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Rule 36(4) - Buyer's ITC at the mercy of supplier?

Gr Infraprojects Limited vs. Union of India
(Rajasthan High Court)

In this writ petition, the petitioner has challenged the Rule 36(4) of CGST Rules, 2017 and Notification dated 09.10.2019 under Annexure-4, issued by the Ministry of Finance, Government of India.

Learned Counsel for the petitioner submits that introduction of sub-rule (4) to Rule 36 is ultra vires to Sections 38(1) and 42(3) of the CGST and RGST Act.

Next hearing of case is scheduled on 16.09.2020.

Editor's Note

What is Rule 36(4) of CGST Rules, 2017?

Rule 36(4) restricts ITC availment by taxpayer in respect of inward supply, the invoices of which have not been uploaded by suppliers on GST Portal to tune of 10% of total GSTR-2A eligible credit. This rule restricts ITC even if the taxpayer has a valid tax invoice issued by supplier and payment has been made by taxpayer. Further Rule 36(4) is not in line with section 38(1) which gives right to taxpayers to include details of inward supplies received by him in respect of such supplies that have not been declared by the supplier.

Rule 36(4) also ignores the fact that buyer has no control over the returns of supplier and buyer should not be punished becuase of non compliance on the part of supplier. With the introduction of Rule 36(4), buyer's ITC has been put on the mercy of suppliers.

Rule 36 - Documentary requirements and conditions for claiming input tax credit.

36.

[(4) Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37, shall not exceed [10 per cent.] of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37.]

[Provided that the said condition shall apply cumulatively for the period February, March, April, May, June, July and August, 2020 and the return in FORM GSTR-3B for the tax period September, 2020 shall be furnished with the cumulative adjustment of input tax credit for the said months in accordance with the condition above.]

What is Section 38(1) of CGST Act, 2017?

Section 38 - Furnishing details of inward supplies.

38.

(1) Every registered person, other than an Input Service Distributor or a non-resident taxable person or a person paying tax under the provisions of section 10 or section 51 or section 52, shall verify, validate, modify or delete, if required, the details relating to outward supplies and credit or debit notes communicated under sub-section (1) of section 37 to prepare the details of his inward supplies and credit or debit notes and may include therein, the details of inward supplies and credit or debit notes received by him in respect of such supplies that have not been declared by the supplier under sub-section (1) of section 37.

What is Section 42(3) of CGST Act, 2017?

Section 42 - Matching, reversal and reclaim of input tax credit.

42.

(3) Where the input tax credit claimed by a recipient in respect of an inward supply is in excess of the tax declared by the supplier for the same supply or the outward supply is not declared by the supplier in his valid returns, the discrepancy shall be communicated to both such persons in such manner as may be prescribed.