Sumant Kumar Agarwal Vs Commissioner of CGST & CX (Calcutta High Court)
Summary: The Calcutta High Court set aside both the appellate order rejecting the petitioner’s appeal and the underlying order passed under Section 74(9) of the WBGST/CGST Act after holding that the petitioner was entitled to the benefit of the retrospectively inserted Section 16(5). The dispute related to the tax period 2018-19 and arose from reversal of input tax credit on the ground that the returns had not been filed within the time prescribed under Section 16(4).
A show-cause notice in Form DRC-1 had been issued on 15 June 2022, followed by an order under Section 74(9) dated 23 May 2023. The petitioner’s appeal under Section 107 was rejected by communication dated 15 May 2024.
The petitioner contended that the legal position had subsequently changed through the Finance (No. 2) Act, 2024, which inserted sub-sections (5) and (6) in Section 16 with effect from 1 July 2017. Section 16(5) permits input tax credit relating to financial years 2017-18 to 2020-21 where the relevant return under Section 39 was filed up to 30 November 2021.
In the petitioner’s case, the GSTR-3B return had been filed within that extended outer time limit. Significantly, counsel appearing for the CGST authorities did not dispute that the returns had been filed within the time permitted under Section 16(5).
The petitioner had also filed a rectification application dated 7 April 2025 in terms of the notification dated 8 October 2024 for availing the benefit of Section 16(5). The High Court found that the appellate authority had failed to consider this subsequent statutory development and had rejected the appeal through a cryptic order.
The Court recognised that the proper officer might not have committed any irregularity when the original order was passed because Section 16(5) had not then been inserted. However, the provision was subsequently given retrospective effect from 1 July 2017. Consequently, the petitioner was entitled to its benefit.
The Court held that the appellate authority’s rejection ignored both the retrospective statutory amendment and the petitioner’s rectification application. It characterised the appellate order as perverse and observed that permitting it to stand would result in a failure of justice.
Accordingly, in the peculiar facts of the case, the High Court set aside both the appellate order and the proper officer’s order under Section 74(9). It directed that all consequences shall follow and disposed of the writ petition.
FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT
1. Challenging the communication of rejection of an appeal under Section 107 of the WBGST/CGST Act, 2017 (hereinafter referred to as the said Act) dated 15th May, 2024 arising out of a challenge to an order passed under Section 74(9) of the said Act dated 23rd May, 2023 for the tax period of 2018-19, the instant writ petition has been filed.
2. Mr. Lakhotia, learned advocate representing the petitioner has drawn attention of this Court to the show-cause notice issued in form DRC 1 dated 15th June, 2022 and the order passed under Section 74(9) of the said Act and would submit that the entire demand was on account of reversal of input tax credit in terms of Section 16(4) of the said Act, for the petitioner having not filed the returns within the time specified in the sub-Section. He would submit that the said Act has, however, subsequently been amended and sub-section 5 and sub-section 6 have been inserted by Finance (No. 2) Act, 2024 with effect from 1st July, 2017 and as such having regard to the newly inserted sub-Section 5, since the date of filing of the return in form GSTR 3B by the petitioner in within the outer time limit date of 30th November, 2021, the petitioner is entitled to the benefit of the said sub-Section, and the order passed under Section 74(9) of the said Act cannot be sustained inasmuch as the entire basis of such order stands removed. He has also drawn attention of this Court to the application for rectification dated 7th April, 2025 filed in terms of the notification dated 8th October, 2024 for availing benefit of sub-Section 5 of Section 16 of the said Act.
3. Unfortunately, the appellate authority did not consider the same and by a cryptic order, has rejected the appeal.
4. Mr. Agarwal, learned advocate appears for the CGST authorities. Having regard to the findings returned by the proper officer in the order passed under Section 74(9), he does not dispute the fact that the returns have been filed within the extended time limit provided for in Section 16(5) of the said Act.
5. Having heard the learned advocates appearing for the respective parties and noting that the proper officer may not have committed any irregularity in passing the order inasmuch as an order is passed prior to insertion of Section 16(5) of the said Act, however, since Section 16(5) has been inserted with effect from 1st July, 2017, I am of the view that the petitioner is entitled to the benefit thereof, in any event, the petitioner has also in terms of the notification dated 8th October, 2024 had duly made the rectification application. The order of rejection of appeal appears to ignore the aforesaid. The order passed by the appellate authority, in my view, is perverse. The above order passed by the appellate authority if permitted to sustain would tantamount the failure of justice.
6. In the peculiar facts the order passed by the appellate authority as also by the proper officer under Section 74 (9) of the said Act is set aside.
7. All consequences shall follow.
8. With the above observations and directions, the writ petition is disposed of.
