Rule 39 ITC Norms Invalid Under Section 20 | HC

Case Details: BirlaNu Ltd. vs. Union of India [2026] 182 taxmann.com 297 (Telangana) 

Judiciary and Counsel Details

• ApareshKumar Singh, CJ.
• G.M. Mohiuddin, J.
• Sparsh Bhargava, Learned Counsel and Smt. Shireen Sethna Baria for the Petitioner.
• Bokaro Sapna Reddy, Standing Counsel, B.Mukherjee, learned counsel and N.Bhujanga Rao, Deputy Solicitor General for the Respondent.

Facts of the Case

The petitioner challenged the validity of Rule 39(1)(a) of the CGST Rules and consequential proceedings initiated by the Department of Revenue. It was observed that the petitioner had accumulated Input Tax Credit (ITC) and distributed it in the last month of the year, contrary to the said rule, which mandates that credit available for distribution in a month shall be distributed in the same month. It was submitted that all particulars of ITC distribution were disclosed in periodical returns, rendering the invocation of extended limitation under Section 74 legally untenable. The matter was accordingly placed before the High Court.

High Court Held

The High Court held that Rule 39(1)(a) mandating distribution of ITC within the same month was ultra vires Section 20 of the CGST Act and the Telangana GST Act. It was observed that the inflexible requirement imposed by the rule could deny legitimately accrued ITC. The Court held that the show-cause notice issued was beyond the normal limitation period under Section 73, and the Department could not invoke an extended limitation under Section 74, as there was no suppression, misstatement, or fraud; all relevant ITC distributions were disclosed and available to the Department. Therefore, the final audit report, show-cause notice, and all consequential proceedings were set aside, allowing the petitioner to claim any amounts deposited in connection with the impugned proceedings.

List of Cases Referred to

• Lakshmi Rattan Engineering Works Ltd v. CST AIR 1968 SC 488 (para 13)
• STO v. K. I. Abraham [1967] 20 STC 367 (para 14)
• Global Energy Ltd v. Central Electricity Regulatory Commission (2009) 15 SCC 570 (para 15)
• Kirloskar Brothers Ltd v. State of Jharkhand [W.P. (T) No. 3944 of 2022, dated 26-4-2023] (para 17)
• Bharat Barrel and Drum Manufacturing Company Ltd v. ESI Corporation (1971) 2 SCC 860 (para 17)
• Pushpam Pharmaceuticals Company v. CCE 1995 Supp (3) SCC 462 (para 25).