Section 16(2)(c) Constitutionally Valid But Cannot Be Applied Mechanically — P&H HC Chief Justice Lays Down 14 Binding Guidelines for Invocation, Upholds Validity Following SC’s Bhandari Scrap Traders

The Punjab & Haryana High Court, in a landmark batch ruling presided over by Chief Justice Ashwani Kumar Mishra, has upheld the constitutional validity of Section 16(2)(c) of the CGST Act following the Supreme Court’s Bhandari Scrap Traders v. Union of India (SLP(C) 23931/2026, 24.07.2026) affirming the Gujarat HC’s Maruti Enterprises, but has simultaneously laid down fourteen binding guidelines governing its invocation, holding that the provision cannot be construed as a standalone clause to mechanically saddle liability on the purchasing dealer for the selling dealer’s default, without the proper officer first examining the circumstances, genuineness of the transaction, available statutory remedies against the defaulter, and the framework applicable to the relevant period. The ruling in CWP batch (decided 01.10.2026) applies to all proceedings pending before proper officers of Central Government, States of Punjab and Haryana, and Union Territory of Chandigarh.

The guidelines mandate that: (i) retrospective cancellation of the seller’s registration alone cannot be the basis for ITC reversal; (ii) before issuing SCN, the proper officer must apply his mind to supplier particulars, precise nature of default, circumstances, and proceedings against the seller; (iii) investigation must establish a direct link with the supplier; (iv) documents relied upon must be supplied; (v) where Section 74 is invoked, foundational facts of fraud/suppression must emanate from the notice per Tata Steel (SC) and G.R. Infra (SC) — the fraud of the selling dealer is not automatically the fraud of the purchasing dealer; (vi) the purchasing dealer may discharge the S.155 burden by producing invoices, e-way bills, transport receipts, weighbridge slips; (vii) statutory remedy against the defaulting seller cannot be rendered toothless; (viii) the proper officer must apply the framework of the relevant period, distinguishing three phases (pre-01.10.2022, post-01.10.2022, post-26.12.2022 Rule 37A); (ix) registration cannot be cancelled merely because ITC was availed from a seller whose registration was later cancelled; (x) cross-examination requests must be considered; and (xi) a reasoned order dealing with each disputed condition is mandatory.

- 2026-juristway.com-2789-HC(Punjab & Haryana)-GST  |  High Court of Punjab & Haryana  |  CWP Batch  |  01.10.2026