🔑 In one line
The Supreme Court just confirmed you can lose ITC if your supplier doesn't pay tax — but a GST Council proposal, cleared in July 2026, wants to end exactly that. Neither story is finished yet.
Section 16(2)(c)
The law in question
2 committees
Have cleared the fix
Pending
Full Council approval
Two things happened at almost the same time
In the same window this year, two opposite-feeling developments hit the GST world — and a lot of businesses are confusing which one is actually in effect right now.
The Court confirmed businesses cannot claim ITC unless their supplier has actually deposited the GST with the government — dismissing the argument that bona fide buyers shouldn't suffer for a supplier's default. This is binding law today.
Under the proposal, a buyer's ITC would be protected once the supplier's invoice reflects in the buyer's GSTR-2B and the buyer can show payment — including the GST component — was made through banking channels. Tax authorities would then chase the defaulting supplier instead of reversing the buyer's credit. It's cleared two internal committees and is expected on the agenda at an upcoming GST Council meeting — but it isn't law until the Council approves it and it's notified.
Today's rule vs the proposed rule
| Aspect | Today (binding) | If approved |
|---|
| ITC when supplier defaults | Denied / reversed | Protected |
| Who bears the risk | The buyer | The defaulting supplier |
| What buyer must prove | Supplier actually paid tax | Payment via banking channel + invoice in GSTR-2B |
This is still a proposal. Until the GST Council formally approves it and it's notified through a CGST amendment, Section 16(2)(c) remains fully enforceable exactly as the Supreme Court read it.
What to do while this is pending
1
Buy only from GST-compliant suppliers — check filing history before onboarding new vendors.
2
Reconcile GSTR-2B against your purchase register regularly — don't wait for a notice to discover a mismatch.
3
Always pay through banking channels — this is exactly the proof the proposed rule would require anyway.
4
Keep invoices, payment proofs, and contracts organised — whichever rule ends up applying, documentation is what protects you.
Why it matters even before it's law
Tax professionals are already advising businesses to build the habits this proposal assumes — clean digital payment trails and regular 2B reconciliation — because those are exactly what would be needed to benefit from the protection if and when it's approved. Getting ahead of it now means no scramble later.
Make GSTR-2B reconciliation painless
Convert your GST invoices into structured Excel data — GSTIN, HSN, and tax split, ready to match against your 2B.
Try GST Converter Free →