The legality of S. 16 (2) (c) of the Central Goods and Services Tax Act, 2017 is under challenge before various High Courts in India. S. 16 of the CGST Act deals with the eligibility and conditions for taking input tax credit (ITC). According to S. 16 (1) of the CGST Act, "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." S. 16 (2) of the CGST Act, lays down the criteria which will disentitle one from getting input tax credit. According to S.16 (2) (c), the entitlement to get input tax is contingent on the tax charged in respect of such supply having been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply. This is subject to S. 41 of the Act.
S. 16 (2) (c), thus imposes a duty on the tax payers; i.e., the duty to ensure that, the seller has paid the tax collected from them to the Government. But tax payers have no way to ensure compliance with this provision by the seller. The tax payer also has a duty to ensure the ITC is admissible on the part of the seller. S 16 (2) (c) is therefore violative of the settled legal principle that "Lex Non Cogit ad impossibilia" which means "the law does not compel a man to do which he cannot possibly perform".This is one among the many grounds under which S. 16 (2) (c) is challenged.