Introduction:

In a significant ruling impacting input tax credit (ITC) claims under the Goods and Services Tax (GST) regime, the Gauhati High Court has upheld the constitutional validity of Rule 36(4) of the Central Goods and Services Tax (CGST) Rules, 2017. The provision, which lays down documentary requirements for a registered person claiming ITC, was challenged by M/S High Tech Ecogreen Contractors LLP in WP(C)/4787/2024 against the Joint Director, Directorate General of Goods and Services Tax Intelligence (DGGI). The petitioner, engaged in rendering works contract services, contended that Rule 36(4) was enacted by drawing powers from Section 43A(4) of the CGST Act, which was inserted through the CGST (Amendment) Act, 2018, but never came into force. The petitioner argued that since Section 43A was never notified and was ultimately omitted from 01.10.2022, the provision had no legal validity before 01.01.2022. The Revenue Department, on the other hand, defended Rule 36(4) as a valid exercise of rule-making power, asserting that it derived authority from Section 16 and Section 164 of the CGST Act, and not from Section 43A. The High Court, after examining the statutory framework, concurred with the petitioner that Section 43A was never enforced but rejected the challenge by concluding that Rule 36(4) was validly framed under Section 16 and Section 164.

Arguments of Both Sides:

The petitioner, represented by Advocates V. Shraff and B. Podder, advanced a two-pronged argument. First, they asserted that Rule 36(4) was ultra vires the CGST Act as it was purportedly enacted under Section 43A, which never came into force and was ultimately omitted from 01.10.2022 by the Finance Act, 2022. Since Section 43A was never operational, any rule framed based on its provisions lacked legislative authority, rendering Rule 36(4) unconstitutional and legally unsustainable before 01.01.2022. Secondly, they distinguished their challenge from the Kerala High Court’s ruling in Nahasshukoor v. Assistant Commissioner, SGST Department (2023), where Rule 36(4) was upheld on Article 14 grounds. The petitioner clarified that their challenge was based on legislative incompetence, not discriminatory application, thereby necessitating an independent constitutional review.

The Revenue Department, represented by Standing Counsel S.C. Keyal and Advocate N. Kakati, countered that Rule 36(4) was never dependent on Section 43A, but rather flowed from Section 16 and the general rule-making powers under Section 164. They argued that Section 16 of the CGST Act prescribes eligibility conditions for claiming ITC, and Rule 36(4) is a procedural mechanism ensuring compliance with these conditions. Moreover, Section 164 grants broad rule-making powers, allowing the government to frame rules for implementation of the CGST Act, including documentary requirements for ITC claims. The Revenue also relied on the Kerala High Court’s ruling, asserting that Rule 36(4) had already passed judicial scrutiny, and the challenge lacked merit.

Court’s Judgment:

The Gauhati High Court, led by Chief Justice Vijay Bishnoi and Justice N. Unni Krishnan Nair, conducted a meticulous examination of the statutory scheme of the CGST Act. The Court acknowledged that Section 43A was indeed never enforced, stating that the Central Government had never notified a date for its enforcement until it was omitted on 01.10.2022. Despite agreeing with the petitioner’s contention regarding Section 43A’s inoperability, the Court emphasized that Rule 36(4) was not framed under Section 43A but rather under Section 16 and Section 164. The judgment highlighted that Section 16 deals with the eligibility of a registered person to claim ITC, while Rule 36(4) prescribes how such eligibility is demonstrated through documentary compliance. The Court drew a clear distinction between eligibility conditions (Section 16) and procedural aspects of return filing (Section 43A), holding that the two were independent and Rule 36(4) was validly enacted under the CGST framework. Furthermore, the Court ruled that Section 164 of the CGST Act empowers the Central Government to frame rules for implementing the provisions of the Act, reinforcing that Rule 36(4) aligns with the statutory objectives of ensuring ITC claims are based on genuine transactions. Accordingly, the challenge was dismissed, and Rule 36(4) was upheld as constitutional validvalid.