Gujarat High Court admits Petition challenging GST Rule restricts ITC to Buyers on the basis of Outward Supplies furnished by Supplier [Read Order]

The Gujarat High Court issued the notices on plea challenging 5% Provisional Input Tax Credit (ITC) reflected in FORM GSTR-2B as per the 36(4) of GST Rules.

The petitioner, Surat Mercantile Association challenged the constitutional validity and vires of Rule 36(4) of the Central GST Rules and the Gujarat GST Rules.

As per Rule 36(4) of the Central GST Rules and Gujarat and GST Rules, 2017 restricts Input tax credit to be availed by the buyer of goods or services in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers in GSTR-1 return, to 5% of “eligible credit” available in respect of invoices or debit notes the details of  which have been uploaded by the suppliers in GSTR-1 return. In other words, Input tax credit (ITC) of invoices or debit notes which are not reflected in GSTR-2A shall be available to the extent of 5% of eligible credit in respect of invoices or debit notes reflected in GSTR-2A.

Mr. Vinay Shraff, the Counsel for the petitioner urged that the Rule in question puts an onerous and impossible burden on the buyer of the goods and service to ensure that the supplier of goods or services does in fact upload the details of the outward supplier on the common portal and if the supplier fails to do so, it has to face the risk of the benefit of the ITC big cap being blocked or is kept in suspension.

The rule in question is arbitrary, irrational and therefore, violative of Article 14 of the Constitution. The learned counsel for the writ applicants has also placed reliance on the few decisions of the Supreme Court, Mr. Shraff added.

It was further urged that this rule will discourage business entities to make purchases from a small and medium supplier of goods or services who files their return on a quarterly basis and therefore it creates hostile discrimination against all such small and medium business enterprises and consequently violates Article 14 of the Constitution of India.

The division bench of Justice J.B. Pardiwala and Justice Ilesh J. Vora in this regard issued the notice to the government.

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