The Himachal Pradesh High Court recently observed that Rule 86B of the Central Goods and Services Tax (CGST/HPGST) Rules, 2017, which restricts use of Input Tax Credit ( ITC ) in the Electronic Credit Ledger for releasing Output tax, appears to be ultra vires the HP Goods and Services Tax Act 2017. The Court pointed that there are no conditions or restrictions other than these and that respondent-authority failed to reply to Petitioner’s contention that Rule 86B itself is not backed by any statutory provision. It further added that though Section 164 of the Act enables the Rule making authority to frame Rule 86B or other Rules, however, such Rules must have “backing in the main body of the statute”. Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here The Court also pointed that the amount available in the Electronic Credit Ledger is taxpayer’s own money. However, it eventually left the issue open for consideration in an appropriate case. Petitioner, an enterprise, had challenged the Rule after its GST registration was cancelled for violation of Rule 86B. Rule 21(g) of the 2017 Rules states that the registration granted to a person is liable to be cancelled if the said person violates Rule 86B for paying short tax in cash. The High Court found that since the tax liability of the petitioner towards output tax stood discharged, no prejudice was caused to the Respondent-authority.

Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here While allowing the appeal, the court held that it was unnecessary for the respondents to cancel the GST Registration and they could have considered any other penalty which is more proportionate to the violation of law.. It was observed that in the case of Arnab Ranjan Goswami v. Union of India (2020) where the Supreme Court held that “any reasonable restriction on fundamental rights must comport with the proportionality standard, of which one component is that the measure adopted must be the least restrictive measure to effectively achieve the legitimate State aim.” Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here The court also relied on Jayrajbhai Jayantibhai Patel v. Anilbhai Nathubhai Patel (2006) where the Supreme Court held that power of judicial review may not be exercised unless the administrative decision “shocks the conscience of the court in the sense that it is in defiance of logic”. The Bench of Chief Justice M.S. Ramachandra Rao and Justice Satyen Vaidya said that the petitioner’s contention that Rule 86B of the Act has no statutory backing and appears to be ultra vires the provisions of the HPGST Act, 2017.