CA Madhukar N Hiregange
CA Rajesh Maddi, CA Spudarjunan S.
Introduction
In the certainty of law lies the safety of its citizens. Anything which is infinite loses its value & importance.
The introduction of the Limitation Act represents a fundamental aspect of legal systems worldwide, serving to uphold the rule of law, foster judicial integrity, and facilitate the timely resolution of disputes. The primary objective of the limitation is to establish specific timeframes within which legal actions must be initiated, thereby preventing perpetual litigation and ensuring societal order by curbing fraud and perjury. This legal framework serves to safeguard against undue delay in seeking legal remedies, thereby upholding public policy for the greater welfare. The Supreme Court, in the case of Balakrishnan v. M.A. Krishnamurthy, AIR 1988 SC 3222, affirmed the Limitation Act 1963, basis in public policy, emphasizing its role in setting reasonable limits on legal recourse for the broader benefit of society.
The law of limitation finds its root in the maxims “Interest Reipublicae Ut Sit Finis Litium” which means that in the interest of the state as a whole there should be a limit to litigation and “vigilantibus non dormientibus Jura subveniunt” which means the law will assist only those who are vigilant with their rights and not those who sleep upon it. The law of limitation specifies the statutory time frame within which a person may initiate a legal proceeding, or a legal action can be brought. If a suit is filed after the expiry of the time prescribed it will be barred by the Limitation.
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Applicability of Limitation Act in GST
The Kerala High Court in Penuel Nexus Pvt. Ltd. WP(C) No. 15574 of 2023, through a single-judge bench headed by Justice C.S. Dias, interpreted the provisions of the CGST Act and concluded that Section 107 is an inbuilt mechanism within the Act. It was held that this provision implicitly excludes the application of the Limitation Act. It was emphasized that the CGST Act is a unique and self-contained code, thereby expressly or impliedly exclude the applicability of Limitation Act, 1963. The Bench stressed the need for a strict interpretation of fiscal statutes and highlighted that the Limitation Act would only apply if specifically extended to the special statute.
Suo-motto limitation extension decision by SC in the context of COVID.
The Supreme Court pronounced its decision under Article 141, 142 of Constitution of India, extending the period of limitation of all proceedings at all Courts/Tribunals across the country including the Supreme Court, from 15th March 2020, till 28th February 2022. The extension of this limitation period shall be irrespective of the limitation prescribed under the general law or Special Laws, whether condonable or not.
The Central Government and the State Government has issued notifications under Section 168A of the Central Goods and Services Tax Act, 2017, wherein the time limit for completion of various actions, by any authority or by any person, under the said Acts, which falls during the specified period, has been extended up to a specific date, subject to some exceptions as specified in the said notifications.
The GST Policy Wing of the Central Board of Indirect Taxes and Customs (CBIC) had issued a clarification on the subject matter vide circular No. 157/13/2021-GST dated 20th July 2021 after deliberating the matter in 43rd GST council meeting that the said decision of Supreme Court shall not apply to the provisions of GST for the statutory deadlines provided within the GST law which is not a quasi-judicial activity and circular provides that only hearing of the pending matters, disposal of the adjudication, filing of appeals, would be the quasi-judicial activity under GST law. For all other services statutory mechanisms provided within the GST law shall apply.
Notifications after the pandemic period extending the time limit for issuance of Order under Section 73(10) is in violation of Section 168A of the Act:
Notification No. 09/2023-CT dated 31.03.2023 and Notification No. 56/2023- CT have been issued by the Central Government during the year 2023, in exercise of powers under Section 168A of the CGST/SGST Act to extend the limitation for completion of proceedings under section 73 of CGST Act. Section 168A empowers the Government to issue Notification to extend time limit specified/prescribed/notified under the CGST Act which cannot be complied due to force majeure. Thus, the powers of such provisions can be exercised only during the special circumstances laid down under the said section. From a perusal of Section 168A of the CGST Act, 2017, it is evident that the same can be invoked only when the required action cannot be completed due to force majeure. The expression “force majeure” is defined in the Explanation to the said provision to mean a case of war, epidemic, flood, drought, fire, cyclone, earthquake or any other calamity caused by nature or otherwise, affecting the implementation of any of the provisions of this Act. Neither Notification No. 9/2023-CT dated 31.03.2023 nor the Recommendation from the GST Council set out any reason as to why it was not possible for the State/Union officers to complete assessment under Section 73 of the Act, for the period 2017-18, till 05.02.2023 / 07.02.2023.
Deliberations in council for the reason behind such extensions
During the 49th Council Meeting, held on 18.02.2023 representations from tax administrations were deliberated upon. These representations advocated for further extensions of timelines under Section 73 of the CGST Act for FY 2017-18, 2018-19, and 2019-20, extending until 31.12.2024.
It was highlighted that Government Departments encountered difficulties amid the COVID-19 pandemic, owing to reduced staffing levels, staggered work timings, and exemptions granted to certain categories of employees from attending offices. Consequently, the scrutiny and audit processes experienced delays, with operations only normalizing once COVID-19 restrictions were lifted.
If departmental officers are granted extensions for their duties and day to day activities (scrutiny and issuance of notices are within the realm of the officers duty) due to encountered difficulties, it seems fair to extend similar flexibility to taxpayers when filing their returns too. This parity ensures equity within the tax system, recognizing that individuals may face unforeseen challenges that hinder their ability to meet deadlines. By extending filing deadlines for taxpayers, authorities acknowledge the diverse circumstances individuals may confront, ranging from personal emergencies to technical issues. Such extensions not only promote fairness but also encourage compliance by alleviating pressures associated with strict timelines. Additionally, granting taxpayers more time can enhance the accuracy and completeness of returns, benefiting both taxpayers and tax authorities. Thus, offering extensions to taxpayers aligns with principles of fairness, flexibility, and effective tax administration. Ironically the said fairness which is now extended to officers of revenue were not extended to the taxpayers.
Analysis of Force Majeure
It is well settled law that force majeure cannot be invoked on mere difficulty to perform the obligation. It was for the Department to show that it was impossible for them to carry out the aforesaid functions which beyond their control, and it is only then that Force Majeure could be invoked. In an English judgment, Tsakiroglou & Co. Ltd. v. Noblee Thorl GmbH, 1961 (2) All ER 179, despite the closure of the Suez Canal, and despite the fact that the customary route for shipping the goods was only through the Suez Canal, it was held that the contract of sale of groundnuts in that case was not frustrated, even though it would have to be performed by an alternative mode of performance which was much more expensive, namely, that the ship would have to go around the Cape of Good Hope, which is three times the distance from Hamburg to Port Sudan. The freight for such journey was also double. Despite the above circumstances, the House of Lords held that even though the contract had become more onerous to perform, it was not fundamentally altered. Where performance is otherwise possible, it is clear that a mere raise in freight price would not allow one of the parties to say that the contract was discharged by impossibility of performance.
The declaration of the lockdown due to the Covid-19 pandemic occurred in March 2020. However, it’s noteworthy that despite the lockdown’s imposition on citizens, essential services such as the Office of the State/Union continued to function. The closure of the Office of the State/Union only transpired during the period from 24.03.2020 to 07.06.2020 and during the months of April and May 2021, coinciding with the second wave of the Covid-19 pandemic. Given this operational context, there appears to be a lack of explanation as to why it was deemed impossible for the Department to complete assessments under Section 73 of the Act post-June 2020.
Validity of extensions vide notification no. 09/2023 & 56/2023 – CT
M/S Gajanand Multishop through Pankajkumar Roshanlal Gandhi (R/Special Civil Application No. 20227 of 2023), before the Hon’ble High Court of Gujarat, it was mentioned that there is no ground mentioned in the impugned Notification No. 9 of 2023 dated 31.03.2023 extending the time period for issuance of the show-cause-notice under Sub-section 10 of Section 73 of the Central Goods and Service Tax Act, 2017 while exercising the powers under the Central Board of Indirect Taxes and Customs under Section 168A of the Act. It was submitted that after the year 2022 there was no COVID Pandemic in existence and accordingly the provisions of Section 168A of the Act would not be applicable for extension of time. Further, none of the eventuality mentioned in the Explanation to Section 168A existed when the impugned notification was issued by the Central Board of Indirect Taxes and Customs.
Therefore, it’s pertinent to note that only for compliance with Section 73 of the Act, the time limit was further extended until 31.12.2023. However, for other compliance or actions, the time period was extended only until 30.06.2021. Given the absence of any provision for further extension post-30.06.2021 under Section 168A of the Act, citing the Covid-19 pandemic as a reason for delay in compliance or action completion under GST. It is a settled position of law that if a delegated legislature goes beyond the statute, the same has to be declared ultra vires. In this regard, the reliance is placed on the following judgments:
- Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd. – 2018 (10) G.S.T.L. 401 (S.C.)
- Union of India v. S. Srinivasan, (2012) 7 SCC 683, at page 690 (para 21) = 2012 (281) E.L.T. 3 (S.C.)
- General Officer Commanding-in-Chief v. Subhash Chandra Yadav (1988) 2 SCC 351
- Babaji Kondaji Garad v. Nasik Merchants Co-Operative Bank Ltd. – (1984) 2 SCC 50
- Commissioner of Income Tax v. S. Chenniappa Mudaliar – (1969) 74 ITR 41
It is a settled position of law that in indirect Taxes, demands proposed after the expiry of the time limit prescribed under the statute is time-barred and not enforceable in law. In this regard, reliance can be made on the judgment in the case of CCE v. Classic Strips Pvt Ltd 2015 (318) E.L.T. 20 (S.C.).
As jurisdiction goes to the root to the matter, we may see a plethora of Writ Petitions being filed before various High Courts, challenging the validity of Show Cause Notices issued by the Department, basis such extension of time limit by such notifications. Recently, Hon’ble Gujarat High Court in case of M/s SRSS Agro Pvt. Ltd. v. Union of India Special Civil Application No. 19720 of 2023 was pleased to issue notice, wherein, the validity of said Notification has been challenged. It will be interesting to see the outcome of the said Petition. The above discussion is also applicable for extension made for the period 2018-19 and 2019-20.
Ironically, Kerala HC in Faizal Traders WP(C) No. 24810 of 2023 and Allahabad HC in Graziano Trazmissioni 2024:AHC:100568-D.B. upheld the validity of the extension of limitation under the ground that COVID-19 was a valid reason to invoke Force Majeure. However, the crux of the dispute how was the COVID made an impact of Force Majeure even in 2023 wherein the reason for providing the extension of limitation even after the previous extensions[1].
Furthermore, board has issued a standard comment justifying the reasons for extension of the limitation period for issuance of the SCNs which is not yet uploaded in the Tax Information portal. However, those reasonings had been discussed supra and found to be defective vis a vis Article 14 wherein the same facility was not extended to the day-to-day activities of taxpayers and also other reasonings discussed above.
Conclusion
In summary, the recent notifications extending the time limits for issuing Goods and Services Tax demand orders under Section 73(9) raise significant concerns regarding their constitutionality and adherence to the statutory framework. The basis for such extensions, as per Section 168A of the Central Goods and Services Tax Act, relies on the concept of force majeure, yet no such grounds are evident at the time of notification issuance. Moreover, the absence of any recommendation in GST Council meetings and press releases adds to the uncertainty surrounding the legitimacy of these extensions.
The potential for perpetual extensions under the guise of force majeure grants broad powers to the government, posing a serious risk of abuse of powers against honest GST taxpayers. It also underlines the lack of efficiency and encourages the officers to only start the assessments near the time bar. The retrospective applicability of Section 168A is also questionable, as it seems to favour revenue at the expense of the rights of taxpayers.
[1] Notifications 35/2020, 14/2021/ 13/2022-C.T.
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