Is Input Tax Credit (ITC) a Right or Concession? Legal & Constitutional Analysis
The question of whether Input Tax Credit (ITC) is a constitutional right or a concession provided by law is one of the most frequently litigated issues in indirect taxation in India. The sources present a detailed picture reflecting a dual status: ITC starts as a statutory concession but, once legally accrued, is transformed into a form of property protected by constitutional provisions.
The deep research into judicial precedents establishes key cases supporting both interpretations, particularly focusing on the denial of credit to bona fide purchasers and challenges to statutory restrictions.
I. ITC as a Statutory Concession or Legislative Grant
The prevailing view is that the grant of ITC is an act of legislative grace, and the terms and conditions prescribed by the relevant statute must be strictly followed:
| Case Name | Court & Date | Legal Principle/Holding |
| VKC Footsteps India Pvt. Ltd. v. Union of India | Supreme Court (2021) 52 GSTL 513 (SC) |
Held that a claim to refund is governed by statute, and there is no constitutional entitlement to seek a refund. Parliament, when legislating refund provisions (Section 54(3)), is entitled to make policy choices and classifications and can carve out exceptions to the entitlement of ITC. |
| ALD Automotive Pvt. Ltd. v. Commercial Tax Officer | Supreme Court (2018) 364 ELT 3 (SC) | Confirmed that the input credit is in the nature of a benefit/concession extended to the dealer under the statutory scheme. The concession can only be received by the beneficiary as per the scheme of the statute. |
| Jayam and Company v. Assistant Commissioner | Supreme Court (2016) 15 SCC 125 (SC) :: (2016) 96 VST 1 (SC) | It is settled law that whenever a concession is given by statute, the conditions must be strictly complied with to avail such concession. Thus, ITC is not the right of the 'dealers' but a concession granted by virtue of the statute (Section 19 of the TNVAT Act was referenced). |
| JCB India Limited v. Union of India | Bombay High Court (2018) 15 GSTL 145 (Bom.) | Held that CENVAT credit (pre-GST credit) is a mere concession and cannot be claimed as a matter of right. If the existing law imposes conditions for its enjoyment, the credit is a restricted or conditional right, and it is not arbitrary or violative of Articles 14 and 19(1)(g) to impose conditions on its availment. |
| USA Agencies v. Commercial Tax Officer | Madras High Court (2013) 66 VST 75 :: (2014) 305 ELT 404 (Mad.) | Explicitly ruled that Input Tax Credit is neither a fundamental right nor a common law right. Time limit restrictions to claim ITC were upheld as a valid piece of legislation. |
II. ITC as a Vested Right Protected by the Constitution
While the initial claim is a concession, courts have repeatedly asserted that once the tax is paid and the credit is recorded or due, it acquires protection under constitutional rights, particularly concerning the right to property and livelihood:
| Constitutional Article | Case Name (and principle) | Holding/Citation Details |
| Article 300A (Right to Property) | Adinath Industries / KMC Constructions Limited / M/s Amazonite Steel (P) Ltd. / Siddharth Enterprises | The credit standing in favour of an assessee is "property". The assessee cannot be deprived of this property save by authority of law in terms of Article 300A of the Constitution of India. Accrued Cenvat credit earned under the erstwhile law is considered the property of the assessee and cannot be appropriated merely for procedural lapses. Continued attachment of bank accounts beyond the statutory period was held to be violative of Article 300A. |
| Article 19(1)(g) (Right to Trade) | Siddharth Enterprises / Tvl. Suguna Cutpiece Center / LGW Industries Ltd. (General Argument) | Denial of credit violates Article 19(1)(g) because it affects the working capital of the assessee and diminishes their ability to continue with business. The constitutional guarantee under Article 19(1)(g) to practice any trade is unconditional and unequivocal and must be enforced, allowing only reasonable restrictions. Denial of ITC due to supplier default is considered a serious affront to the right to carry on trade. |
| Article 14 (Right to Equality) | Arise India Limited / Gheru Lal Bal Chand / Indsur Global Ltd. | Laws denying ITC must distinguish between bona fide (innocent) purchasing dealers and "guilty purchasers" (those in collusion). Failure to make such a rational classification, thereby treating unequals equally, attracts invalidation under Article 14. Arbitrary restrictions on conducting business, such as withdrawing CENVAT credit, are violative of Article 14. |
| Article 21 (Life and Liberty) | General Principle | Constitutional guarantees under Article 14, read with Article 19(1)(g) and Article 21, must be enforced, and arbitrary curtailment of the right to carry on trade is prohibited. |
III. Landmark Cases Protecting Bona Fide Purchasers
The most critical legal developments illustrating the constitutional protection of ITC revolve around the principle that a genuine purchaser cannot suffer due to the supplier's fault:
| Case Name | Court & Date | Specific ITC Issue & Direction |
| Commissioner of Trade & Taxes v. Arise India Limited | Delhi High Court (2017) / Supreme Court (2018) | Issue: Validity of denial of ITC (under DVAT Act, Section 9(2)(g)) to the buyer because the seller failed to deposit the collected tax. Held: The provision was read down/interpreted to not include a bona fide purchasing dealer who transacted with a validly registered seller. The remedy lies against the defaulting selling dealer, not the buyer, unless collusion is established (Section 40A of DVAT Act). The Supreme Court later granted the Revenue liberty to move the High Court with particulars only if the transactions were not bona fide. |
| LGW Industries Limited v. Union of India | Calcutta High Court (13.12.2021) | Issue: Denial of ITC because suppliers' registrations were cancelled with retrospective effect covering the transaction period. Held: Case remanded. If authorities find that all purchases/transactions were genuine, supported by valid documents, and made before the supplier's registration cancellation, the assessee (purchaser) shall be given the benefit of ITC. |
| Gheru Lal Bal Chand v. State of Haryana | P&H High Court (2011) | Issue: Denial of credit based on the fault of the selling dealer. Held: The law cannot impose an onerous responsibility on the purchaser to ensure the seller deposits the tax, or it risks invalidation under Articles 14 and 19. No liability can be imposed on the principle of vicarious liability without proving malafide intention or collusion by the assessee. |
| Sri Vinayaga Agencies v. Assistant Commissioner | Madras High Court (2013) | Held: Tax authorities are not empowered to reverse ITC merely on the plea that the selling dealer has not deposited the tax; they can only revoke credit related to incorrect, incomplete, or improper claims. |
IV. Summary of the Constitutional Nature of ITC
Based on the judicial precedents, the relationship between ITC and constitutional rights can be summarised as follows:
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Grant of ITC is a Concession: The initial decision to allow ITC, and the prescription of conditions (like time limits or restrictions on certain goods/services, such as Section 17(5) concerning immovable property), falls within the legislative competence of Parliament and is generally considered a concession or statutory benefit, not an inherent fundamental right. The Supreme Court specifically notes there is no constitutional entitlement to refunds.
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Accrued ITC is Property: Once the taxpayer fulfils the statutory conditions (e.g., receives goods, pays consideration, holds valid documents), the right to utilise the credit vests. At this stage, the credit transforms into a form of "property" protected by Article 300A. Arbitrary deprivation of this accrued right without due process is unconstitutional.
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Arbitrary Denial Violates Fundamental Rights: When the denial of ITC imposes an impossible burden on a bona fide dealer (e.g., ensuring the seller pays the tax or monitoring retrospective cancellation of registration), it violates Article 14 (treating equals and unequals alike) and Article 19(1)(g) (serious affront to the right to carry on business).
In essence, while the creation of ITC is a concession provided by law, the protection of legitimate and accrued ITC is a constitutional right, safeguarded primarily under Articles 14, 19(1)(g), and 300A, preventing the State from acting arbitrarily or unjustly.
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