TaxTMI 
TaxTMI 
TaxTMI 
2026 (3) TMI 298
X X X X Extracts X X X X
X X X X Extracts X X X X
....rvices Tax Rules, 2017 and Rule 39(1)(a) of the Tamil Nadu Goods and Services Tax Rules, 2017 in respect of two periods, viz., prior to 01.04.2025 and thereafter, as 01.04.2025 is the date on which the amendments to Section 20 of the Central Goods and Services Tax Act, 2017 and the Tamil Nadu Goods and Services Tax Act, 2017 were brought into effect. The petitioner also sought quashment of the show cause notice dated 27.6.2025. 2. In W.P.No.28371 of 2025, the petitioner calls into question the validity of Rule 39(1)(a) of the Central Goods and Services Tax Rules, 2017 and Rule 39(1)(a) of the Puducherry Goods and Services Tax Rules, 2017 in respect of two periods, viz., prior to 01.04.2025 and thereafter, as 01.04.2025 is the date on which the amendments to Section 20 of the Central Goods and Services Tax Act, 2017 and the Puducherry Goods and Services Tax Act, 2017 were brought into effect. The petitioner also prayed for setting aside the show cause notice dated 26.6.2025. 3. As the provisions under challenge in both the writ petitions are one and the same, we shall take up W.P.No.27038 of 2025 as lead case to decide the issues raised. 4.1. An apércu of the facts r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... invoice is attributable to, but also whether the said input service invoice pertains to eligible credit or ineligible credit and whether the conditions under the CGST Act/TNGST Act have been fulfilled qua such invoices. When Section 16(4) of the CGST Act/TNGST Act stipulates a time limit of around November of the financial year subsequent to the financial year in which the invoice was issued, any stipulation that the distribution must happen forthwith is unreasonable and arbitrary. 4.6. It is further averred that the show cause notice dated 27.6.2025, which pertains to the financial years 2018-2019 to 2023-2024, is unsustainable and without jurisdiction as Rule 39(1)(a) of the Rules has been substituted with effect from 1.4.2025, without a savings clause. 4.7. In such factual backdrop, the present writ petition is filed for the relief stated supra. 5.1. Mr.Arvind P. Datar, learned Senior Counsel appearing on behalf of the petitioners, submitted that: a) Though the government was empowered to prescribe a time limit for distribution of ITC in terms of Section 20 of the CGST Act/TNGST Act, the time limit could not have been the same month as the month in which the i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ITC and distribute them and in a case where the GST invoice is issued on 30th of a month, it is impossible to distribute through ISD invoice on the same day or the next day and, thus, the rule violates Article 19(1)(g) of the Constitution by imposing unreasonable restrictions on the right to carry on business. 5.2. Learned Senior Counsel relied upon a decision of the Supreme Court in the case of Sales Tax Officer Ponkunnam and another v. K.I.Abraham [AIR 1967 SC 1823], wherein Rule 6 of the Central Sales Tax (Kerala) Rules, 1957 was struck down as being ultra vires Section 8 of the Central Sales Tax Act, as the parent provision did not empower prescription of a time limit. He added that the said judgment is squarely applicable to the case in hand. 6.1. Mr.AR.L.Sundaresan, learned Additional Solicitor General of India appearing on behalf of respondent Nos.1 and 3, submitted that: (a) Rule 39(1)(a) of the Central Goods and Services Tax Rules, 2017 has been validly framed in exercise of the rulemaking power conferred under Section 164 of the CGST Act, 2017, read with Section 20 of the CGST Act, which empowers the Government to prescribe the manner of distribution of IT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion; (d) maintaining audit trail integrity: and (e) facilitating destination-based taxation principle under GST. Mere centralisation of invoicing and distribution of Credit by the ISD cannot change this basic receipt of credit by the actual receiver of service within a time limit. Therefore, the rule does not violate Article 14 of the Constitution of India; (d) Rule 39(1)(a) of the Rules does not violate the fundamental right to carry on trade or business under Article 19(1)(g) of the Constitution. Input Tax Credit is a statutory benefit, not an absolute right, and can be regulated through conditions prescribed by law. The procedural requirements do not prohibit business activities, but merely regulate the manner of claiming tax benefits. The restrictions imposed under Rule 39(1)(a) of the Rules are reasonable restrictions in the interest of general public and for maintaining integrity of the tax system. They are designed to ensure proper administration of GST law, prevent revenue leakage, and facilitate audit and verification processes and, hence, there is no violation of Article 19(1)(g) of the Constitution of India; (e) ISD distribution is not the same as "taking" or "....
X X X X Extracts X X X X
X X X X Extracts X X X X
....without the petitioner first demonstrating that such remedies are inadequate or would cause irreparable harm. 6.2. Placing reliance upon a decision of the Supreme Court in Jayam & Co. v. Assistant Commissioner [(2016) 15 SCC 125], wherein it is held that procedural conditions for availing tax benefits are within legislative competence and do not violate fundamental rights if they are reasonable and serve legitimate policy objectives, it is submitted that the same-month distribution requirement under Rule 39(1)(a) of the Rules is a reasonable procedural condition serving the legitimate objectives of revenue protection and prevention of fraud. 6.3. Reliance is also placed on a decision in the case of Union of India v. VKC Footsteps India Pvt Ltd [(2022) 2 SCC 603], wherein it is categorically held that ITC is a statutory benefit subject to conditions prescribed by law. The conditions cannot be termed as unreasonable merely because they require diligent compliance by taxpayers. This principle fully supports the validity of Rule 39(1)(a) of the Rules, which prescribes a reasonable timeline for ISD credit distribution. 6.4. Relying on the decision of the Supreme Court in ALD Au....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Rs.51,55,243/- (IGST) based on receipt from GSTINs of other than Tamil Nadu State having Permanent Account Number (PAN). Therefore, it is alleged that such credit amounts have been shown as received for distribution against the inward supply invoices which have been issued by the taxpayer having same PAN registration in States other than Tamil Nadu along with the details therein. 13.3. What is further stated is that, on verification of the details of ISD credit submitted by the taxpayer said to be related to the ISD with the GSTR-2A submitted by the taxpayer, they were requested to furnish details of total ISD credit availed by them, including other details of original supply invoices / calculations / availability of credit with ISD, etc. It is then alleged that the taxpayer selectively furnished ISD credit details in excel format with corresponding GSTR-6A data and sample ISD invoices on a random basis, for ISD credit received during subject tax period from Chennai ISD and Maharashtra ISD. 13.4. It is also alleged that, on verification of the details and sample ISD invoices furnished by the taxpayer, it is found that the ITC availed by the taxpayer based was on the invoic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....x. 17. Chapter V deals with ITC and contains various provisions providing for eligibility and conditions for taking ITC. 18. The definitions of the expressions "input", "input service", "input tax" and "input tax credit" were noticed by the Apex Court in the case of Union of India v. VKC Footsteps India Pvt Ltd (supra) as under: "60. The definition of the expression 'input' is contained in Section 2(59) which reads thus: "2. (59) 'input' means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business;" The expression 'input' is thus defined to mean goods other than capital goods. The definition, however, incorporates a requirement of use, actual or intended, by a supplier or in the course or furtherance of business. 61. 'Input service' is defined in Section 2(60) as follows: "2. (60) 'input service' means any service used or intended to be used by a supplier in the course or furtherance of business;" The definition of "input service" is parallel to that of "input", with the important distinction that while "input" is defined with reference to "any goods", "input s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....edited to the electronic credit ledger of such person. (2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,- (a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed; (aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37; (b) he has received the goods or services or both. Explanation.- For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services- (i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to good....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e return under the said section for the month of March, 2019 in respect of any invoice or invoice relating to such debit note for supply of goods or services or both made during the financial year 2017-18, the details of which have been uploaded by the supplier under subsection (1) of section 37 till the due date for furnishing the details under sub-section (1) of said section for the month of March, 2019. (5) Notwithstanding anything contained in sub-section (4), in respect of an invoice or debit note for supply of goods or services or both pertaining to the Financial Years 2017- 18, 2018-19, 2019-20 and 2020-21, the registered person shall be entitled to take input tax credit in any return under section 39 which is filed upto the thirtieth day of November, 2021. (6) Where registration of a registered person is cancelled under section 29 and subsequently the cancellation of registration is revoked by any order, either under section 30 or pursuant to any order made by the Appellate Authority or the Appellate Tribunal or court and where availment of input tax credit in respect of an invoice or debit note was not restricted under sub-section (4) on the date of order....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t Ltd. v. The Commercial Tax Officer and Ors (supra), it was held that the input credit is in the nature of benefit/concession extended to the dealer under the statutory scheme and that concession can be received by the beneficiary only as per the scheme of the statute. It was held as below: "34. The input credit is in the nature of benefit/concession extended to the dealer under the statutory scheme. The concession can be received by the beneficiary only as per the scheme of the statute. Reference is made to the judgment of this Court in Godrej & Boyce Mfg. Co. (P) Ltd. v. CST, (1992) 3 SCC 624. Rules 41 and 42 of the Bombay Sales Tax Rules, 1959 provided for the set-off of the purchase tax. This Court held that the rule-making authority can provide curtailment while extending the concession. In para 9 of the judgment, the following has been laid down: (SCC pp. 631-32) '9. In law (apart from Rules 41 and 41-A) the appellant has no legal right to claim set-off of the purchase tax paid by him on his purchases within the State from out of the sales tax payable by him on the sale of the goods manufactured by him. It is only by virtue of the said Rules-which, as state....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntral Sales Tax Act. Thus, the dealer has to strictly follow the procedure and Rule 6(b)(ii) and produce the relevant materials required under the said rule. Without producing the specified documents as prescribed thereunder a dealer cannot claim the benefits provided under Section 8 of the Act. Therefore, we are of the opinion that the requirements contained in Rule 6(b)(ii) of the Central Sales Tax (Karnataka) Rules, 1957 are mandatory.'" 24.3. The other legal proposition of law that taxing statute is to be interpreted literally and further it is in the domain of the legislature as to how much tax credit is to be given and under what circumstances was also clearly stated as below: "36. This Court had the occasion to consider the Karnataka Value Added Tax Act, 2013 in State of Karnataka v. M.K. Agro Tech. (P) Ltd., (2017) 16 SCC 210. This Court held that it is a settled proposition of law that taxing statutes are to be interpreted literally and further it is in the domain of the legislature as to how much tax credit is to be given under what circumstances. The following was stated in para 32: (SCC p. 223) '32. Fourthly, the entire scheme of the KVAT Act is to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is that in order to enable the dealer to claim ITC it has to produce original tax invoice, completed in all respect, evidencing the amount of input tax.' 38. This Court further held that it is a trite law that whenever concession is given by a statute the conditions thereof are to be strictly complied with in order to avail such concession. In para 12, the following has been laid down: (SCC pp. 134-35) '12. It is trite law that whenever concession is given by statute or notification, etc. the conditions thereof are to be strictly complied with in order to avail such concession. Thus, it is not the right of the "dealers" to get the benefit of ITC but it is a concession granted by virtue of Section 19. As a fortiori, conditions specified in Section 10 must be fulfilled. In that hue, we find that Section 10 makes original tax invoice relevant for the purpose of claiming tax. Therefore, under the scheme of the VAT Act, it is not permissible for the dealers to argue that the price as indicated in the tax invoice should not have been taken into consideration but the net purchase price after discount is to be the basis. If we were dealing with any other aspect dehors the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny tax that has been paid in pursuance of any order where any demand has been confirmed on account of any fraud, willful misstatement or suppression of facts. (4) No input tax credit shall be availed by a registered person in respect of invoices or debit notes the details of which are required to be furnished under subsection (1) of section 37 unless,- (a) the details of such invoices or debit notes have been furnished by the supplier in the statement of outward supplies in FORM GSTR-1 [, as amended in FORM GSTR-1A if any,] or using the invoice furnishing facility; and (b) the details of input tax credit in respect of such invoices or debit notes have been communicated to the registered person in FORM GSTR-2B under sub-rule (7) of rule 60." 27. Rule 37 of the CGST Rules provides for reversal of ITC in the case of non-payment of consideration, whereas Rule 37A of the CGST Rules provides for reversal of ITC in the case of non-payment of tax by the supplier and re-availment thereof. Rule 38 of the CGST Rules provides for claim of credit by a banking company or a financial institution. 28. A conjoint reading of the provisions contained in Section 16 of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....section (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act, 2017, for or on behalf of distinct persons referred to in section 25, shall be required to be registered as Input Service Distributor under clause (viii) of section 24 and shall distribute the input tax credit in respect of such invoices. (2) The Input Service Distributor shall distribute the credit of central tax or integrated tax charged on invoices received by him, including the credit of central or integrated tax in respect of services subject to levy of tax under sub-section (3) or subsection (4) of section 9 paid by a distinct person registered in the same State as the said Input Service Distributor, in such manner, within such time and subject to such restrictions and conditions as may be prescribed. (3) The credit of central tax shall be distributed 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, in such manner as may be prescribed." 32. At this stage, it is relevant to note that Rule 39 of the CGST Rules also underwent an amendment by substitution vide No....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d) and (e), of person R₁ during the relevant period, and "T" is the aggregate of the turnover, during the relevant period, of all recipients to whom the input service is attributable in accordance with the provisions of clause (d) and (e); (g) the Input Service Distributor shall, in accordance with the provisions of clause (d) and (e), separately distribute the amount of ineligible input tax credit (ineligible under the provisions of sub-section (5) of section 17 or otherwise) and the amount of eligible input tax credit; (h) the input tax credit on account of central tax, State tax, Union territory tax and integrated tax shall be distributed separately in accordance with the provisions of clause (d) and (e); (i) the input tax credit on account of integrated tax shall be distributed as input tax credit of integrated tax to every recipient; (j) the input tax credit on account of central tax and State tax or Union territory tax shall- (i) in respect of a recipient located in the same State or Union territory in which the Input Service Distributor is located, be distributed as input tax credit of central tax and State tax or Union terr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he provisions of sub-rule(1A) of rule 54 to transfer the credit of such common input services to the Input Service Distributor, and such credit shall be distributed by the said Input Service Distributor in the manner as provided in sub-rule (1). (2) If the amount of input tax credit distributed by an Input Service Distributor is reduced later on for any other reason for any of the recipients, including that it was distributed to a wrong recipient by the Input Service Distributor, the process specified in clause (n) of sub-rule (1) shall apply, mutatis mutandis, for reduction of credit. (3) Subject to sub-rule (2), the Input Service Distributor shall, on the basis of the Input Service Distributor credit note specified in clause (l) of subrule (1), issue an Input Service Distributor invoice to the recipient entitled to such credit and include the Input Service Distributor credit note and the Input Service Distributor invoice in the return in FORM GSTR-6 for the month in which such credit note and invoice was issued. Explanation. - For the purpose of this rule, - (i) the term ―"relevant period" shall be- (a) if the recipients of credi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....limit for distribution is ultra vires unamended Section 20 of the CGST Act. 36. The response of the respondents is that it only prescribes the manner in which distribution has to be made and, therefore, it cannot be said be ultra vires the provisions of the enabling Act. 37. This aspect we will consider at a later stage, if at all required for our discussion. INTERPLAY OF SECTION 16 AND 20 OF THE CGST ACT - SCHEME OF ENTITLEMENT TO CREDIT AND DISTRIBUTION OF CREDIT 38. While Section 16 of the CGST Act provides for eligibility to available ITC, Section 20 of the CGST Act deals with distribution of credit in certain circumstances where the assessee's like the petitioners herein have several units and there are common service providers, in which case, the law requires that ITC should be distributed pro rata on the basis of turnover of the individual units, as each branch office in the State has to be separately registered. 39. Whether the scheme of the CGST Act envisages distribution of credit only upon receipt of invoices or upon fulfillment of the conditions enumerated in Section 16(2) of the CGST Act to become entitled to avail ITC will have to be answered by a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 145. M.N. Venkatachaliah, J. speaking for the Constitution Bench of this Court in Tinsukhia Electric Supply Co. Ltd. v. State of Assam, (1989) 3 SCC 709 observed thus : (SCC p. 754, paras 118-20) '118. The courts strongly lean against any construction which tends to reduce a statute to futility. The provision of a statute must be so construed as to make it effective and operative, on the principle ut res magis valeat quam pereat. It is, no doubt, true that if a statute is absolutely vague and its language wholly intractable and absolutely meaningless, the statute could be declared void for vagueness. This is not in judicial review by testing the law for arbitrariness or unreasonableness under Article 14; but what a court of construction, dealing with the language of a statute, does in order to ascertain from, and accord to, the statute the meaning and purpose which the legislature intended for it. In Manchester Ship Canal Co. v. Manchester Racecourse Co., (1900) 2 Ch 352 Farwell, J. said : (pp. 360-61) '... Unless the words were so absolutely senseless that I could do nothing at all with them, I should be bound to find some meaning, and not to declare th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... obvious intention of the legislature does not stand defeated unless it leads to a case of absolute intractability in use. The court must adopt a construction which suppresses the mischief and advances the remedy and 'to suppress subtle inventions and evasions for continuance of the mischief, and pro privato commodo, and to add force and life to the cure and remedy, according to the true intent of the makers of the Act, pro bono publico'. The court must give effect to the purpose and object of the Act for the reason that legislature is presumed to have enacted a reasonable statute. (Vide M. Pentiah v. Muddala Veeramallappa [M. Pentiah v. Muddala Veeramallappa, (1961) 2 SCR 295 : AIR 1961 SC 1107], S.P. Jain v. Krishna Mohan Gupta [S.P. Jain v. Krishna Mohan Gupta, (1987) 1 SCC 191], RBI v. Peerless General Finance & Investment Co. Ltd. [RBI v. Peerless General Finance & Investment Co. Ltd., (1987) 1 SCC 424], Tinsukhia Electric Supply Co. Ltd. v. State of Assam [Tinsukhia Electric Supply Co. Ltd. v. State of Assam, (1989) 3 SCC 709], SCC at p. 754, para 118; UCO Bank v. Rajinder Lal Capoor [UCO Bank v. Rajinder Lal Capoor, (2008) 5 SCC 257 : (2008) 2 SCC (L&S) 263] and Grid Corpn. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ates distribution upon receipt of invoice. 42. At the first blush, the argument appears to be attractive. However, on a deeper examination, such an interpretation would lead to a situation where the ISD, whether or not is entitled to avail ITC as provided under Section 16 of the CGST Act, would be required to distribute the credit as per the invoice alone. 43. The expression "The Input Service Distributor shall distribute the credit of central tax or integrated tax charged on invoices received by him" has to be interpreted keeping in view the other provisions contained not only in Section 20 of the CGST Act, but also Section 16 of the CGST Act and not in isolation. 44. It is one of the cardinal principles of interpretation that a provision contained in the statute has to be read as a whole and keeping in view the scheme of the Act and other provisions contained therein and not de hors the same. It is pertinent to note that in Section 20(1) of the CGST Act, it has been clearly provided that the ISD registered under clause (viii) of Section 24 shall distribute the ITC in respect of such invoices received. 45. The aforesaid expression is required to be meaningfully interpr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e available in accordance with law. This, in turn, means that credit has become available in the manner provided under Section 16 of the CGST Act. Since the ITC can be availed and the registered person would be entitled to the same only upon fulfillment of various conditions incorporated therein, of which the receipt of invoice is the trigger point, the stage of distribution of ITC available will arrive only upon fulfillment of mandatory conditions prescribed under Section 16(2) of the CGST Act and not otherwise. 51. As a matter of fact, if we look into the scheme of the CGST Act read with the Rules and various forms which are required to be submitted at various stages, it will become clear that receipt of invoice is not envisaged to be the stage where credit is required to be distributed by the ISD. 52. As per Section 20 of the CGST Act, what is required to be distributed is "credit", which after amendment in Section 20 of the CGST Act with effect from 1.4.2025 would clearly mean "input tax credit". The expression "input tax credit" cannot be treated as the same as "input" or "input tax". It also cannot be said to be taxable value of supply. The statutory scheme of distribut....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... invoice, by itself, is not sufficient in the eyes of law for a registered person to claim that he is entitled to ITC. 55. Rule 39(1)(a) of the Rules mandates that the ITC available for distribution in a month shall be distributed in the same month and the details thereof shall be furnished in FORM GSTR-6 in accordance with the provisions of Chapter VIII of these Rules. Form GSTR-6 requires details of Total ITC/Eligible ITC/Ineligible ITC to be distributed for tax period. Paragraph (3) thereof deals with ITC received for distribution. Paragraph (7) deals with ITC mis-matches and reclaims to be distributed in the tax period. It also requires details of redistribution of ITC distributed to a wrong recipient (plus/minus) and refund claimed from electronic cash ledger. 56. A chart showing forms and timelines under the CGST Act, for ready reference, has been submitted by the petitioners. Since that contains statutory timelines with regard to submission of various details in different statutory forms, it is reproduced herein below: FORMS AND TIMELINES UNDER GST Form Particulars Date Relevant Provision Form GSTR-1 Particulars of outward supplies made during the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment, Rule 39(1)(b) of the CGST Rules provides that the amount of the credit distributed shall not exceed the amount of credit available for distribution. Therefore, the submission of the respondents that distribution is to take place on issuance of invoice is based on incorrect assumption that the service is received when the invoice is issued. 58. It is clear that what is available for distribution is not the tax invoice, but the ITC. The registered person becomes entitled to the same upon fulfillment of conditions incorporated in Section 16(2) of the CGST Act and not before that. 59. Therefore, the expression "the input tax credit available for distribution in a month" contained in Rule 39(1)(a) of the CGST Rules has to be interpreted, construed and understood in the manner it is consistent with the statutory scheme of Section 16 read with Section 20 of the CGST Act and not otherwise. The said provision, if interpreted in the manner as has been argued by learned counsel for the respondents that what is required to be distributed in terms of provision contained in Section 20 of the CGST Act read with Rule 39 of the Rules is credit as stated in the tax invoice, even witho....