Fact of the Case: The petitioner, M/s Sahil Enterprises, is a proprietary concern engaged in trading of rubber products. During the period July 2017 to January 2019, the petitioner purchased goods from a registered supplier and paid GST amounting to ₹1,11,60,830/-. The supplier issued valid tax invoices and disclosed the outward supplies in GSTR-1, but subsequently failed to deposit the GST collected while filing GSTR-3B returns.

During departmental investigation, it was found that the supplier defaulted in payment of tax. Based on this, the department blocked the petitioner’s ITC and issued a show cause notice under Section 73 of the CGST Act proposing reversal of ITC along with interest and penalty. The petitioner challenged the constitutional validity of Section 16(2)(c) and the consequential demand, contending that it had no mechanism to ensure tax payment by the supplier and denial of ITC amounted to double taxation.

Held by court : The High Court held that Section 16(2)(c) of the CGST Act cannot be interpreted in a manner that penalises a bona fide purchasing dealer for the default of the supplier. The Court observed that a purchaser has no statutory mechanism to verify whether the supplier has deposited tax with the Government and cannot be expected to do the impossible.

The Court read down Section 16(2)(c) to apply only in cases of collusive, fraudulent, or non-bona fide transactions. It held that denying ITC to a genuine purchaser amounts to double taxation and violates Article 14. Accordingly, the demand order was set aside and the department was directed to allow ITC to the petitioner.

Despite the notification, insurers and banks continued to levy GST at 18% on group policy premiums. Aggrieved by the continued levy, the petitioners approached the Kerala High Court seeking a declaration that GST could not be levied on such group insurance policies, contending that the exemption notification covered their policies as well and that they did not constitute a “group” within the meaning of the notification.

Held by court : The Court held that the exemption granted under Notification No. 16/2025-Central Tax (Rate) was expressly limited to individual health insurance policies, including family floater and senior citizen policies, and did not extend to group health insurance policies. The Court observed that the clarification and explanation in Clause 36D of the notification clearly excluded group insurance from the scope of exemption.

The Court further held that the policies in question were undeniably group insurance policies, obtained through collective bargaining by the Indian Banks’ Association, offering benefits such as reduced premiums and relaxed underwriting norms. Since exemption notifications must be strictly interpreted, and no ambiguity existed, the benefit of exemption could not be extended to the petitioners. Accordingly, all writ petitions were dismissed.

The dispute before the High Court centered on whether the petitioner could bypass the appellate mechanism and avoid compliance with the mandatory pre-deposit condition prescribed under Section 112(8) of the GST Act, particularly when the Government had subsequently notified timelines and made arrangements for filing appeals before the GSTAT.

Held by court : The Court held that although writ jurisdiction can be invoked when the statutory appellate forum is non-functional, such relief is only temporary and cannot override mandatory statutory conditions. Once the GST Appellate Tribunal is made functional and timelines for appeal filing are notified, the assessee must strictly comply with Section 112(8), including payment of admitted dues and 10% of disputed tax.

Accordingly, the writ petition was disposed of with directions to the petitioner to deposit the mandatory pre-deposit and file the appeal before the GSTAT within the prescribed timelines. The Court clarified that it expressed no opinion on the merits of the assessment order.