Interim Relief Granted: GST Rule 32(5) Challenged Over Unequal Treatment of Registered and Unregistered Borrowers

HC granted interim relief challenging GST Rule 32(5), finding merit in petitioner's arguments about discriminatory treatment between registered and unregistered borrowers. The court directed authorities to suspend proceedings on the show-cause notice under section 74 of CGST Act pending further hearing, indicating potential procedural irregularities in the taxation approach for repossessed vehicle transactions.

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Issues:
Challenge to Rule 32(5) of CGST Rules and GGST Rules, Notification No. 8/2018-Central Tax (Rate), Show-cause notice under section 74 of CGST Act

Analysis:
The petitioner, a banking company, challenged the proviso to Rule 32(5) of the Central Goods and Services Tax Rules, 2017, and the Gujarat Goods and Services Tax Rules, 2017, claiming it to be discriminatory between registered and unregistered borrowers. The petitioner sought a declaration that the rule is arbitrary and illegal as it penalizes the petitioner for dealing with unregistered borrowers. Additionally, the petitioner prayed for the application of Notification No. 8/2018-Central Tax (Rate) to all sellers of second-hand motor vehicles, arguing that the reference to purchase price should be read as the purchase price of the defaulting borrower in case of the sale of repossessed vehicles. The petitioner also requested the setting aside of a show-cause notice issued under section 74 of the Central Goods and Services Tax Act, 2017.

The Rule 32(5) of the CGST Rules specifies the valuation of supply for second-hand goods, including repossessed goods from defaulting borrowers. The proviso deems the purchase value of repossessed goods from unregistered defaulting borrowers to be the purchase price reduced by a certain percentage for each quarter between the purchase and disposal dates. The petitioner argued that this provision operates irrationally and arbitrarily when repossessing and selling vehicles. The petitioner contended that the distinction between registered and unregistered borrowers is arbitrary and ultra vires when considered along with Tariff Entry No. 8703. The petitioner asserted that regardless of the borrower's registration status, the GST liability should remain the same, and penalizing the petitioner for dealing with unregistered borrowers is unjust.

The Court found substance in the petitioner's arguments and contentions, granting an interim relief directing the competent authority not to take further steps based on the impugned show-cause notice until the matter is resolved. The case is set for a returnable notice on a specified date to further address the issues raised by the petitioner.

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