ITC Allowed Despite Supplier Default – Section 16(2)(c) Read Down

Case Details: Instakart Services (P.) Ltd. vs. Union of India - [2026] 185 taxmann.com 308 (Karnataka)

Judiciary and Counsel Details

S.R. Krishna Kumar, J.
Tarun Gulati, Sr. Counsel & Pradeep Nayak, Adv. for the Petitioner.
Madanan Pillai, CGC, Hema Kumar, AGA & M. Unnikrishnan, Adv. for the Respondent.

Facts of the Case

The petitioner, a logistics company registered under GST, challenged the constitutional validity of Section 16(2)(c) of the CGST/KGST Act and Rule 36(4), contending that denial of input tax credit (ITC) on account of non-payment of tax by suppliers imposes an impossible burden on bona fide recipients. The petitioner argued that it had fulfilled all other conditions under Section 16(2) and that denial of ITC due to supplier default was arbitrary and violative of Articles 14, 19(1)(g), 265 and 300A of the Constitution. Alternatively, the petitioner sought reading down of the provisions to allow ITC where transactions are genuine and conditions are otherwise satisfied.

High Court Held

The High Court held that, following consistent judicial precedents, the provisions of Section 16(2)(c) of the CGST/KGST Act and Rule 36(4) are to be read down so as to not deny ITC to bona fide recipients who have complied with all other statutory conditions. It was held that a purchasing dealer cannot be penalized for the default of the supplier in depositing tax, as such requirement is beyond the control of the recipient. Accordingly, ITC cannot be denied merely on account of supplier’s lapse where transactions are genuine and there is no allegation of fraud or collusion. The petition was disposed of in favour of the assessee.

List of Cases Reviewed

National Plasto Moulding v. State of Assam (2024) 21 CENTAX 182 (Gau) (para 18)
The Judgment of the Tripura High Court in the case of M/s Sahil Enterprises v. Union of India [2026] 182 taxmann.com 144/105 GSTL 177 (TRIPURA) (para 18), followed

List of Cases Referred to

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CTE v. Arise India Ltd. 2022 (60) GSTL 215 (SC) (para 5.1)
Jain Steels & Alloys Mfrs. v. CCT 2019 SCC OnLine Kar 3943 (para 5.1)
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M/s. Tarapore & Co. v. State of Jharkhand 2029 SCC OnLine Jhar 1918 (para 5.1)
Govindan & Co v. The State of Tamil Nadu (1975) 35 STC 50 (Mad.) (para 5.1)
Sri Vinayaga Agencies v. Asst. Commr. (CT) 2013 SCC OnLine Mad 323 (para 5.1)
Bharat Steels v. Commercial Tax Officer 2015 SCC OnLine Mad 9136 (para 5.1)
Shree Yarns v. Asstt. Commissioner 2017 SCC Online Mad 5730 (para 5.1)
Lawrance Livingston v. Commercial Tax Officer 2019 SCC OnLine Mad 10993 (para 5.1)
R.S. Infra Transmission Ltd., v. State of Rajasthan 2018 SCC OnLine Raj 3587 (para 5.1)
The State of Madras v. Radio and Electricals Ltd., and Anr 1966 SCC OnLine SC 132 (para 5.1)
CCE v. M/s. Kay Kay Industries 2013 (295) ELT 117 (para 5.1)
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Sanchita Kundu v. Asstt. Commissioner of State Tax [2022] 142 taxmann.com 576 (Calcutta)/[2022] 63 GSTL 413 (Calcutta) (para 5.1)
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CCE v. Dai Ichi Karkaria Ltd. 1999 (112) ELT 353 (SC) (para 5.1)
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Jayam and Co. v. Asstt. Commissioner and Anr. 2016 (15) SCC 125 (para 5.1)
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Eicher Motors Ltd v. UOI 1999(106) ELT 3 (para 5.1)
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Siddharth Enterprises v. Nodal Officer GSTL 664 (para 5.1)
Kunj Behari Lal Butail v. State of H.P. (2000) 3 SCC 40 (para 5.1)
Global Energy Pvt. Ltd, v. Central Electricity Regulatory Commissioner (2009) 15 SCC 570 (para 5.1)
Petroleum and Natural Gas Regulatory Board v. Indraprastha Gas Limited (2015) 9 SCC 570 (para 5.1)
Bimal Chadnra Banerjee v. State of M.P. 1970(2) SCC 467 (para 5.1)
Indian Express Newspaper (Bombay) Pvt. Ltd., v. UoI (1985) 1 SCC 641 (para 5.1)
Babaji Kondaji Garad v. Nasik Merchants Cooperative Bank Ltd. (1984) 2 SCC 50 (para 5.1)
Gupta Modern Breweries v. State of J&K (2007) 6 SCC 317 (para 5.1)
Cellular Operators Association of India v. T.R.A.I 2016 (7) SCC 703 (para 5.1)
Dy. CIT v. Pepsi Foods Limited (2021) 7 SCC 413 (para 5.1)
Devarsh P.Patel v. Dy. CIT 2018 (9) TMI 1635 (Guj) (para 5.1)
Kartik Vijay Sonavane v. Deputy Commissioner Income Tax 2021 (11) TMI 682 (Guj) (para 5.1)
Asstt. CIT v. Om Prakash Gattani – 242 I.T.R 638 (para 5.1).