Rajasthan High Court accepts Plea challenging Validity of Rule on Capital Goods

Rajasthan High Court accepts Plea challenging Validity of Rule on Capital Goods

The Rajasthan High Court (HC) on 5 March 2021, in the case titled Mahabali Sales Corp. (Petitioner) v. Union Of India & Ors. (Respondents) issued the notice to the Central Board of Indirect Taxes and Customs (CBIC) on receiving a plea challenging the validity of Rule 89(5) for allowing refund of input services or capital goods.

The HC division bench comprising of Justices Sangeet Lodha and Rameshwar Vyas issued a notice, returnable within four weeks; and directed it to be given dasti to the counsel representing the petitioner for service upon the respondent authority.

The petitioner prayed before the HC to declare that the amendment made to Rule 89(5) of the Central Goods & Service Tax Rules (CGST Rules) denying refund of the unutilized input tax credit on account of inverted duty structure in the case of input services is ultra-vires Section 54(3) of the Central Goods & Service Tax Act (CGST Act).

The petitioner contended that as per Section 54(3) of the CGST Act refund of 'any unutilized input tax credit' is provided for the accumulated on account of inverted duty structure thereby covering credit of both 'inputs' and 'input services'.

The petitioner prayed to the HC for issuing a writ of declaration, or a writ in the nature of declaration or any other appropriate writ, order or direction.

The plea reads, "Declare that the amended Rule 89(5) of the CGST Rules is violative of Article 14 of Constitution of India, in as much as it discriminates between registered persons with accumulated credit on inputs and registered persons with accumulated credit on input services without any intelligible differentia and rational nexus to the objects of the CGST Act, by issuing a writ of declaration or a writ in the nature of declaration or any other appropriate writ, order or direction."

The petitioner further pleaded before the HC to declare that the amendment to Rule 89(5) cannot be given retrospective application.