Court Room Series

Court Room Series:

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

Instakart Services Pvt. Ltd.

Versus

Union of India

Writ Petition No. 4917 of 2021 (T-RES), decided on 9-2-2026

Facts:

The petitioner, Instakart Services Private Limited, is engaged in logistics and warehousing services for sellers operating through the e-commerce platform of Flipkart Internet Private Limited.

The company challenged the constitutional validity of:

Section 16(2)(c) of the CGST/KGST Acts

Rule 36(4) of the CGST/KGST Rules.

Issues:

  1. Constitutional validity of Whether Section 16(2)(c) CGST/KGST Act and Rule 36(4) are violative of Article 14(Equality), Article 19 (1) (g) (Freedom of Trade), Article 265 (No tax except authority of Law), Article 300A (property rights).
  2. Whether a purchasing dealer can be compelled to ensure that the supplier actually deposits GST with the Government.
  3. Whether ITC can be denied to a bona fide purchaser for the default of the supplier.
  4. Whether the provisions should be read down instead of struck down.

Argument of the Appellant:

  1. The petitioner argued that the law imposes an impossible obligation on recipients to verify whether suppliers deposited GST with the Government.
  2. once GST has been paid to the supplier and valid invoices are available, ITC cannot be denied merely because the supplier defaulted.
  3. The provision treats honest purchasers and fraudulent purchasers alike without reasonable classification. This amounts to manifest arbitrariness.
  4. Denying ITC after GST has already been paid to the supplier effectively results in double taxation and violates Article 265.
  5. ITC is a vested and indefeasible right which cannot be taken away because of supplier default.

Argument of the Respondent:

  1. ITC is a statutory benefit subject to conditions imposed by the legislature.
  2. The legislature has authority to prescribe conditions for availing ITC.
  3. If ITC is allowed despite supplier default, it could lead to revenue loss and fraudulent GST chains.

Analysis:

  1. The Purchaser cannot be asked to do the impossible.
  2. There is no mechanism with the recipient of goods to cross verify whether the taxes are paid or not.
  3. The proceedings were initiated u/s 73 and not u/s 74, meaning thereby it is a Bonafide transaction.
  4. The court invoked the doctrine of reading down to preserve constitutionality.

Judgment:

The impugned provisions contained in Section 16(2)(C) of the CGST / KGST Act and Rule 36(4) of the CGST / KGST Rules are hereby read down in a manner that allows the benefit of ITC to bonafide recipients such as the petitioner, which has complied with all other conditions under Section 16(2) of the CGST / KGST Act despite any fault / lapse or non-payment of tax to the government by the suppliers.

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