Petition Challenging Restrictions Imposed Under Rule 36(4) For GST ITC Availment Dismissed: Madras High Court
Petition Challenging Restrictions Imposed Under Rule 36(4) For GST ITC Availment Dismissed: Madras High Court
The Madras High Court has dismissed the petition challenging the restrictions imposed under Rule 36(4) of the CGST/SGST Rules for availment of Input Tax Credit (ITC).
The bench of Justice R.Suresh Kumar and Justice C.Saravanan has observed that restrictions imposed under Rule 36(4) of the respective GST Rules to avail full credit of Input Tax in absence of the mandatory compliance by the supplier of goods or service as is contemplated under Section 37(1) of the respective GST Acts was a temporary measure to regulate the availing of Input Tax Credit (ITC). Ipso facto, it cannot be held that Rule 36(4) of the respective GST Rules is in violation of Article 14 of the Constitution of India.
The bench stated that to allow Input Tax Credit (ITC) without any restrictions is to encourage even ineligible credit being availed which are passed on by unscrupulous persons by merely obtaining GST registration.
The Petitioner has challenged the vires of Rule 36(4) of both Central Goods and Services Tax (CGST) Rules, 2017 and Tamil Nadu Goods and Services Tax (TNGST) Rules, 2017.
The Writ Petitions are of the year 2020. When these Writ Petitions were filed, Rule 36(4) of the respective GST Rules read differently from how it read after its amendment with effect from 01.01.2022.
Rule 36(4) of CGST Rules with effect from 09.10.2019
Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37, shall not exceed 20 per cent of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37.
Rule 36(4) of CGST Rules with effect from 01.01.2022
No Input Tax Credit shall be availed by a registered person in respect of invoices or debit notes the details of which are required to be furnished under sub-section (1) of section 37 unless,-
(a) the details of such invoices or debit notes have been furnished by the supplier in the statement of outward supplies in FORM GSTR-1 or using the invoice furnishing facility; and
(b) the details of input tax credit in respect of such invoices or debit notes have been communicated to the registered person in FORM GSTR-2B under sub-rule (7) of rule 60.
During the period between 01.01.2017 and 08.10.2019, the impugned Rule in these Writ Petitions, i.e., Rule 36(4) were not there in the respective GST Rules. The above provision was inserted by CGST (6th Amendment) Rules 2019 with effect from 09.10.2019. Later, the Rule was further amended on various occasions. Finally, vide CGST (10th Amendment) Rules, 2021 with effect from 01.01.2022, Rule 36(4) of the respective GST Rules stands as extracted above in Column 2 in Table I of this Order.
The Petitioner contented that sub-rule 4 to Rule 36 of the respective GST Rules are ultra vires the respective GST Acts since it prescribes restrictions with regard to availment of Input Tax Credit (ITC). Even though, Section 43 of the CGST Act empowers the Central Government to make Rules restricting availment of Input Tax Credit (ITC) on supplies not declared by the suppliers in Form GSTR-1, the same has not been notified by the Central Government.
The Petitioner contended that Rule 36(4) of the respective GST Rules inserted vide Notification No.49/2019- Central Tax (CT) dated 09.10.2019 whereby the sub-rule 4 to Rule 36 of the GST enactments was incorporated. It is submitted that the sub-rule (4) to Rule 36 of the GST enactments could have been brought into the respective Rules only after Section 43A of the respective GST enactments were implemented. It is submitted that although Section 43A of the respective GST enactments were incorporated, it has never been notified. A reference was made to sub-section 4 to Section 43A of the respective GST enactments to substantiate the case.
The department contended that as per Section 41(1) of the respective GST enactments, the right to claim Input Tax Credit (ITC) is subject to such conditions and restrictions as may be prescribed and therefore it is submitted that the restrictions in Rule 36(4) of the respective GST Rules is well within the ambit of Section 41 of the respective GST enactments.
“We are not able to discern any violation of Article 14 of the Constitution of India by virtue of the restrictions under Rule 36(4) of the respective GST Rules. That apart, there is a presumption of constitutionality of GST enactments and Rules framed under the enactments. The restrictions were placed with a view to implement the object of allowing legitimate Input Tax Credit on the goods or service supplied by the supplier of goods or service as the case may be by a recipient who was liable to pay tax on the output supply was engaged in Zero Rated Supply within the meaning of the respective GST enactments including Integrated Goods and Service Tax and the Rules made thereunder,” the court said.
The court stated that the restrictions are reasonable and since they are intended to implement the laudable object of allowing legitimate / eligible Input Tax Credit (ITC). Therefore, the challenge to the restrictions imposed under Rule 36(4) of the respective GST Rules on the ground of it being arbitrary and violative of Article 14 of the Constitution of India cannot be countenanced. The Writ Petitions are liable to be dismissed.
The court clarified that the temporary deprivation of full Input Tax Credit (ITC) has now been resolved with the implementation of Form GSTR 2A vide Notification No. 79 dated 15.10.2020.
The court remarked that the petitions are liable to be dismissed with cost. However, the court refrained from imposing any cost.
Case Details
Case Title: M/s.L & T Geostructure LLP Versus The Union of India
Case No.: W.P.Nos.5978 and 5983 of 2020
Date: 09.05.2025
Counsel For Petitioner: Raghavan Ramabadran
Counsel For Respondent: Rajnish Pathiyil
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Mariya is the Senior Editor at JurisHour. She has 5+ years of experience on covering tax litigation stories from the Supreme Court, High Courts and various tribunals including CESTAT, ITAT, NCLAT, NCLT, etc. Mariya graduated from MLSU Law College, Udaipur (Raj.) with B.A.LL.B. and also holds an LL.M. She started as a freelance tax reporter in the leading online legal news companies like LiveLaw & Taxscan.
