Section 16(2)(c) Is Constitutional and Cannot Be Read Down: Rajasthan HC Becomes First High Court to Apply Supreme Court's Bhandari Scrap Traders Ruling, Holds Tripura and Karnataka HC Judgments No Longer Available

The Rajasthan High Court has delivered a comprehensive ruling rejecting the constitutional challenge to Section 16(2)(c) of the CGST Act and — significantly — has become the first High Court to apply the Supreme Court's decision in Bhandari Scrap Traders v. Union of India (24.07.2026), which upheld the Gujarat High Court's refusal to either strike down or read down the provision. The Division Bench of Justice Arun Monga and Justice Ashutosh Kumar, in D.B. Civil Writ Petition No. 9323/2026 (Sumetco Alloys Private Limited, decided 13.08.2026), has held in terms that the read-down propounded by the Tripura High Court in Sahil Enterprises and followed by the Karnataka High Court in Instakart is no longer available after the Supreme Court expressly negated both the unconstitutionality and the read-down pleas.

The petitioner, a manufacturer of pure lead and lead ingots, faced a demand of Rs. 56.44 crore under Section 74 for wrongful availment of ITC on purchases from suppliers whose registrations were subsequently cancelled. The challenge was mounted on five planks: that Section 16(2)(c) is ultra vires Articles 14, 19(1)(g), 265 and 300-A; that it should be read down to protect bona fide purchasers; that the SCN lacked the jurisdictional foundation for invoking Section 74; that the proceedings were vitiated by the non-issuance of DRC-01A and by institutional bias (the same officer having investigated and adjudicated); and that the reply to the SCN was not dealt with in the order-in-original.

The court's analysis of Section 16(2)(c) identified four decisive features of the statutory scheme: that Section 16(1) confers conditional entitlement at its very source; that Section 16(2) is a negatively worded non obstante provision making all conditions — including clause (c) — cumulative and mandatory; that clause (c) operates subject to Section 41, which provides a reversal-and-re-availment mechanism, making the denial "contingent and reversible, not final and confiscatory"; and that Section 155 places the burden of proof squarely on the claimant. The court then turned to the Supreme Court's order in Bhandari Scrap Traders, which dismissed SLPs against the Gujarat HC's Maruti Enterprise judgment, expressed "complete and respectful agreement" with it, and held that no grounds existed to declare Section 16(2)(c) unconstitutional or to read it down. The Rajasthan HC rejected the petitioner's submission that the Supreme Court's order, being a dismissal of SLPs, was not binding — holding it was a speaking order with reasons that affirmed and upheld the Gujarat HC judgment in no uncertain terms.

On the reading-down plea, the court held that the Tripura HC's approach in Sahil Enterprises, the Karnataka HC's in Instakart, and the Gauhati HC's in National Plasto Moulding are no longer applicable — the Supreme Court in Bhandari Scrap Traders was aware of the Tripura view and distinguished it, expressly holding that the exercise undertaken by the Gujarat HC had not been undertaken by the Tripura HC. Even on the petitioner's best case, the reading-down would not assist — it operates only where the transaction is bona fide, whereas the present case alleged fake invoices, multi-layered bogus transactions and paper supplies without movement of goods — precisely the class of case which the reading down, on its own terms, does not protect.

The court also addressed the procedural challenges. On Section 74 jurisdiction, it held that the thirty-three page SCN, with its detailed depiction of multi-layered transactions through bogus suppliers, constituted sufficient prima facie satisfaction. On DRC-01A, it held that Notification No. 79/2020-CT substituted "shall" with "may" in Rule 142(1A), making the pre-notice intimation discretionary, not mandatory. On bias, it held that where the statute itself vests investigation and adjudication in the same proper officer — through Sections 67, 70 and 74 — the rule against bias is displaced absent personal interest or animus. The petitioner was relegated to the statutory appellate remedy with liberty to file appeal within thirty days and credit of Rs. 50 lakh already deposited through DRC-03 towards the Section 107(6) pre-deposit.

— 2026-juristway.com-1216-HC(Rajasthan)-GST  |  High Court of Rajasthan  |  D.B. Civil Writ Petition No. 9323/2026  |  13.08.2026