Instakart Services Private Limited Vs Union of India (Karnataka High Court)
The question of whether a genuine taxpayer should lose Input Tax Credit (ITC) because of a supplier’s default has become one of the most practical and controversial issues under the Goods and Services Tax (GST) regime. In theory, GST is designed as a seamless credit system where tax paid at one stage flows as credit to the next. But in reality, this chain often breaks when a supplier fails to deposit the tax collected from the buyer. The consequence? The burden is pushed onto the recipient, even when they have done everything required under the law.
This has created a difficult situation for businesses. On one hand, they ensure proper documentation, make payments through banking channels, receive goods or services, and comply with all statutory conditions. On the other hand, they are still exposed to ITC denial simply because the supplier—over whom they have no control—fails to deposit the tax with the Government. This raises a fundamental concern: should a compliant and bona fide taxpayer be penalized for someone else’s failure?
This exact issue came up for detailed judicial scrutiny before the Karnataka High Court in Writ Petition No. 4917 of 2021, decided on 9th February 2026, in the case of M/s Instakart Services Private Limited vs Union of India & Others. The case brought into focus the strict interpretation of Section 16(2)(c) of the CGST Act, 2017, which requires that tax must be actually paid to the Government for ITC to be available. When read literally, this provision places an indirect but heavy responsibility on the buyer to ensure the supplier’s compliance—something that is practically impossible in most business scenarios.
Recognizing this gap between legal expectation and commercial reality, the Karnataka High Court examined not just the wording of the law, but also its fairness, practicality, and constitutional validity. The judgment goes beyond a simple interpretation of ITC provisions and addresses a deeper principle: whether the GST framework should protect honest taxpayers or penalize them for systemic failures in the supply chain.
This decision is significant because it does not just resolve one dispute—it provides clarity on how ITC provisions should be applied in real-world situations. It also reinforces an important legal principle that taxation laws must be reasonable, workable, and just, especially when they impact genuine business transactions.
Background of the Case
The petitioner, M/s Instakart Services Private Limited, is a well-established logistics service provider engaged in end-to-end supply chain operations, including warehousing, packaging, freight movement, and last-mile delivery for sellers operating through e-commerce platforms. As part of its business model, the company interacts with a large number of vendors and service providers across different states. It is duly registered under the GST laws in multiple jurisdictions and regularly avails Input Tax Credit (ITC) on inward supplies received in the course of its business operations.
In the normal flow of business, the petitioner procured goods and services from registered suppliers, paid the applicable GST along with consideration, and recorded these transactions in its books of accounts while claiming ITC in its GST returns. There was no dispute regarding the genuineness of the transactions, the receipt of services, or the payment made to suppliers. The petitioner had complied with all primary conditions prescribed under GST law, including possession of valid tax invoices and actual receipt of services.
However, the issue arose when the tax authorities initiated action to deny ITC to the petitioner on the ground that certain suppliers had failed to deposit the GST collected from the petitioner with the Government. Essentially, although the petitioner had paid the tax component to its suppliers, those suppliers did not fulfill their statutory obligation of remitting the tax to the Government.
The denial of ITC was primarily based on a strict interpretation of Section 16(2)(c) of the Central Goods and Services Tax Act, 2017, which states that ITC shall be available only if the tax charged in respect of the supply has actually been paid to the Government. In addition, reliance was placed on Rule 36(4) of the CGST Rules, 2017, which imposes restrictions on availing ITC based on the details reflected in auto-generated statements such as GSTR-2A and GSTR-2B.
As a result, despite having fulfilled all obligations within its control, the petitioner was denied ITC due to the default of third-party suppliers. This led to a situation where the petitioner was effectively made liable for the non-compliance of others, raising serious concerns about fairness, practicality, and the true intent of the GST framework.
Challenge Before the Court
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