The Karnataka High Court has provided interim relief to a taxpayer in a Goods and Services Tax (GST) dispute involving the recovery of Input Tax Credit (ITC) from a bona fide recipient due to the supplier’s default.
A bench including Justice B. M. Shyam Prasad stayed the operation of the adjudication order until further directions while permitting the tax department to finish its pleadings and seek vacation of the interim relief.
The dispute has emerged from an alleged mismatch between the applicant’s GSTR-2A and GSTR-3B returns. The GST authorities had refused ITC because the supplier did not submit the GST returns. It consequence in non-compliance by the supplier.
The adjudicating authority said that, however, the applicant had paid the supplier along with the GST amount; the supplier had defaulted on statutory liabilities and was experiencing insolvency proceedings before the National Company Law Tribunal (NCLT). The recovery from the supplier is not easy; therefore, the authority asked the applicant to pay the tax obligation and recover the amount from the supplier via NCLT proceedings.
The applicant contested the order and said that it had completed all requirements to claim the GST ITC and must not be penalised for the failure of the supplier. The taxpayer claimed that the department must start the recovery proceedings against the defaulting supplier prior to proceeding against a genuine receiver.
The applicant placed reliance on the decision of the Calcutta High Court in Suncraft Energy (P.) Ltd. v. Assistant Commissioner, State Tax, where the Court said that ITC cannot be refused to a purchaser who has paid the invoice value and GST to the supplier without first taking action against the selling dealer. The applicant cited the decision of the Supreme Court, where it refused to interfere with the ruling
On the Karnataka High Court’s earlier ruling in Instakart Services (P.) Ltd. v. Union of India, reliance was placed on, in which the court furnished protection to bona fide receiver against ITC refusal caused by supplier defaults. The ruling at present is under challenge before a higher forum.
Also Read: How GST Software Handles Input Tax Credit (ITC) Tracking
Given that a similar issue was already pending before another bench of the Karnataka High Court, which had granted interim protection under comparable circumstances, the Court deemed it appropriate to extend similar relief.
As a result, the High Court stayed the contested adjudication order until further order. The case is scheduled for further hearing on September 22, 2026. Meanwhile, the department has been granted the liberty to file its response and request the vacation of the interim stay.
| Case Title | Sunlog Services Pvt Ltd Vs Assistant Commissioner Of Central Tax |
| Case No. | WP 21235/2026 |
| For Petitioner | Sandeep Huilgol |
| For Respondent | B.M.Shyam Prasad |
| Karnataka High Court | Read Order |
