Rule 36(4) Of CGST Rules Is Constitutionally Valid, Does Not Derive Power From Section 43A: Gauhati High Court

A division bench of Chief Justice Vijay Bishnoi and Justice N. Unni Krishnan Nair observed that the provision was enacted based on powers derived from Section 16 of the CGST Act and the general rule-making powers under Section 164, not from the unenforced Section 43A.

The petitioner, engaged in the business of rendering works contract service, had challenged the Rule on the ground that it was enacted drawing power from Section 43A(4) of the CGST Act (inserted vide CGST (Amendment) Act, 2018), which never came into force.

It was thus argued that since the effective date of implementation of Section 43A was never notified and since it was omitted with effect from 01.10.2022, it is clear that Rule 36(4) of the CGST Rules has no constitutional or legal validity before 01.01.2022.

The Revenue, on the other hand, argued that the provision is effective from the date when the CGST (Amendment) Act, 2018 was notified.

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 resisted this contention by submitting 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.

At the outset, the High Court agreed with the Petitioner that Section 43A was never enforced. It categorically observed that Section 1(2) in the CGST (Amendment) Act, 2018, whereby Section 43A was enacted, provided that the provisions shall come into force on such date the Central Government may, by Notification, in the Official Gazette, appoint.

“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,” the Court said.

However, the High Court was of the opinion that Rule 36 is not relatable to Section 43A. Rather, it found the Rule is relatable to Section 16 of the CGST Act only.

“In our view Section 16 of the CGST Act and Rule 36 of CGST Rules are in relation to eligibility of a registered person who can avail input tax credit by furnishing required documents, whereas Section 43A of the CGST Act is defining procedure for furnishing returns for availing input tax credit. Needless to say that the eligibility conditions and requirement of documents for availing input tax credit is distinct from the procedure of furnishing return for availing said benefit,” the Court observed.

It added that Rule 36 is framed as per the objects of the CGST Act and falls within the scope of general power conferred by Section 164(2).

Section 164 clarifies that the Central Government may make rules for all or any of the matters that are required by CGST Act.

As such, the challenge to the Rule was rejected.

Appearance: For the Petitioner: Mr. V. Shraff, Advocate. Ms. B. Podder, Advocate. For the Respondent(s) : Mr. S.C. Keyal, Standing Counsel, CGST. Ms. N. Kakati, Advocate.

Case title: M/S High Tech Ecogreen Contractors LLP v. Joint Director, Directorate General Of Goods And Services Tax Inteligence (DGGI)

Case no.: WP(C)/4787/2024

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