Rule 36(4) of CGST Rules Challenged before Calcutta HC

Rule 36(4) of the CGST Rules/WBGST Rules drawing its power from Section 43A(4) of the CGST Act/WBGST Act, which is yet to be notified, restricts ITC available to a buyer of goods or services to a maximum of  10% on the basis of the details of outward supplies furnished by the supplier of goods or services on the common portal i.e. filing of GSTR 1 return by the supplier.

LGW Industries Limited has filed a petition before the Hon’ble Calcutta High Court challenging the constitutional validity and vires of Rule 36(4) of the CGST Rules/WBGST Rules and Section 43A(4) of the CGST Act/WBGST Act.

Hon’ble Calcutta High Court has issued notice to the Central and State Government to file its affidavit-in-opposition within four weeks, reply thereto, if any, two weeks thereafter.

This matter is being argued by Advocate Vinay Shraff with Advocate Himangshu Ray on the ground that Section 43A(4) and Rule 36(4) puts an onerous and impossible burden on the buyer of goods and services to somehow ensure that the supplier of goods or services does in fact uploads the details of outward supplies on the common portal and if the supplier fails to do so, it undergoes the risk of being denied the benefit of ITC. This is violative of Article 14 of the Constitution inasmuch as it treats both the innocent purchasers and the guilty purchasers alike. Restricting the benefit of ITC to a bona fide purchaser, only because of the default of the supplier or services to upload the details of outward supplies on the common portal, over which it has no control whatsoever, is arbitrary and irrational.

This will discourage business entities to make purchases from a small and medium supplier of goods or services. It therefore creates hostile discrimination against all such SME business enterprises that files their return on a quarterly basis and therefore violates Article 14 of the Constitution of India. It adversely impacts their supply chain management, bargaining power etc. and consequently severely impacts their ability to continue business and therefore violates Article 19(1)(g) of the Constitution. ITC availed after satisfying the conditions of Section 16 of the Act is property of the taxpayer and therefore keeping ITC in suspended animation causes the deprivation of the petitioner’s enjoyment of the property and therefore, it violates Article 300A of the Constitution of India.

FULL TEXT OF THE HIGH COURT ORDER

Mr. Banerjee, learned Counsel appears on behalf of the C.G.S.T. authorities and submits that the petitioner should add the Commissioner of C.G.S.T. and CX, Kolkata North Commissionerate as a party-respondent in this proceeding.

Mr. Shraff, learned Counsel appearing on behalf of the petitioners wishes to do so.

Accordingly, petitioners are directed to amend the cause-title by incorporating the Commissioner of C.G.S.T. and CX, Kolkata North Commissionerate as a party-respondent in this proceeding and to serve copy of the writ petition upon them.

Since the matter relates to the constitutional validity and vires of Section 23A(4) of the Central Goods and Services Act, 2017 and Section 43A(4) of the West Bengal Goods and Services Act, 2017 along with Rule 36(4) of the Central Goods and Services Tax Rules, 2017, direction for affidavits is given.

Accordingly, let affidavit-in-opposition be filed by four weeks, reply thereto, if any, two weeks thereafter.

Let the matter appear in the combined monthly list of February, 2021.

Learned Additional Solicitor General is requested to regularise the appointment of Mr. Bhaskar Prasad Banerjee along with his junior.