Case Law Details

Case Name : Surat Mercantile Association Vs Union of India (Gujarat High Court)
Appeal Number : R/Special Civil Application No. 13289 of 2020
Date of Judgement/Order : 18/12/2020
Related Assessment Year :
Courts : All High Courts (6472) Gujarat High Court (661)

Surat Mercantile Association Vs Union of India (Gujarat High Court)

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.

Surat Mercantile Association has filed a petition before the Hon’ble Gujarat High Court challenging the constitutional validity and vires of Rule 36(4) of the Central GST Rules and the Gujarat GST Rules.

Hon’ble Gujarat High Court has issued notice to the Central and State Government to submit its response by 12th February, 2021.

The matter was argued by Advocate Vinay Shraff with Advocate Parth Shah. Hon’ble Gujarat High Court while issuing the notice observed that according to the learned counsel for the writ applicants, the same is unconstitutional being contrary to the scheme of the Act. It is further argued 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 being blocked or is kept in suspension. It is argued that the rule in question is arbitrary, irrational and therefore, violative of Article 14 of the Constitution. 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.

FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT

1. We have heard Mr. Vinay Shah, the learned counsel appearing with Mr. Parth Shah, the learned counsel for the writ applicants.

2. The writ applicants seek to challenge the validity of Sub-rule (4) of the Rule 36 of the GST Rules on the ground that, the same is violative of Article 14 of the Constitution. It is argued that the Sub-rule (4) of the Rule 36 of the Rules speaks to restrict the ITC to a buyer of goods of services on the basis of the details of the outward supply furnished by the supplier of the services of goods or on the basis of the common portal. According to the learned counsel for the writ applicants, the same is unconstitutional being contrary to the scheme of the Act. It is further argued 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. It is argued that 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.

3. Let Notice be issued to the respondents, returnable on 02.2021. The respondents shall be served by email over and above the regular service through the Court.

4. In view of the order passed today, connected civil application stands disposed of.

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