ITC─Conditions for availment

S.16(2) stipulates 4 conditions for taking ITC as under;

(a) Possession of tax invoice or debit note;

(b) Receipt of goods or services;

(c) Payment of tax in cash or through utilization of admissible ITC;

(d) Filing of Return u/s 39.

This clause starts with non obstante words, viz., “Notwithstanding anything contained in this section”, meaning thereby that it overrides the effects of all the sub-sections of section 16. Therefore the time limit prescribed for Taking ITC u/s 16(4) is meaningless.

Notebook with Toolls and Notes about - Input Tax Credit

One of the condition for avialment of ITC u/s 16(2), CGST Act, 2017 is “furnishing of return u/s 39”. This clause nowhere mentions “timely submission of returns and/or debarring rectification of any return belatedly, for being entitled to avail ITC. The “notwithstanding clause”, in the section 16(2) means that it overrides the effects of all the sub-sections of section 16, per decision of the cases in Central Bank of India v. State of Kerala (2009) 4 SCC 94 (SC) & Synergy Fertichem Pvt. Ltd. v. State of Gujarat & Ors. (2020) 33 J.K.Jain’s GST & VR 9 (Guj),Skill Lotto Solutions Pvt. Ltd. v. Union of India (2021) 35 J.K.Jain’s GST & VR 167 (SC), Government of Kerala v. Mother Superior Adoration Convent (2021) 35 J.K.Jain’s GST & VR 402 (SC).

As such, in our view, if a registered person has furnished returns &/or rectified any return belatedly, he is entitled to ITC irrespective of section 16(4) CGST Act, 2017 and his vested right per SC Judgment in (1999) 106 ELT 3 Eicher Motors Ltd. v. Union of India (SC), can not be withdrawn in the absence of a clear legal prohibition, by framing rules, which are procedural in nature and can not be construed as a mandatory provisions per decisions of the case in (2019) 32 J.K.Jain’s GST & VR 485 Adfert Technologies Pvt. Ltd. v. Union of India (P&H), which has been endosed by the SC in (2020) 33 J.K.Jain’s GST & VR 147 Union of India & Ors. v. Adfert Technologies Pvt. Ltd.(SC). Moreiver, the Govt. has no legal authority to retain the amount of credit to which the respondent in the present case is entitled to and retention of it by the Govt., cannot be sustained, being violative of Article 265 of the Constitution of India per decision of the case in (2019) 32 J.K.Jain’s GST & VR 473 Jakap Metind Pvt. Ltd. v. Union of India & Ors.(Guj).

Per notfn No.49/2019-CT, Rule 36(4) of the CGST Rules has been inserted restricting the credit relating to the invoices not uploaded by the suppliers to the extent of 5%. The Act does not lay down any such condition for taking ITC & as such this rule is unconstitutional.

2. Constitutional Validity of S.16(2)(c), GST Act is under challenge in the following cases of various High Courts;

3. Constitutional Validity of Rule 36(4), GST Act is under challenge in the following cases of various High Courts;

  • LGW Industries Ltd. v. UOI & Ors. (2021) 35 J.K.Jain’s GST & VR 139 (Cal) ,
  • Surat Mercantile Assn. v. UOI (2021) 35 J.K.Jain’s Gst & VR 139 (Guj),
  • Ravi Infrabuild Projects Pvt. Ltd. v. Union of India (2020) 33 J.K.Jain’s GST & VR 257 (Raj),
  • Society for Tax Analysis and Research v. Union of India (2019) 32 J.K.Jain’s GST & VR 411 (Guj),
  • Federation of Indian Small Scale Battery Associations v. Union of India (2020) 33 J.K.Jain’s GST & VR 518 (Delhi).

4. Non filing of GSTR 3B does not indicate that the condition under clause (c) is not satisfied. It can very well be filed late with payment of Late Fee u/s 47, GST Act. Non filing of GSTR-1 is not a condition for admissibility of credit.

5. Unjust enrichment.─ The Gujarat High court in the case of Jakap Metind Pvt. Ltd. v. Union of India & Ors. (2019) 32 J.K.Jain’s GST & VR 473, has held that the Govt. has no legal authority to retain the amount of credit to which the respondent is entitled to and retention of it by the Govt., cannot be sustained, being violative of Article 265 of the Constitution of India. Over and above the Revenue oriented approach of the Govt. would tantamount to Double taxation and would be against the basic principles of GST, viz., to mitigate cascading effect of taxation. It seems that The Government is working on the theory of unjust enrichment by rejecting the legitimate claims of taxable persons.

6. Compliances of Statutory provisions.─The provisions of S.16(2)(c) are to be complied with, irrespective of lot of inconvenience caused to various citizens of India since no court has declared these provisions to be Unconstitutional till date.

7. Compliances of Rule.─The rules are required to be framed within the Permissible frame work of Statutory provisions. The rule 36(4) is not in tune with the S.16(2), GST Act.

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