2022 (10) TMI 994 - HC - GST

Validity of distinction between registered borrower and unregistered borrower - distinction in respect of GST liability or not - It was submitted that the petitioner is penalised for the reason that the borrower may be unregistered person - HELD THAT - Notice returnable on 16.11.2022. In order to avoid irreversible situation, in the event the petitioner succeeds in the petition, interim relief deserves to be granted. By way of ad interim relief, it is directed that the competent authority of the respondent shall not take any further steps pursuant to the impugned show-cause notice.

Summary

Issues:
Challenge to Rule 32(5) of CGST Rules and GGST Rules, Notification No. 8/2018-Central Tax (Rate), Show-cause notice under section 74 of CGST Act

Analysis:
The petitioner, a banking company, challenged the proviso to Rule 32(5) of the Central Goods and Services Tax Rules, 2017, and the Gujarat Goods and Services Tax Rules, 2017, claiming it to be discriminatory between registered and unregistered borrowers. The petitioner sought a declaration that the rule is arbitrary and illegal as it penalizes the petitioner for dealing with unregistered borrowers. Additionally, the petitioner prayed for the application of Notification No. 8/2018-Central Tax (Rate) to all sellers of second-hand motor vehicles, arguing that the reference to purchase price should be read as the purchase price of the defaulting borrower in case of the sale of repossessed vehicles. The petitioner also requested the setting aside of a show-cause notice issued under section 74 of the Central Goods and Services Tax Act, 2017.

The Rule 32(5) of the CGST Rules specifies the valuation of supply for second-hand goods, including repossessed goods from defaulting borrowers. The proviso deems the purchase value of repossessed goods from unregistered defaulting borrowers to be the purchase price reduced by a certain percentage for each quarter between the purchase and disposal dates. The petitioner argued that this provision operates irrationally and arbitrarily when repossessing and selling vehicles. The petitioner contended that the distinction between registered and unregistered borrowers is arbitrary and ultra vires when considered along with Tariff Entry No. 8703. The petitioner asserted that regardless of the borrower's registration status, the GST liability should remain the same, and penalizing the petitioner for dealing with unregistered borrowers is unjust.

The Court found substance in the petitioner's arguments and contentions, granting an interim relief directing the competent authority not to take further steps based on the impugned show-cause notice until the matter is resolved. The case is set for a returnable notice on a specified date to further address the issues raised by the petitioner.