The notice usually lands about eighteen months late. By then the invoice is a line in a reconciliation nobody has opened since it was filed, and the person who approved the purchase order has moved on.

Nothing about the purchase was irregular. A registered vendor. A valid tax invoice. Goods received, recorded, consumed. Payment made through banking channels within the 180-day window, tax component included. Returns filed on time. Judged by everything the buyer could see, verify, or control, the transaction was clean.

The credit is being reversed anyway, with interest. The vendor collected the tax and never deposited it.

This grievance is older than the tax that produced it. It survived the transition from VAT, arrived intact under GST, and has been argued in one High Court after another for most of a decade. What changed in July 2026 is that the Supreme Court declined to disturb the Gujarat High Court's answer — which means the argument that a buyer acting in good faith deserves to be spared is now, for working purposes, over.

A Condition You Cannot Perform

Section 16(2) of the CGST Act lists the conditions for claiming input tax credit, and three of the four describe things the buyer does. Hold the invoice. Receive the supply. File the return. Ordinary obligations, ordinarily discharged.

Clause (c) is not like the others. It requires that the tax "has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply" — and nothing the buyer does can satisfy it. Only the vendor can. The buyer cannot inspect the vendor's GSTR-3B, cannot compel its filing, and in most cases will not learn of the default until the department does.

So the statute makes a taxpayer's entitlement contingent on a third party's conduct, gives the taxpayer no means of observing that conduct, and then charges interest when the conduct turns out to have been bad.

Put that way, it sounds indefensible. A batch of petitioners in Gujarat thought so too.

The Maxim That Did Not Save Them

Maruti Enterprise v. Union of India was decided on 1 May 2026. The challenge ran on Articles 14, 19(1)(g) and 300A, but the argument that carried the emotional weight was a maxim: lex non cogit ad impossibilia. The law does not compel the impossible. If a buyer cannot make a vendor remit and cannot even discover whether remittance happened, a provision punishing the buyer for non-remittance demands something no one can deliver.

There was authority for it. Section 9(2)(g) of the Delhi VAT Act had denied credit in nearly identical circumstances, and in On Quest Merchandising the Delhi High Court read the provision down — confining it to cases of collusion and sparing purchasers who had acted honestly. The Tripura High Court took a similar line in Sahil Enterprises. The petitioners asked GST to inherit that reasoning.

It did not.

Why Delhi's VAT Cases Stayed in Delhi

The Court's answer had nothing to do with whether the hardship was real. It accepted the buyer's blindness as a fact. What it rejected was the claim that the two statutes are alike enough for the older remedy to travel.

Under DVAT, a purchaser denied credit for the seller's default had nowhere to go. The denial was permanent, and that permanence is what made reading down the provision the only sensible relief. GST is built differently. Section 41(2) addresses the exact scenario: where the supplier has not paid, the buyer reverses the credit with interest — and when the supplier eventually pays, the credit can be re-availed, through the route in Rule 37A of the CGST Rules. The loss is a suspension, not a forfeiture.

Two other provisions closed the gap. Section 155 puts the burden of proving eligibility on whoever claims the credit, which places the evidentiary risk with the buyer deliberately rather than by oversight. And section 53, governing settlement of funds between the Centre and the States, means credit granted without a matching deposit does not simply cost the exchequer a sum — it corrupts the arithmetic the whole dual-tax structure runs on.

The department is also not the buyer's only recourse against a defaulting vendor. Sections 73 and 74 let the revenue proceed against the supplier directly and collect at source. The buyer, the Court observed, is not left remediless.

That last point deserves a moment of honesty. "Not remediless" is doing a great deal of work in that sentence. The buyer is left with a remedy it must depend on someone else to exercise, against a counterparty that has already demonstrated what it thinks of its obligations.

Suspended, Not Extinguished

Most of the coverage of this decision has been framed as buyers losing credit when vendors default. That is not quite what the statutory scheme says, and the distinction matters commercially.

On the Court's own reading, the credit revives when the tax reaches the government. What the buyer actually loses is the use of that money in the interim, plus interest on the reversal, plus the administrative cost of noticing and chasing the default at all.

Which is a smaller loss than forfeiture and a more irritating one. Forfeiture you write off once. This you monitor — waiting on a vendor who has already declined to pay to change its mind, and staying alert enough to reclaim inside the window Rule 37A allows. For a manufacturer with four hundred small suppliers, that is not a tax problem. It is a permanent operational overhead that arrives unannounced and attaches to transactions closed years ago.

The Takeaway

Vendor compliance has stopped being an assumption and become a term of business.

At onboarding, the question worth asking is no longer whether a vendor is registered — it is whether it files. A supplier with a pattern of late or missing GSTR-3B returns is a credit risk in a way that has nothing to do with its ability to deliver goods or its balance sheet, and everything to do with what its habits will cost you eighteen months from now.

After onboarding, the reconciliation against GSTR-2B needs to happen on a schedule rather than in response to a notice. A default caught in the same quarter is a commercial conversation, with an unpaid invoice still available as leverage. The same default caught by the department two years later is a reversal with interest and a vendor who no longer takes your calls.

And the contract should say something about it. Indemnity for credit denied on account of the supplier's non-remittance is straightforward drafting; withholding the tax component until deposit is evidenced is harder to negotiate, but it converts the problem from a recovery question into a payment-terms question, which is a much better place to have it.

None of this is clever. It is the sort of housekeeping that gets deferred because the downside is invisible until it isn't. The constitutional argument for deferring it, though, has now been closed at the highest level available.