The Telangana High Court, in W.P. No.14564/2024 (BirlaNu Ltd. v. Union of India & Ors.), has struck down Rule 39(1)(a) of the CGST Rules (pre-01.04.2025 period) as ultra vires Section 20 of the CGST Act. The Court held that mandating same-month distribution of ISD credit introduces a substantive time restriction not contemplated by the Parent Act.
The Court observed that once ITC is lawfully availed, it crystallizes into a vested statutory right and cannot be curtailed through delegated rule-making without express legislative sanction. The subsequent Finance Act 2024 amendment, empowering prescription of time limits prospectively from 01.04.2025, was treated as confirmatory of the absence of such delegation earlier.
On procedural aspects, the Court noted violation of natural justice during the audit process and rejected invocation of extended limitation under Section 74, as all facts were available on the GST portal through GSTR-6 filings. Audit objections, final audit report, and the consequential SCN were therefore quashed.
This ruling holds practical significance for ISD structures, ongoing audits, scrutiny, and SCNs involving pre-2025 periods. Taxpayers may rely on the judgment for representation, reconciliation, and defense.
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