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of <h1>Constitutional Validity of Section 16(2)(c) and Rule 36(4) of GST Act Upheld, No Discrimination Found</h1> <h3>M/s. Baby Marine (Eastern) Exports, Rep., by its Partner, Nancy Babu Versus Union of India, Central Board of Indirect Taxes and Customs, State of Tamil Nadu, The Deputy Commissioner of GST and Central Excise, Madurai, M/s. N.S. Rathinam & Sons P Ltd., Dindigul</h3> M/s. Baby Marine (Eastern) Exports, Rep., by its Partner, Nancy Babu Versus Union of India, Central Board of Indirect Taxes and Customs, State of Tamil ... 1. ISSUES PRESENTED AND CONSIDERED Whether Section 16(2)(c) of the CGST Act and Rule 36(4) of the CGST Rules, 2017 violate Article 14 of the Constitution of India by being discriminatory against purchasing dealers. Whether the provisions mandating purchasing dealers to ensure statutory compliance by supplying dealers are arbitrary and unconstitutional under Article 14. The constitutional validity of Rule 36(4) of the GST Rules as a temporary regulatory measure on availing Input Tax Credit (ITC). Whether restrictions imposed under Rule 36(4) violate the principle of reasonableness and arbitrariness under Article 14. Whether the challenge to these provisions is maintainable given the presumption of constitutionality of tax statutes and the evolution of GST compliance mechanisms. Whether the Court can grant refund or relief in writ petitions without factual adjudication by competent authorities. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Alleged Violation of Article 14 by Section 16(2)(c) of CGST Act and Rule 36(4) of CGST Rules Legal Framework and Precedents: The Court referred to established principles that tax legislation is subject to judicial restraint and cannot be struck down unless manifestly unjust or glaringly unconstitutional. The test for arbitrariness under Article 14 requires demonstration of drastic unreasonableness, capriciousness, or absence of adequate determining principle. Reference was made to authoritative precedents emphasizing stringent standards for interference with fiscal statutes. Court's Reasoning: The provisions challenged do not discriminate between purchasing and selling dealers but impose conditions on the purchaser to avail input tax credit, which is a statutory concession. The conditions prescribed are not arbitrary but reasonable regulatory measures. The Court rejected the contention that the provisions are vague or discriminatory, holding that availing the benefit is voluntary and subject to compliance with statutory conditions. Key Findings: The input tax credit is a benefit conferred under the statute; conditions for its availment do not amount to discrimination. The provisions do not violate Article 14 as they do not lack an adequate determining principle or are capricious. Application of Law to Facts: The Court applied the stringent test for arbitrariness and found no manifest arbitrariness or glaring unconstitutionality in the impugned provisions. Treatment of Competing Arguments: The argument that purchasing dealers are unfairly burdened with ensuring supplier compliance was rejected as the legislative scheme reasonably conditions the benefit of input tax credit on compliance. Conclusion: The constitutional validity of Section 16(2)(c) and Rule 36(4) is upheld; no violation of Article 14 is established. Issue 2: Constitutional Validity and Reasonableness of Rule 36(4) as a Temporary Regulatory Measure Legal Framework and Precedents: The Court acknowledged the presumption of constitutionality of GST enactments and rules framed thereunder. The restrictions under Rule 36(4) were viewed as temporary regulatory measures to prevent misuse of input tax credit and ensure compliance under Section 37(1) of the GST Act. Court's Reasoning: The restrictions under Rule 36(4) are reasonable and serve the legitimate objective of allowing only eligible input tax credit to be availed by recipients. The Court noted that the restrictions do not amount to arbitrary deprivation but are part of a regulatory framework to prevent tax evasion. Key Findings: The restrictions imposed are proportionate and rationally connected to the legislative purpose. The Court also observed that the issue has become largely academic due to the introduction of Form GSTR 2A, which facilitates input tax credit reconciliation and compliance. Application of Law to Facts: The Court applied the principles of reasonableness and proportionality and found the restrictions justified. The temporary nature of the restrictions and subsequent procedural improvements were taken into account. Treatment of Competing Arguments: Arguments that the petitioner was deprived of input tax credit due to Rule 36(4) were not accepted, given the evolution of the IT system and compliance mechanisms. Conclusion: Rule 36(4) is constitutionally valid, reasonable, and not violative of Article 14; writ petitions challenging it are dismissed. Issue 3: Maintainability of Relief in Writ Petitions for Refund Without Adjudication Legal Framework: Relief involving refund of tax amounts requires factual adjudication by competent authorities under the GST Act and Rules. Court's Reasoning: The Court held that it cannot grant consequential relief such as refund in writ petitions without proper adjudication of facts by the designated authorities. The petitioner must approach the competent authorities if eligible for relief. Application of Law to Facts: Despite the petitioner's claim of tax payment, the Court refrained from granting refund relief in the writ petition context. Conclusion: The Court declined to grant refund relief and dismissed the writ petitions, allowing the petitioner to seek remedy before proper authorities. Issue 4: Judicial Restraint in Interference with Tax Legislation Legal Framework and Precedents: The Court reiterated the principle that courts must exercise judicial restraint in interfering with tax statutes unless clear constitutional violations are demonstrated. Court's Reasoning: Given the absence of manifest arbitrariness or discrimination, and the legislative competence, the Court declined to interfere with the impugned provisions. Conclusion: The Court upheld the presumption of constitutionality and dismissed challenges to the GST provisions accordingly.
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