GST: Gauhati HC upholds Constitutional Validity of Rule 36(4) of CGST Rules [Read Order]

The Gauhati High Court affirmed constitutional validity of Regulation 36(4) of the Central Goods and Services Tax/Assam Goods and Services Tax Rules, 2017. For a registered person to claim an input tax credit ( ITC ), the law lays forth the circumstances and documentation required.

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The petitioner, High Tech Ecogreen Contractors LLP, which provides contract services for construction projects, had contested the rule on the grounds that it was based on Section 43A(4) of the CGST Act (added by the CGST (Amendment) Act, 2018), which had never been implemented.

Therefore, it was asserted that Rule 36(4) of the CGST Rules has no constitutional or legal validity prior to January 1, 2022, since the effective date of implementation of Section 43A was never declared and it was excluded with effect from October 1, 2022.

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 The Revenue countered that the clause went into effect on the day the CGST (Amendment) Act, 2018 was announced. It was further submitted that the validity of Rule 36(4) has already been upheld by a Division Bench of the Kerala High Court in Nahasshukoor Vs. Assistant Commissioner, Second Circle, State Goods & Service Tax Department, Colletorate & Ors. (2023). The Petitioner submitted  that the Kerala High Court's decision was based on an examination of Article 14 whereas, its challenge was based on incompetence due to non-enforcement of Section 43A.

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The petitioner's claim that Section 43A was never enforced was accepted by the High Court.  It stated unequivocally that Section 1(2) of the CGST (Amendment) Act, 2018, which led to the enactment of Section 43A, stipulates that the provisions will take effect on the date that the Central Government designates by publishing a notice in the Official Gazette.

The court said that “Learned counsel for the Revenue has failed to satisfy this Court that the Central Government, by Notification in the Official Gazette, has appointed a date from which Section 43A has been enforced till the date it was omitted by the Finance Act, 2022, i.e. from 01.10.2022. In such circumstances, it can be concluded that Section 43A has never come into operation because the Central Government has never notified any date for its enforcement till it was omitted”.

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According to Chief Justice Vijay Bishnoi and Justice N. Unni Krishnan Nair's division bench, Section 43A of the CGST Act defines the process for filing returns in order to receive input tax credit, while Section 16 of the CGST Act and Rule 36 of the CGST Rules relate to a registered person's eligibility to receive input tax credit by providing the necessary documentation.

 The eligibility requirements and documentation needed to receive an input tax credit are obviously different from the process of filing a return to receive the benefit. Section 164 makes it clear that the Central Government may establish regulations for any or all of the subjects covered by the CGST Act.

To Read the full text of the Order CLICK HERE

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