TaxTMI 
TaxTMI 
2026 (1) TMI 894
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....24 and the consequential show-cause notice dated 30.01.2024 proposing a penalty of Rs. 8,38,67,332/- under Section 122(1)(ix) of the Central Goods and Services Tax Act, 2017 (for short, 'CGST Act, 2017'). Factual matrix (in brief) 3. The petitioner M/s. BirlaNu Limited is registered as an Input Service Distributor (ISD) under the CGST Act. During the audit for the financial years 2017-2018 and 2018-2019, respondent Nos.2 to 4 observed that the petitioner had accumulated Input Tax Credit (ITC) during each Financial Year (for short, 'FY') and distributed the accumulated ITC in the last month (March 2018-2019) instead of distributing it month wise. This, according to the respondent authorities, is contrary to Rule 39(1)(a) of the CGST Rules, which mandates that the credit available for distribution in a month "shall be distributed in the same month". Consequently, a Spot Memo dated 07.12.2023 (Annexure-P5) was issued, followed by additional Spot Memo (Annexure-P7) and Final Audit Report (Annexure-P11). A show-cause notice dated 30.01.2024 proposing a penalty of Rs. 8,38,67,332/- (Annexure-P14) which according to the petitioner was issued without granting the petitioner adequate ....
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....audit report and show-cause notice, being founded on an ultra vires rule and a misconstruction of the statutory scheme, are arbitrary, contrary to law, and liable to be quashed. Contentions of the respondents 5. Learned Standing Counsel appearing for the respondents raised the following contentions hereunder: i. That the Rule 39(1)(a) of the CGST Rules is intra vires pre-amended Section 20 of the CGST Act, as it merely prescribes the manner of distribution of ITC, which the statute expressly authorises to be regulated by Rules. The requirement of distributing credit in the same month forms an integral part of such prescribed manner. ii. That Section 20 of the CGST Act and Rule 39 of the CGST Rules constitute a composite statutory scheme governing Input Service Distributors and must be read harmoniously. The petitioner cannot selectively rely on Section 20 while disregarding the binding procedural mandate under Rule 39(1)(a). iii. That the amendment to Section 20 of the CGST Act introduced by the Finance Act, 2024 operates prospectively with effect from 01.04.2025 and does not render Rule 39(1)(a) invalid or ultra vires for the earlier period. The le....
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....ng the relevant period, however, mandates that the credit available for distribution in a particular month shall be distributed in that very month. 10. It is to be noted that the Rule 39(1)(a) travels beyond the scope of the parent provision, by introducing a mandatory time limit for distribution, which is not contemplated under Section 20 of the Act. 11. It is to be noted that while delegated legislation ordinarily enjoys a presumption of validity, such presumption stands rebutted where the rule demonstrably travels beyond the limits of authority conferred by the parent statute. In this regard, Section 20 of the CGST Act as it stood prior to 01.04.2025 is extracted hereunder: Section 20. Manner of distribution of credit by Input Service Distributor.- (1) The Input Service Distributor shall distribute the credit of central tax as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit being distributed in such manner as may be prescribed (2) The Input Service Distributor may distribute the credit subject to the following conditions, namely (a)....
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....ot to defeat it. 14. In this context, this Court finds substance in the reliance placed by the petitioner on the decision of the Hon'ble Supreme Court in Sales Tax Officer v. K. I. Abraham (1967) 20 STC 367, wherein it has been authoritatively held that a rule-making authority cannot introduce a period of limitation in the absence of any such prescription in the parent statute. 15. It is well settled that a rule framed 'for carrying out the purposes of the Act' constitutes a general delegation of power, which cannot be exercised to create substantive obligations, disabilities, or conditions not contemplated by the Legislature. Where such a rule introduces a condition that directly impairs or nullifies a statutory entitlement, it ceases to be procedural, assumes the character of substantive law, and thereby exceeds the limits of delegated authority. In this regard, the Hon'ble Supreme Court in Global Energy Limited v. Central Electricity Regulatory Commission (2009) 15 SCC 570, has held as under- 25. It is now a well-settled principle of law that the rule-making power "for carrying out the purpose of the Act" is a general delegation. Such a general delegation may not ....
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.... to the government under its delegated legislation. 18. It is trite law that when the parent statute does not provide for a limitation period, the rule-making authority cannot introduce a time restriction by invoking general rule-making powers, particularly where such restriction results in extinguishment of a statutory right, as this would amount to rewriting the statute and is impermissible in law. 19. It is also relevant to note that the Act permits a recipient unit to avail ITC directly until the due date for filing of the return for the month of September or November of the subsequent financial year. The denial of an identical benefit solely on the ground that the credit is routed through an ISD results in hostile discrimination and is manifestly arbitrary and violation of Articles 14 and 300-A of the Constitution of India. 20. Further, once ITC is lawfully availed in terms of the Act, it crystallizes into a vested statutory right. Any curtailment thereof through delegated legislation, bereft of express legislative sanction and unsupported by a rational nexus to the statutory objective, cannot be sustained. Such arbitrary deprivation offends Article 14 of the Constitu....