Gujarat HC to Examine Validity of GST S. 16(2) Provisos Mandating ITC Reversal for Non-Payment Within 180 Days [Read Order]

In a recent order, the Gujarat High Court issued notice on a petition challenging the constitutional validity of the second and third provisos to Section 16(2) of the GST Act, which require reversal of ITC when payment to the supplier is not made within 180 days.

Priya Blue Industries Pvt. Ltd., the petitioner, filed a Special Civil Application questioning the legality of these provisos. The matter concerns whether the 180-day payment condition for retaining input tax credit is consistent with constitutional protections and the structure of GST.

“Section 16(2) – Conditions for availing ITC

Second Proviso to Section 16(2):

“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 paid by him along with interest payable under section 50, in such manner as may be prescribed:”

Third Proviso to Section 16(2):

“Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him to the supplier of the amount towards the value of supply of goods or services or both along with tax payable thereon.”

During the hearing, the petitioner’s counsel argued that the challenge to the vires of the provision required the court’s scrutiny and that the Additional Solicitor General was expected to appear, as recorded earlier in the proceedings.

The respondents’ counsel appeared and waived service of notice. The court observed that since the vires of the provision is under challenge, the matter needs to proceed in accordance with the earlier order of 3 August 2022, which records the requirement of appearance by the Additional Solicitor General.

The Division Bench of Justice A. S. Supehia and Justice Pranav Trivedi issued notice and made it returnable on 11 December 2025.

The petition will now be considered further after receiving the government’s response.

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