Proper Officer to Redecide Section 16(2)(c) ITC Denial Applying Shaurya Alloys Guidelines: Allahabad High Court

The Allahabad High Court, by consent, directed fresh determination of a paper mill’s credit on purchases from defaulting suppliers, after the appellate authority found the buyer had paid tax and filed returns.

The Allahabad High Court has directed the proper officer to decide afresh whether a buyer’s ITC can be denied under Section 16(2)(c) because its suppliers did not pay tax, applying the guidelines laid down by the Punjab and Haryana High Court in Shaurya Alloys Pvt. Ltd. vs. State of Punjab. [Garg Duplex & Paper Mills Private Limited v. State of U.P. & Ors., 2026-juristway.com-3182-HC(Allahabad)-GST]

Justice Vikas Budhwar disposed of the writ petition with the consent of the parties.

The petitioner, a paper manufacturer, bought waste paper in 2017-18. A Section 74 demand followed, which the first appellate authority set aside, deleting ₹1,57,74,197 in tax, interest and penalty. It found that the petitioner had produced invoices and proof of payment, but that two suppliers, M/s Rahul Paper Traders and M/s J.M.D. Traders, had not discharged their liability, and directed the joint commissioner to determine tax, interest and penalty afresh under Section 73(9).

The petitioner argued that the appellate authority had no power to remand and that it had done everything the statute required of it. The Standing Counsel relied on Section 107(11) read with Section 75(2).

The Court noted that Shaurya Alloys upheld Section 16(2)(c) but held that it must not be invoked mechanically. Its guidelines require the officer to record satisfaction on the supplier’s default, establish a direct link with the buyer, consider the remedy under Section 76 against the seller, and deal with the buyer’s evidence.

The appellate findings in the petitioner’s favour were left undisturbed. The proper officer is to decide the issue independently, in light of Shaurya Alloys and other decisions, after allowing the parties to produce evidence. The Department remains free to proceed against the defaulting suppliers.

2026-juristway.com-3182-HC(Allahabad)-GST