Rajasthan High Court upholds Rule 36(4) restricting input tax credit on matching gaps

The Rajasthan High Court reviewed the constitutional and statutory validity of Rule 36(4) of the Goods and Services Tax (GST) rules, which limits a taxpayer's ability to claim input tax credit (ITC) when invoice details do not reflect in the auto-generated Form GSTR-2A. Input tax credit forms the backbone of the value-added tax mechanism, allowing businesses to offset tax paid on inputs against their final output liability.

Historically, tax administrators introduced matching restrictions to curb fraudulent credit claims generated through fake invoices. Under Rule 36(4), businesses face caps on claiming credits for invoices not uploaded by their suppliers, shifting the compliance burden onto recipients to ensure vendors deposit taxes and file returns. Tax professionals must advise clients to conduct monthly reconciliations between purchase registers and Form GSTR-2A or GSTR-2B to prevent working capital blockages.

Businesses should incorporate vendor compliance clauses into commercial contracts, withholding payments or future orders from defaulting suppliers. Diligent supply chain tracking is critical to protect input tax credit eligibility under strict judicial interpretations.