Restrictions on input tax credit challenged in HC

‘Unreasonable, arbitrary conditions’

March 09, 2020 11:15 pm | Updated 11:15 pm IST - JAIPUR

Restrictions imposed on the input tax credit, used by business establishments to reduce their tax liability, on inward supplies under the Central Goods and Services Tax Act have been challenged in the Rajasthan High Court with the plea that the amendment made to a rule to introduce the provision had imposed “unreasonable and arbitrary” conditions.

A Division Bench headed by Chief Justice Indrajit Mahanty at the High Court’s principal seat in Jodhpur has issued notices to the Union government on the writ petition. The petitioner firm contended that the right to avail of credit could not be taken away by imposing the restrictions contained in the provisions of Section 43A of the Act, which was yet to be notified, through rules.

The amended Rule 36 (4) of the CGST Rules, 2017, provides that the input tax credit can be availed only when a supplier of goods updates and uploads online the details of supplies through each of the bills. The petitioner firm, Ravi Infrabuild, argued that the restrictions had been put on the basis of the acts of supplier, on which the recipient had no control.

Prior to the amendment, the tax regime provided that the difference would account for output tax liability. Petitioner’s counsel Vinay Kothari said that after the amendment, even a bona fide buyer had to chase the seller to upload and update his bills, failing which he would face the brunt.

‘Rights violated’

“The credit towards input has been capped to 20%, and now 10%, by way of the impugned amendment. Evidently, the amendment is totally arbitrary and violates constitutional and fundamental rights of business establishments,” Mr. Kothari said.

Section 43A of the CGST Act was introduced into the GST framework to simplify the procedures for filing of returns and availing the input tax credit. The impugned rule was amended even before Section 43A was notified, which the petitioner said had violated Article 14 (equality before law) of the Constitution.

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