Explanation.-For the purposes of this clause, it shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;" by s. 8 of The Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018).
3. Inserted (w.e.f. 1st October, 2022 vide Notification No. 18/2022 - CT dated 28.09.2022.) by s. 100 of The Finance Act 2022 (No. 6 of 2022).
4. Substituted "section 41" (w.e.f. a date yet to be notified) by s. 8 of The Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018).
5. Omitted “or section 43A” (w.e.f. 1st October, 2022 vide Notification No. 18/2022 - CT dated 28.09.2022.) by s. 100 of The Finance Act 2022 (No. 6 of 2022).
9. Substituted (w.e.f. 1st October, 2023 vide Notification No. 28/2023-C.T., dated 31st July, 2023) by s. 138 of The Finance Act 2023 (No. 8 of 2023) for "added to his output tax liability, along with interest thereon".
10. Inserted (w.e.f. 1st October, 2023 vide Notification No. 28/2023-C.T., dated 31st July, 2023) by s. 138 of The Finance Act 2023 (No. 8 of 2023).
What it means
- (a) Document — a tax invoice or debit note from a registered supplier, or another prescribed tax-paying document such as a bill of entry (Rule 36).
- (aa) Reflected in GSTR-2B — from 01.01.2022, the supplier must have furnished the invoice in its GSTR-1 and it must have been communicated to the recipient under section 37.
- (b) Receipt — the goods or services must have been received; goods delivered to a third person on the recipient's direction (bill-to-ship-to) and services provided to another person on its direction and account count as received.
- (ba) Not restricted — from 01.10.2022, credit communicated under section 38 must not have been restricted (for instance, for new registrants or defaulting suppliers).
- (c) Tax actually paid — the supplier must have paid the tax charged to the Government, in cash or through admissible credit. Upheld by the Supreme Court in 2026 (below).
- (d) Return filed — the recipient must have furnished its return under section 39.
- Provisos — credit on goods received in lots is taken on the last lot; if the recipient does not pay the supplier the value and tax within 180 days of the invoice, an amount equal to the credit must be paid with interest (since 01.10.2023 "paid by him along with interest"), and may be re-availed on payment.
Case on this provision
Bhandari Scrap Traders v Union of India
SLP (C) 23931/2026 and connected matters · 2026 LLBiz SC 250 · 28.07.2026 · Supreme Court, 2 Judges (Sanjay Kumar, Sanjeev Sachdeva JJ.)
- Facts
- Purchasers whose credit was denied because their suppliers had not paid the tax challenged section 16(2)(c), arguing that it penalised honest buyers for defaults they could neither control nor verify. They asked, in the alternative, that it be read down to deny credit only where fraud or collusion was shown. The Gujarat High Court had upheld the provision.
- Held
- Appeals dismissed; section 16(2)(c) is constitutional under Articles 14, 19(1)(g), 265 and 300A. Credit is a statutory entitlement available only on the conditions the statute imposes, and the Court declined to read the provision down for bona fide purchasers, distinguishing the Delhi VAT decision in Arise India. It noted that credit reversed for a supplier's default can be re-availed once the supplier discharges the tax.
- Here
- The condition in clause (c) is enforceable as written. Earlier High Court decisions requiring action against the supplier first — such as Suncraft Energy (Calcutta HC, 2023), where the Supreme Court declined to interfere because of the small amount involved — are now best read as turning on their facts.
Suncraft Energy Pvt Ltd v Assistant Commissioner, State Tax — Calcutta High Court, 2023— Credit reversal set aside where no action was taken against the defaulting supplier; Supreme Court declined to interfere (14.12.2023).
The recipient's credit for 2017–18 was reversed because suppliers had not reported the supplies in GSTR-1. The High Court set the demand aside: action should first be taken against the supplier, and reversal by the recipient is a last resort. The Supreme Court dismissed the State's special leave petition, citing the small amount involved — not deciding the question of law. Read with Bhandari Scrap Traders (2026).
16(3)No double benefit with depreciation
Statutory text
(3) Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income tax Act, 1961 (43 of 1961), the input tax credit on the said tax component shall not be allowed.
What it means
If depreciation under the Income-tax Act is claimed on the tax component of the cost of capital goods or plant and machinery, credit of that tax is not allowed. The business must choose: capitalise the tax and depreciate it, or take credit.
16(4)–(6)Time limit; relief for 2017–21 and revoked registrations
Statutory text
(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the 6[thirtieth day of November] following the end of financial year to which such invoice or 7[****] debit note pertains or furnishing of the relevant annual return, whichever is earlier.
8[Provided that the registered person shall be entitled to take input tax credit after the due date of furnishing of the return under section 39 for the month of September, 2018 till the due date of furnishing of the return under the said section for the month of March, 2019 in respect of any invoice or invoice relating to such debit note for supply of goods or services or both made during the financial year 2017-18, the details of which have been uploaded by the supplier under sub-section (1) of section 37 till the due date for furnishing the details under sub-section (1) of said section for the month of March, 2019.]
11[(5) Notwithstanding anything contained in sub-section (4), in respect of an invoice or debit note for supply of goods or services or both pertaining to the Financial Years 2017-18, 2018-19, 2019-20 and 2020-21, the registered person shall be entitled to take input tax credit in any return under section 39 which is filed up to the thirtieth day of November, 2021.
(6) Where registration of a registered person is cancelled under section 29 and subsequently the cancellation of registration is revoked by any order, either under section 30 or pursuant to any order made by the Appellate Authority or the Appellate Tribunal or court and where availment of input tax credit in respect of an invoice or debit note was not restricted under sub-section (4) on the date of order of cancellation of registration, the said person shall be entitled to take the input tax credit in respect of such invoice or debit note for supply of goods or services or both, in a return under section 39,–
(i) filed up to thirtieth day of November following the financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier; or
(ii) for the period from the date of cancellation of registration or the effective date of cancellation of registration, as the case may be, till the date of order of revocation of cancellation of registration, where such return is filed within thirty days from the date of order of revocation of cancellation of registration, whichever is later.]
6. Substituted (w.e.f. 1st October, 2022 vide Notification No. 18/2022 - CT dated 28.09.2022.) by s. 100 of The Finance Act 2022 (No. 6 of 2022) for ''due date of furnishing of the return under section 39 for the month of September".
7. Omitted "invoice relating to such" (w.e.f. 1st January, 2021 vide Notification No. 92/2020-C.T., dated 22nd December, 2020) by s. 120 of The Finance Act, 2020 (No. 12 of 2020) .
8. Inserted vide Order No. 02/2018 -Central Tax dated 31st December, 2018.
11. Inserted by section 118 of The Finance Act (No. 2) Act, 2024 No. 15 of 2024 dated 16.08.2024.
What it means
Credit on an invoice or debit note must be taken by the earlier of 30 November following the end of the financial year (from 01.10.2022; earlier, the due date of the September return) and the date of the annual return. The first proviso extended the limit for 2017–18 to the March 2019 return.
The time limit has been upheld by High Courts — Gobinda Construction v Union of India (Patna HC, 08.09.2023) and Thirumalakonda Plywoods v Assistant Commissioner (Andhra Pradesh HC, 2023) — and a challenge is pending in the Supreme Court (SLP (C) 28270/2023, notice issued 03.01.2024).
Two reliefs were added by the Finance (No. 2) Act, 2024 (section 118), brought into force on 27.09.2024 with effect from 01.07.2017. Sub-section (5): for 2017–18 to 2020–21, credit taken in any return filed up to 30.11.2021 is valid notwithstanding sub-section (4). Sub-section (6): where a cancelled registration is restored, credit for the period between cancellation and revocation may be taken in returns filed within thirty days of the revocation order, if not already time-barred when the registration was cancelled. Demands already confirmed for these periods may be rectified under section 148 (Notification 22/2024-Central Tax).
Statutory text as published on the CBIC tax information portal, as on 03.10.2026; the numbered notes record each amendment. Official source
Common questions
- Can input tax credit be denied if my supplier did not pay the tax?
- Yes. Section 16(2)(c) of the CGST Act makes credit depend on the supplier actually paying the tax, and the Supreme Court upheld it in Bhandari Scrap Traders v Union of India (2026). The credit can be re-availed once the supplier pays.
- Is ITC allowed if the invoice is not in GSTR-2B?
- From 01.01.2022, no — section 16(2)(aa) requires the supplier to have reported the invoice so that it is communicated to the recipient.
- What is the last date to claim ITC for a financial year?
- 30 November following the end of the financial year, or the date of filing the annual return if earlier (section 16(4)).
- What happens if I do not pay my supplier within 180 days?
- An amount equal to the credit taken must be paid with interest; the credit can be taken again when you pay the supplier (second and third provisos to section 16(2)).
Commentary and case notes checked against the judgments and CBIC sources on 04.10.2026.
What it means
Credit of input tax — defined in section 2(62) to include IGST on imports and tax paid on reverse charge — on supplies "used or intended to be used in the course or furtherance of business", credited to the electronic credit ledger and used in the manner set out in section 49. Entitlement under sub-section (1) is subject to the conditions in (2), the blocks in section 17, and the prescribed rules (Rules 36 to 45).