Rule 36(4) CGST Not Arbitrary | Ensures ITC Compliance

Centax Editorial Board

June 20, 2025

• 2 min. read

Case Details: L & T Geostructure LLP Versus Union of India (2025) 30 Centax 453 (Mad.)

Judiciary and Counsel Details

R. Suresh Kumar & C. Saravanan, JJ.
Shri Raghavan Ramabadran, Adv. for the Petitioner.
S/Shri Rajnish Pathiyil, Senior Standing Counsel & T.N.C. Kaushik, Additional Government Pleader for the Respondent.

Facts of the Case

The petitioner, before the High Court of Madras, challenged the constitutional validity of Rule 36(4) of the CGST Rules, 2017 and the corresponding rule under the Tamil Nadu GST Rules, 2017, which was inserted with effect from 09-10-2019. At inception, the rule allowed a registered person to avail restricted input tax credit (ITC) equivalent to 20 percent of the eligible credit in cases where the supplier had not uploaded invoice or debit note details under Section 37(1) of the CGST Act.

The petitioner submitted that Section 16 of the CGST Act, which governs ITC entitlement, did not envisage such a restriction, rendering Rule 36(4) ultra vires the parent enactment. It was further contended that the rule was arbitrary and violative of Article 14 of the Constitution of India. Subsequently, the restriction under Rule 36(4) was reduced to ‘Nil’, completely disallowing ITC in such cases. The matter was accordingly placed before the High Court of Madras.

High Court Held

The High Court of Madras held that Rule 36(4) of the CGST Rules, 2017 was neither arbitrary nor violative of Article 14 of the Constitution of India. It held that the restriction was designed to protect the interests of the Government and registered taxpayers by ensuring that ITC was not availed where tax had not actually been paid by the supplier. The Court found that Rule 36(4), read in conjunction with Sections 16 and 37 of the CGST Act, operated as a compliance mechanism and did not transgress the legislative mandate. The petitioner’s challenge on grounds of arbitrariness and constitutional infirmity was rejected, and the writ petitions were dismissed.

List of Cases Cited

Calcutta Gujarati Education Society v. Calcutta Municipal — (2003) 10 SCC 533 — Referred [Para 85]
CCE v. Dai Ichi Karkaria Limited — 1999 (112) E.L.T. 353 (S.C.) — Referred [Para 64]
“B.R.Enterprises v. State of U.P.” — (1999) 9 SCC 700 — Referred [Para 85]
Kunj Behari Lal Butail and others v. State of Himachal Pradesh and others — 2000 SCC OnLine SC 428 — Referred [Para 28 and 30]
Rajasthan and others v. J.K.Udaipur Udyog Limited and others — 2004 (7) SCC 67 — Referred [Para 36]
State of Rajasthan and others v. J.K.Udaipur Udyog Limited and others — 2004 (7) SCC 67 — Referred [Para 39]
The Asstt. Commissioner (CT), Chennai and another v. Sri Vinayaga Agencies — 2021 (2) TMI 1037 — Referred [Para 30]
The Asstt. Commissioner (CT), Chennai v. Sri. Vinayaga Agencies — 2020 (4) TMI 141 — Referred [Para 30]
The State of Karnataka v. M/s.Ecom Gill Coffee Trading — (2023) 18 SCC 809 — Referred [Para 83]
Union of India v. Cosmo Films Limited — 2023 (385) E.L.T. 66 (S.C.) — Referred [Para 65]