The AP High Court recently delivered a significant judgement in the case of Thirumalakonda Plywoods Vs Assistant Commissioner, addressing two crucial issues related to input tax credit (ITC) under the APGST and CGST Act. This analysis explores the court’s examination of the time limit to claim ITC and the constitutional validity of such restrictions.
Two important issues are discussed in this important case as follows:
1. Whether the time limit to claim input tax credit under Section 16(4) of APGST Act, 2017 and Section 16(4) of CGST Act, is violative of Article 14, 19(1)(g) and Section 300-A of Constitution of India?
2. Whether the non-obstante clause in Section16(2) of APGST/CGST Act, 2017 would prevail over Section 16(4) of APGST / CGST Act, 2017?
Section 16(4) of the CGST Act reads as follows:
“A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the *(due date of furnishing of the return under section 39 for the month of September) following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier.”
*Changed to 30th day of November w.e.f. 01.10.2022
Sub section 2 of Section 16 of the CGST Act starts with a non-obstante clause “Notwithstanding anything contained in this section….”, the question which comes to our mind is whether sub section 2 of section 16 over rides sub section 4, the non- obstante clause does it give over riding powers over sub section 4, and if that case may be, what is the purpose of sub section 4 in the first place, if the conditions mentioned in sub section 2 are satisfied then the registered person shall be entitled to take the credit irrespective of the time limit and irrespective of whether the registered person has made payment to the supplier. The court discusses many issues in this matter.
In Reserve Bank of India v. Peerless General Finance and Investment Co Ltd, the Apex Court observed thus:
“Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place.”
Section 16 of the CGST Act prescribes the eligibility and conditions for the registered person to claim the input tax credit on supply of goods or services or both which were used or intended to be used in the course or furtherance of his business. While Section 16 sub section (2) prescribes the eligibility criteria which are necessary to claim input tax credit, sub section (3) and (4) impose conditions or limitation for claiming the input tax credit. In other words, even if the registered person passes the eligibility criteria as per sub section (2), still he will not be entitled to claim input tax credit of he fails to satisfy the conditions given in sub sections (3) and (4).
The court further studies various previous judgements related to the subject and makes following observations:
The jurimetrician jurisprudence expounds that a non obstante clause is a legislative device usually employed in a statute to give overriding effect to certain provisions over some other contradictory provisions in the same or other statute. The Court shall try to find out the extent to which the legislature had intended to give the overriding effect to the enacting part of the provision succeeding to the non obstante clause over rest of the provision. Now the pertinent question is whether Section 16 Sub Section (2) overrides the rest of the Section particularly Sub Section (4).
Section 16(2) shall not appear to be a provision which allows input tax credit, rather ITC enabling provision is Section 16(1). On the other hand, Section 16(2) restricts the credit which is otherwise allowed to only such cases where conditions prescribed in it are satisfied. Therefore, Section 16(2) in terms only overrides the provision which enables the ITC i.e., Section 16(1). This is evident from the manner in which Section 16(2) is couched. Then on obstante clause in Section 16(2) is followed by a negative sentence “no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless”. This negative sentence pellucidly tells that unless the conditions mentioned in Section 16(2) are satisfied, no credit will be eligible. This stipulation manifests that Section 16(2) is not an enabling provision but a restricting provision. What it restricts is the eligibility which was otherwise given U/s 16(1).
When a non obstante clause is a mere restricting provision, an interpretation that the other restricting provisions will not have effect or that the restricting provision will restrict other restricting provisions cannot be accepted for the reason that there is no contradiction between the restricting clause followed by non obstante and other restricting provisions.
Hence unless such clear inconsistency is established, overriding effect cannot be given over other provisions. In the present case both Section 16(2) and (4) are two different restricting provisions, the former providing eligibility conditions and the later imposing time limit. However, both these provisions have no inconsistency between them.
Further, the influence of a non obstante clause has to be considered on the basis of the context also in which it is used. Therefore, Section 16(4) being a non-contradictory provision and capable of clear interpretation, will not be overridden by non obstante provision U/s 16(2). As already stated supra 16(4) only prescribes time restriction to avail credit. For this reason, the argument that 16(2) overrides 16(4) is not correct.
Thus, in substance Section 16(1) is an enabling clause for ITC; 16(2) subjects such entitlement to certain conditions; Section 16(3) and (4) further restrict the entitlement given U/s 16(1). That being the scheme of the provision, it is out of context to contend that one of the restricting provisions overrides other two restrictions. The issue can be looked into otherwise also. If really
the legislature has no intention to impose time limitation for availing ITC, there was no necessity to insert a specific provision U/s 16(4) and to further intend to override it through Section 16(2) which is a futile exercise.
The further argument of the petitioner that Section 16(4) of APGST/CGST Act, 2017 violates Article 14, 19(1)(g) and 300-A of the Constitution of India is concerned, the said argument has no vitality for the reason, firstly the ITC is a mere concession/rebate/benefit but not a statutory or constitutional right and therefore imposing conditions including time limitation for availing the said concession will not amount to violation of constitution or any statute and secondly, as rightly argued by learned Advocate General, the operative spheres of Section (16) and constitutional provisions under Article 14, 19(1)(g) and 300-A are different and hence infringement does not arise. That, by nature ITC is a concession/rebate/benefit but not a statutory right has been reiterated in a thicket of decisions.
On the Constitutional validity of Fiscal Legislation, court further observes that:
“When there is a challenge to the Constitutional validity of the provisions of a Statute, Court exercising power of judicial review must be conscious of the limitation of judicial intervention, particularly, in matters relating to the legitimacy of the economic or fiscal legislation. While enacting fiscal legislation, the Legislature is entitled to a great deal of latitude. The Court would interfere only where a clear infraction of a Constitutional provision is established. The burden is on the person, who attacks the Constitutional validity of a statute, to establish clear transgression of Constitutional principle.”
Court further adds “thus, it is clear that ITC being a concession/benefit/rebate, the legislature is within its competency to impose certain conditions, including time prescription for availing such right and the same cannot be challenged on the ground of violation of Constitutional provisions.”
Thus, the decision of the honorable High court rejects the argument that section 16(2) overrides section 16(4) and input tax credit is a statutory right given by our Constitution and cannot be restricted by any time limits. We have to keep in mind the intention of the legislature, when the time limit is incorporated in the statute, the intention was to keep a time limit to claim the input tax credit and legislature does not want to keep the claim of input tax credit open perpetually. Of course, this is just a beginning of the argument on the subject and many high courts will take up similar matters. Let’s see how the things will unfold and how different courts take their stand. Honorable AP High Court has given some food for thought on the matter which I personally feel will be the direction other courts also may follow. Let’s wait and watch.