Case Law Details
Gobinda Construction Vs Union of India (Patna High Court)
Section 16(4) of the CGST Act is constitutionally validity
The Hon’ble Patna High Court in Gobinda Construction v. Union of India [Civil Writ Jurisdiction Case No. 9108 of 2021 dated September 08, 2023] held that, Section 16(4) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) is constitutionally valid and are not violative of Article 19(1)(g) and Article 300 (A) of the Constitution of India and is not inconsistent with or in derogation of any of the fundamental right guaranteed under the Constitution of India.
Facts:
Gobinda Construction (“the Petitioner”) is a regular taxpayer and filed GSTR-1 timely for the each of the month of financial year 2018-19. However, GSTR-3B for the month February 2019 and March 2019 on October 23, 2019 and November 07, 2019 respectively.
The Revenue Department issued a Show Cause Notice on February 20, 2020 (“the SCN”) under Section 73 of the CGST Act ordering to disallow ITC for the tax period February and March 2019 on the ground of filing GSTR-3B after the time period prescribed under Section 16(4) of the CGST Act and alleged that the Petitioner has wrongly availed the ITC for the month February 2019 and March 2019.
The Petitioner in reply to the SCN claimed that it had filed its return in the prescribed Form GSTR-3B and had made necessary disclosures both in respect of inward and outward supply and also paid tax by way of ITC.
The Adjudicating Authority passed an order dated March 19, 2020 (“the Order”) and held that the Petitioner is liable to pay the tax and interest Petitioner had availed ITC in breach of Section 16(4) of the CGST Act.
Aggrieved by the Order the Petitioner filed an appeal before the Appellate Authority wherein the authority dismissed the appeal vide an order dated February 06, 2021 (“the Impugned Order”) on the ground that ITC availed by the Petitioner for the period February 2019 and March 2019 was inadmissible in view of Section 16(4) of the CGST Act.
Aggrieved by the Impugned Order the Petitioner filed a writ before the Hon’ble Patna High Court and contended that denial of ITC under Section 16(4) the CGST Act beyond the date contemplated therein is confiscatory in nature and ITC is a vested right under Article 300A of the Constitution of India and such protected and vested right cannot lightly be taken away on the ground of belated filing of return.
The Respondent contended that ITC is in the nature of benefit/ concession extended to a registered person under the CGST Act which can be availed only as per the scheme of the CGST Act and the statutory scheme under Section 16 of the CGST Act with restriction available under section 16(4) of the CGST Act thereof has uniform application cannot be said to be either arbitrary or violating any right guaranteed to a registered person under Article 19(1)(g) of the Constitution of India.
Issue:
Whether Section 16(4) of the CGST Act is constitutionally valid?
Held:
The Hon’ble Patna High Court in Civil Writ Jurisdiction Case No. 9108 of 2021 held as under:
- Relied upon the Judgement of Jayam and Company vs. Assistant Commissioner & Anr. reported [(2016) 15 SCC 125] wherein the Hon’ble Supreme Court upheld the constitutional validity of Section 19(11) of Tamil Nadu Value Added Tax Act, 2006 and stated that it is a trite law that whenever concession is given by statute or notification, etc. the conditions thereof are to be strictly complied with in order to avail such concession. Thus, it is not the right of the “dealers” to get the benefit of ITC but it is a concession granted by virtue of Section 19. Thus, the said provision neither can be said to be arbitrary nor violative of the right guaranteed to a dealer under Article 19(1)(g) of the Constitution.
- Opined that, submissions of the Petitioner are not tenable in view of the clear language used in Section 16 of the CGST Act and concession of ITC under Section 16(1) of the CGST Act is dependent upon the fulfilment of requisite conditions laid down under various provisions including section 16(4) of the CGST Act.
- Stated that, there is always a presumption of constitutional validity of a piece of legislation, with the burden of showing the contrary falling heavily upon someone who challenges its validity.
- Held that, Section 16(4) of the CGST Act is constitutionally valid and are not violative of Article 19(1)(g) and Article 300A of the Constitution of India and is not inconsistent with or in derogation of any of the fundamental right guaranteed under the Constitution of India.
Our Comments:
Considering the substantial implications of Section 16(4) on businesses, the potential for the denial of ITC can significantly affect entity’s overall business operations. Thus, it is advisable to all concerns who are filing belated GSTR-3B with late fees for any tax period pertaining to FY 2022-23 to file the return before the credit become time barred as per Section 16(4).
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The judgment delivered by the Patna High Court centers around the constitutional validity of Section 16(4) of the Central Goods and Services Tax Act (CGST Act) and the Bihar Goods and Services Tax Act, 2017 (BGST Act). The court heard multiple writ applications challenging this provision and addressed various arguments presented by the petitioners. This comprehensive analysis explores the key aspects of the judgment, including the arguments, the court’s examination, and its final verdict.
Background of the Case: The judgment originates from a batch of writ applications filed under Article 226 of the Indian Constitution. The common issue in these applications is the constitutional validity of Section 16(4) of the CGST Act and the BGST Act. This provision restricts the entitlement to Input Tax Credit (ITC) for invoices or debit notes related to transactions occurring after the due date for filing returns.
Primary and Alternative Challenges: The petitioners mounted a primary challenge against Section 16(4), asserting that it violated Articles 14 and 300A of the Indian Constitution. Alternatively, they sought a declaration that the conditions outlined in Section 16(4) are procedural and should not supersede the substantive conditions in Section 16(1) and 16(2). They also argued against the classification of Form GSTR-3B as a valid return under Section 39(1) and challenged the retroactive amendment of Rule 61(5) of the CGST Rules, 2017.
Consolidation of Cases: Recognizing the similarity of the issues raised in the various writ applications, the court decided to consolidate and hear them together.
Petitioners’ Key Arguments: The petitioners contended that the denial of ITC beyond the specified date amounted to confiscation and violated Article 300A, given that ITC is considered a vested right. They proposed an alternative interpretation of Section 16(4), suggesting that it should only restrict ITC for invoices received after the end of the financial year past September of the preceding year.
Government’s Defense: The government argued that ITC is a concession provided under the CGST/BGST Act, subject to the statutory framework. They emphasized that Section 16(4) serves as a condition precedent for claiming ITC and does not infringe upon constitutional principles.
Thorough Examination: The court conducted a meticulous examination of Section 16, emphasizing that it establishes the conditions and constraints governing ITC. Subsection (4) introduces one such condition, specifically linked to the timing of invoices. The court determined that there was no ambiguity in the provision’s wording.
Constitutional Scrutiny: The court evaluated whether Section 16(4) violated Article 300A, the constitutional safeguard for the right to property. It ultimately concluded that Section 16(4) constitutes a condition requisite for ITC and does not infringe upon property rights.
Assessment Under Article 19(1)(g): The petitioners argued that Section 16(4) unjustifiably restricts the right to freedom of trade and profession, as enshrined in Article 19(1)(g). However, the court held that fiscal legislation, when applied uniformly, does not contravene Article 19(1)(g).
Verdict on Constitutional Validity: In a decisive ruling, the court upheld the constitutional validity of Section 16(4) of the CGST/BGST Act, thereby dismissing the writ applications.
Conclusion
The Patna High Court’s comprehensive analysis and validation of Section 16(4) of the CGST/BGST Act underscore the importance of adhering to statutory prerequisites when seeking Input Tax Credit in India. This ruling reinforces the notion that ITC is not an absolute entitlement but must be claimed in strict accordance with the statutory provisions. For businesses operating in India, compliance with tax return filing deadlines remains pivotal to avoid the ITC restrictions imposed by Section 16(4).
FULL TEXT OF THE JUDGMENT/ORDER OF PATNA HIGH COURT
Common challenge in the present batch of writ applications filed under Article 226 of the Constitution of India the petitioners is to the constitutional validity of Section 16(4) of the Central Goods and Services Tax Act (‘CGST Act’ in short) and Section 16(4) of the Bihar Goods and Services Tax Act, 2017 (‘BGST Act’ in short) which deny entitlement of Input Tax Credit (ITC) in respect of any invoice or debit note for supply of goods or services or both after due date of furnishing of returns under the respective Sections 39 of the said Acts, for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier; same being violative of Articles 14 and 300A of the Constitution of India.
2. Alternatively, the petitioners are seeking a declaration that the conditions as prescribed in Section 16(4) of the CGST/BGST Act are merely procedural in nature and cannot override the substantive conditions for availing ITC prescribed under Section 16(1) and Section 16(2) of the said Acts. It is their case that because of the non obstante clause in Section 16(2) of the CGST/BGST Act, the same shall prevail over Section 16(4) of the Act. Yet another alternative argument has been made on behalf of the petitioners that by reading down the provisions under Section 16(4) of the CGST/BGST Act, this Court should declare that the embargo in the said provision would apply only to restrict claim of ITC in respect of invoices or debit notes received after the end of the financial year beyond September of the preceding financial year.
3. The petitioners are further seeking a declaration that GSTR-3B cannot be treated to be a return prescribed under Section 39(1) of the CGST Act as it does not satisfy the parameters of a return contemplated under Section 39(1) of the said Act. They are also seeking a declaration that Rule 61(5) of the CGST Rules, 2017, as amended retrospectively prescribing Form GSTR-3B as a return under Section 39(1) of the CGST Act is ultra vires Section 39(1) of the CGST Act itself.
4. As all these writ applications involve identical issues pertaining mainly to the constitutional validity of Section 16(4) of the CGST/BGST Act, they have been heard together and are being disposed of by the present judgment and order.
5. We have heard Mr. S.D. Sanjay, learned Senior Counsel, Mr. D.V. Pathy, Mr. Gautam Kumar Kejriwal, Mr. Sriram Krishna, Mr. Akshay Lal Pandit and Mr. Satish Chandra Jha-3, learned counsel appearing on behalf of the petitioners; Dr. K.N. Singh, learned Additional Solicitor General for the Union of India; Mr. P.K. Shahi, learned Advocate General, Bihar and Mr. Vivek Prasad, learned GP-7 for the State of Bihar.
6. The petitioners in all these cases are registered persons within the meaning of Section 2(94) of the CGST/BGST Act. So as to appreciate the background in which these writ applications have been filed, we deem it appropriate to refer briefly to the facts stated in the first case e. Gobinda Construction (CWJC No. 9108 of 2021) as the representative case.
7. The petitioner claims to have filed its monthly returns in Form GSTR-1 for the each of the month of financial year 201819, however, it filed its return in GSTR-3B for the period February 2019 and March 2019 on 23.10.2019 and 07.11.2019. The Assistant Commissioner of State Tax, Patna Central, Patna (Respondent No. 6) issued a show cause notice on 20.02.2020 under Section 73 of the BGST Act proposing to disallow ITC for the tax period February and March 2019 on the ground of late filing of return in Form GSTR-3B. It is mentioned in the said notice that ITC had wrongly been availed by the petitioner for the aforesaid period and accordingly the petitioner was asked to furnish reply with supporting documents as evidence in support of the claim, by the date mentioned therein. The said show cause notice, which has been brought on record by way of Annexure-2 to the writ petition, contains quantification of amount of tax, interest and penalty under the CGST/BGST Act for the months of February and March 2019. As a sequel to the said show cause notice, a similar show cause notice in Form GST DRC-01 was also issued by the Assistant Commissioner (Respondent No. 6) on the same date. The amount of tax with interest and penalty has been computed as Rs. 1,34,12,983/-.
8. The petitioner replied to the said show cause notice by filing a written submission asserting that the disallowance of ITC in terms of Section 16(4) of the Act was not justified. The petitioner also claimed that it had filed its return in the prescribed Form GSTR-3B and had made necessary disclosures both in respect of inward and outward supply and also paid tax by way of ITC. Respondent No. 6, however, passed an order under Section 73 of the CGST/BGST Act holding the petitioner liable to pay a sum of Rs. 1,34,12,983/- on the ground that during the perusal of the return in GSTR-3B it was found that the petitioner had availed ITC for the tax period February 2019 and March 2019 in breach of Section 16(4) of the CGST/BGST Act. The order mentions that the petitioner had not paid the tax, the interest and penalty and, therefore, his claim of ITC deserved to be disallowed under Section 16(4) of the BGST Act.
9. Aggrieved by the said order of the Assistant Commissioner (Respondent No. 6), the petitioner preferred an appeal before the Additional Commissioner of State Tax (Appeal), Patna West Division, Patna (Respondent No. 5), which came to be dismissed by an order dated 06.02.2021 on the ground that ITC availed by the petitioner for the period in question was inadmissible in view of Section 16(4) of the CGST/BGST Act. This is the factual backdrop in which the petitioner has challenged the show cause notice dated 20.02.2020, the order dated 19.03.2020 and the appellate order dated 06.02.2021, whereby the ITC availed by the petitioner for belated filing of return in Form GSTR-3B has been disallowed. A demand notice has been issued to the petitioner for refund of the amount with interest and penalty to the tune of Rs. 1,34,12,983/-.
10. Similarly, by invoking Section 16(4) of the CGST/BGST Act, the authorities have disallowed ITC availed by the petitioners for delayed filing of their return.
11. There is no gainsaying that language of Section 16(4) of the CGST/BGST Act, is plain and unambiguous with clear stipulation that a registered person cannot avail the benefit of ITC in respect of any invoice or debit note for supply of goods or services or both after due date of furnishing the return under Section 39 of the CGST/BGST Act for the month of September following the end of financial year to which such invoice or invoices of such debit note pertain or furnishing of the relevant annual return, whichever is earlier. It is in that background that the petitioners have elected to question the constitutional validity of Section 16(4) of the CGST/BGST Act itself being violative of Articles 14 and 300A of the constitution of India.
12. Section 16 of the CGST Act reads thus :-
“16. Eligibility and conditions for taking input tax credit.—(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
(2) Notwithstanding anything contained in this section, 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,––
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;
[(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;]
(b) he has received the goods or services or both.
[Explanation.— For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services––
(i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
(ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person;]
(c) subject to the provisions of [section 41 or section 43-A], the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
(d) he has furnished the return under section 39:
Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment:
Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed:
Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.
(3) Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961(43 of 1961), the input tax credit on the said tax component shall not be allowed.
(4) 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.
[Provided that the registered person shall be entitled to take input tax credit after the due date of furnishing of the return under section 39 for the month of September, 2018 till the due date of furnishing of the return under the said section for the month of March, 2019 in respect of any invoice or invoice relating to such debit note for supply of goods or services or both made during the financial year 2017-18, the details of which have been uploaded by the supplier under subsection (1) of section 37 till the due date for furnishing the details under sub-section (1) of said section for the month of March, 2019.] “
13. Sub-section (4) of Section 16 has since been amended by the Finance Act, 2022 with effect from 01.10.2022 whereby the words and figures “due date of furnishing of the return under Section 39 for the month of September” stand substituted by “30th day of November”.
14. Mr. D.V. Pathy, learned counsel appearing on behalf of the petitioners has submitted that refusal to allow ITC under Section 16(4) of the Act beyond the date contemplated therein is confiscatory in nature. He submits that ITC is a vested right under Article 300A of the Constitution of India and such protected and vested right cannot lightly be taken away on the ground of belated filing of return. He has made an alternative submission that Section 16(4) of the CGST/BGST Act may be read down by this Court and it may be held that the embargo in the said provision would apply only to restrict claim of ITC in respect of only such invoices or debit notes received after the end of the financial year beyond September of the preceding financial year and not such claims in a belated return filed after such date. He has contended that ITC under Section 16(4) of the CGST/BGST Act being in the nature of tax paid at the stage of purchase of goods or services are vested rights under Article 300A of the Constitution of India and, therefore, to be adjusted with the tax payable on sale of goods or services both in computing the tax liability. He has also argued that the conditions as prescribed in Section 16(4) of the CGST/BGST Act are merely procedural in nature and cannot override the substantive conditions as mandated in Section 16(1) and 16(2) of the said Acts.
15. Mr. Gautam Kumar Kejriwal, also appearing on behalf of the petitioners, while advancing his submissions on the constitutional validity of Section 16(4) of the CGST/BGST Act, has submitted that the said provision is violative of Article 14 of the Constitution of India as it creates distinction among equals resulting into discrimination and to support his contention, he has relied on a Supreme Court’s decision in case of Vinoy Viswam vs. Union of India & Ors. reported in (2017) 7 SCC 59. He has further submitted that the said provision imposes unreasonable and disproportionate restriction on right to freedom of trade and profession guaranteed under Article 19(1)(g) and it, therefore, violates Article 300A of the Constitution and is in teeth of Article 13 of the Constitution of India. He has submitted that there is no rationale behind fixation of a cut-off-date for filing of the return. To bolster his argument he has relied on a Supreme Court’s decision in case of Modern Dental College and Research Centre & Ors. vs. State of Madhya Pradesh & Ors. reported in (2016) 7 SCC 353. He has further submitted that disallowing ITC by invoking Section 16(4) of the CGST/BGST Act amounts to double taxation and, thus, violates the principle of taxation on value addition. He has argued that denial of ITC results in withholding of an amount which was paid as input tax by a purchaser and constitutes a source of tax once again, which is violative of Article 265 of the Constitution of India. He has also submitted that Section 16(4) of the CGST/BGST Act is confiscatory in nature, inasmuch as, denial of ITC is implied confiscation of property in the shape of financial benefit belonging to a registered person. He has argued that the said provision is violative of Articles 13 and 14 of the Constitution of India and it imposes unreasonable restriction on holding of property. Relying on Supreme Court’s decision in the case of K.T. Moopil Nair vs. State of Kerala (AIR 1961 SC 552), he contends that right to create an input tax is an indefeasible right, as has been laid down by the Punjab & Haryana High Court in case of Apfert Technologies Pvt. Ltd. vs. Union of India and others, which has been affirmed by the Supreme Court.
16. Mr. P. K. Shahi, learned Advocate General representing the State of Bihar has submitted that the challenge of the petitioners to the constitutional validity of Section 16(4) of the Act, being violative of Article 14 of the Constitution of India, is thoroughly misconceived. He has argued that ITC is in the nature of benefit/ concession extended to a registered person under the CGST/BGST Act which can be availed only as per the scheme of the CGST/BGST Act. He has submitted that the statutory scheme under Section 16 of the CGST/BGST Act with restriction available under sub-section (4) thereof has uniform application and cannot be said to be either arbitrary or violating any right guaranteed to a registered person under Article 19(1)(g) of the Constitution of India. He has placed reliance on the Supreme Court’s decision in the case of ALD Automotive Private Limited vs. Commercial Tax Officer & Ors. reported in (2019) 13 SCC 225. countering the submissions advanced on behalf of the petitioners he has contended that the requirement under Section 16(4) of the CGST/BGST Act is a condition precedent of mandatory nature for availing the benefit of ITC under Section 16 of the Act. He has argued that payment of input tax by a registered person at the time of purchase/ receipt of goods and supply to its supplier remains in the credit ledger of the dealer until the dealer discloses the transaction by way of filing return in Form GSTR-3B. The amount of ITC is credited into the dealer’s electronic ledger and the same does not reach the Government Treasury until the dealer files its return and once the dealer files its return in Form GSTR-3B the amount of input tax lying in the credit ledger of the dealer reaches the Government Treasury. This is the reason why the Legislature has made such provision under Section 16(4) of the CGST/BGST Act to prevent a dealer from filing the delayed return. He contends, thus, that the provision under Section 16(4) of the CGST/BGST Act is mandatory in nature and a condition precedent for dealer to avail ITC
17. Vivek Prasad, learned GP-7 representing the State of Bihar has argued that the ITC is a unique concept under the GST regime which acquires special status in the entire tax administration through GST and because of its complexity a separate chapter has been provided by way of Chapter-V containing Sections 16 to 21 of the CGST/BGST Act. He submits that all the provisions under Section 16 are substantive in nature and do not in any manner conflict with any provision under Sections 39, 47 or 49(2) of the CGST/BGST Act.
18. Whether ITC per se is a vested right, the denial of which by operation of sub-section (4) of Section 16 of the CGST/ BGST Act would amount to infringement of the constitutional right under Article 300-A of the Constitution, is one of the primordial questions which requires consideration by this Court in the wake of the nature of challenge put by the petitioners to the validity of the aforesaid provision. Right to property under Article 300-A of the Constitution of India has been held to be a human right as also a constitutional right which cannot be taken away except in accordance with law. This legal proposition is unexceptionable.
19. Dealing with the expression ‘deprive of his right of property’ under Article 300-A of the Constitution of India the Supreme Court in case of Jilubhai Nanbhai Khachar & Ors. vs. State of Gujarat & Anr. reported in 1995 Supp (1) SCC 596 has noted that the property in legal sense means an aggregate of rights which are guaranteed and protected by law. It extends to every species of valuable right and interest, more particularly, ownership and exclusive right to a thing, the right to dispose of the thing in every legal way, to possess it, to use it, and to exclude everyone else from interfering with it. The dominion or indefinite right of use or disposition which one may lawfully exercise over particular things or subjects is called ‘property’. The exclusive right of possessing, enjoying, and disposing of a thing is property in legal parameters and the word ‘property’ connotes everything which is subject of ownership, corporeal or incorporeal, tangible or intangible, visible or invisible, real or personal; everything that has an exchangeable value or which goes to make up wealth or estate or status. Property, therefore, within the constitutional protection, denotes group of rights inhering citizen’s relation to physical thing, as right to possess, use and dispose of it in accordance with law. The term property has a most extensive significance, and, according to its legal definition, consists in free use, enjoyment, and disposition by a person of all his acquisitions, without any control or diminution, ‘save only by the laws of the land’.
20. Before construing the provisions under Section 16 of the CGST/BGST Act, vis-a-vis, the constitutional protection of the right of property under Article 300-A of the Constitution, we need to remind ourselves that it is one of the elementary principles of interpreting or construing a statute to gather the intention of the Legislature. The purpose of statutory interpretation is to ascertain the intention of the Legislature enacting it. Further, the legislative intent is to be gathered from the language used in the enactment. It is also a fundamental rule of statutory interpretation that where the words are clear, there is no obscurity, there is no ambiguity and the intention of the Legislature is clearly conveyed, there is no scope for the Court to innovate or take upon itself the task of amending or altering the statutory provisions. In this context it would be useful to refer to paragraph 15 of the Supreme Court’s decision in the case of Vemareddy Kumaraswamy Reddi vs. State of A.P. reported in (2006) 2 SCC 670 which reads as under:-
“15. Where, however, the words were clear, there is no obscurity, there is no ambiguity and the intention of the legislature is clearly conveyed, there is no scope for the court to innovate or take upon itself the task of amending or altering the statutory provisions. In that situation the judges should not proclaim that they are playing the role of a lawmaker merely for an exhibition of judicial valour. They have to remember that there is a line, though thin, which separates adjudication from legislation. That line should not be crossed or erased. This can be vouchsafed by “an alert recognition of the necessity not to cross it and instinctive, as well as trained reluctance to do so”. (See Frankfurter “Some Reflections on the Reading of Statutes in ‘Essays on Jurisprudence’”, Columbia Law Review, p. 51.)”
21. We need also to remind ourselves that doctrine of reading down applies only when general words used in a statute or regulation should be construed in a particular manner so as to save its constitutionality. The doctrine of reading down, while construing a statute, has been lucidly laid down in case of BTC vs. Mazdoor Congress reported in 1991 Supp (1) SCC 600, paragraph 255 of which reads as under :-
“255. It is thus clear that the doctrine of reading down or of recasting the statute can be applied in limited situations. It is essentially used, firstly, for saving a statute from being struck down on account of its unconstitutionality. It is an extension of the principle that when two interpretations are possible — one rendering it constitutional and the other making it unconstitutional, the former should be preferred. The unconstitutionality may spring from either the incompetence of the legislature to enact the statute or from its violation of any of the provisions of the Constitution. The second situation which summons its aid is where the provisions of the statute are vague and ambiguous and it is possible to gather the intentions of the legislature from the object of the statute, the context in which the provision occurs and the purpose for which it is made. However, when the provision is cast in a definite and unambiguous language and its intention is clear, it is not permissible either to mend or bend it even if such recasting is in accord with good reason and conscience. In such circumstances, it is not possible for the court to remake the statute. Its only duty is to strike it down and leave it to the legislature if it so desires, to amend it. What is further, if the remaking of the statute by the courts is to lead to its distortion that course is to be scrupulously avoided. One of the situations further where the doctrine can never be called into play is where the statute requires extensive additions and deletions. Not only it is no part of the court’s duty to undertake such exercise, but it is beyond its jurisdiction to do so.”
22. In the background of the above noted discussions, we need to examine first as to whether or not, the language of Section 16 of the CGST/BGST Act suffers from any ambiguity. Sub-section (1) of Section 16, which provides for ITC, states that every registered person shall be entitled to take credit of input tax charged on any supply of goods or services or both to them, which are used or intended to be used in accordance with the furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person. This entitlement of ITC is, however, subject to :-
(a) such conditions and restrictions as may be prescribed and,
(b) in the manner specified in Section 49
23. Sub-section (2) of Section 16 is a non obstante clause and clearly states that no registered person shall be entitled to the credit of input tax in respect of any supply of goods or services or both unless he fulfills the requirements and satisfies the existence of other conditions prescribed in Clauses (a) to (d) thereof.
24. Sub-section (3) of Section 16 contemplates yet another circumstance when ITC on tax component cannot be allowed, e., where the registered person has claimed depreciation on the tax component of cost of capital goods and plant and machinery under the provisions of the Income Tax Act, 1961.
25. Lastly comes the offending clause which is under challenge i.e. sub-section (4) of Section 16 of the CGST/BGST Act, which, in no unambiguous terms, provides that a registered person shall not be entitled to take ITC in respect of any invoice or debit note for supply of goods or services or both after 30th day of November (post amendment), following the end of financial year to which such invoices or debit note pertain or furnishing of the relevant annual return, whichever is earlier. The language of Section 16 of the CGST/BGST Act suffers from no ambiguity and clearly stipulates grant of ITC subject to the conditions and restrictions put thereunder.
26. At the cost of repetition, we note here that ITC is not unconditional and a registered person becomes entitled to ITC only if the requisite conditions stipulated therein are fulfilled and the restrictions contemplated under sub-section (2) of Section 16 do not apply. One of the conditions to make a registered person entitled to take ITC is prescribed under sub-section (4) of Section 16. The right of a registered person to take ITC under sub-section (1) of Section 16 of the Act becomes a vested right only if the conditions to take it are fulfilled, free of restrictions prescribed under sub-section (2) thereof. In order to invoke Article 300-A of the Constitution by a person, two circumstances must jointly exist :-
(i) Deprivation of property of a person
(ii) Without sanction of law
27. We have briefly dealt with what the expression ‘property’ connotes as explained in case of Jilubhai Nanbhai Khachar (supra), paragraph 42 of which reads thus :-
“42. Property in legal sense means an aggregate of rights which are guaranteed and protected by law. It extends to every species of valuable right and interest, more particularly, ownership and exclusive right to a thing, the right to dispose of the thing in every legal way, to possess it, to use it, and to exclude everyone else from interfering with it. The dominion or indefinite right of use or disposition which one may lawfully exercise over particular things or subjects is called property. The exclusive right of possessing, enjoying, and disposing of a thing is property in legal parameters. Therefore, the word ‘property’ connotes everything which is subject of ownership, corporeal or incorporeal, tangible or intangible, visible or invisible, real or personal; everything that has an exchangeable value or which goes to make up wealth or estate or status. Property, therefore, within the constitutional protection, denotes group of rights inhering citizen’s relation to physical thing, as right to possess, use and dispose of it in accordance with law. In Ramanatha Aiyar’s The Law Lexicon, Reprint Edn., 1987, at p. 1031, it is stated that the property is the most comprehensive of all terms which can be used, inasmuch as it is indicative and descriptive of every possible interest which the party can have. The term property has a most extensive signification, and, according to its legal definition, consists in free use, enjoyment, and disposition by a person of all his acquisitions, without any control or diminution, save only by the laws of the land. In Dwarkadas Shrinivas case [1950 SCC 833 . 1950 SCR 869 . AIR 1951 SC 41] this Court gave extended meaning to the word property. Mines, minerals and quarries are property attracting Article 300-A.
28. Upon close reading of sub-section (1) of Section 16 of the CGST/ BGST Act, we are of the view that the provision under sub-section (4) of Section 16 is one of the conditions which makes a registered person entitled to take ITC and by no means sub-section (4) can be said to be violative of Article 300-A of the Constitution of India.
29. We are not convinced with the submissions advanced on behalf of the petitioners to read down the provision of sub-section (4) of Section 16 of the CGST/ BGST Act since we see neither any reason nor a necessity to do it. We have mentioned in the beginning, the situations which may require reading down a statutory provision. There is always a presumption of constitutional validity of a legislation, with the burden of showing the contrary, lying heavily upon someone who challenges its validity.
30. Submissions have been advanced on behalf of the petitioners that sub-section (4) of Section 16 imposes unreasonable and disproportionate restriction on the right to freedom of trade and profession guaranteed under Article 19(1)(g) of the Constitution and is, therefore, violative of Article 302 of the Constitution and is in teeth of Article 13 of the Constitution. This argument is founded on the ground of absence of any rationale behind fixation of a cut-off-date for filing of return. We do not find any merit in the submissions so advanced, which deserves to be outrightly rejected.
31. Fiscal legislation having uniform application to all registered persons, in our considered opinion, cannot be said to be violative of Article 19(1)(g) of the Constitution and the question of such statutory provision being violative of Article 302 of the Constitution and in teeth of Article 13 of the Constitution of India does not arise at all.
32. Mr. P. K. Shahi, learned Advocate General appearing on behalf of the State, has rightly referred to the Supreme Court’s decision in case of ALD Automotive Private Limited (supra), wherein the Supreme Court had the occasion to deal with a challenge to the constitutional validity of Section 19(11) of the Tamil Nadu Value Added Tax Act, 2006. Section 19(11) of the Tamil Nadu Value Added Tax Act, 2006 reads as under :-
“19. (11) In case any registered dealer fails to claim input tax credit in respect of any transaction of taxable purchase in any month, he shall make the claim before the end of the financial year or before ninety days from the date of purchase, whichever is later.”
33. Referring to the Supreme Court’s decision in case of Godrej & Boyce Mfg. Co. Pvt. Ltd. & Ors. vs. Commissioner of Sales Tax & Ors. reported in (1992) 3 SCC 624 the Supreme Court in case of ALD Automotive Private Limited (supra) has held that the ITC is in the nature of benefit/ concession extended to a dealer under the statutory scheme and the concession can be received by the beneficiary only as per the scheme of the statute.
34. In case of Jayam and Company vs. Assistant Commissioner & Anr. reported in (2016) 15 SCC 125 the Supreme Court had to consider the validity of Section 19(10) of the Tamil Nadu Value Added Tax Act, 2006. After having analysed the legal principles and the statutory provisions the Supreme Court, while upholding the constitutional validity of Section 19(20) of the Tamil Nadu Value Added Tax Act, 2006, held in paragraph 12 as under :-
“12. It is a trite law that whenever concession is given by statute or notification, etc. the conditions thereof are to be strictly complied with in order to avail such concession. Thus, it is not the right of the “dealers” to get the benefit of ITC but it is a concession granted by virtue of Section 19. As a fortiori, conditions specified in Section 10 must be fulfilled. In that hue, we find that Section 10 makes original tax invoice relevant for the purpose of claiming tax. Therefore, under the scheme of the VAT Act, it is not permissible for the dealers to argue that the price as indicated in the tax invoice should not have been taken into consideration but the net purchase price after discount is to be the basis. If we were dealing with any other aspect dehors the issue of ITC as per Section 19 of the VAT Act, possibly the arguments of Mr Bagaria would have assumed some relevance. But, keeping in view the scope of the issue, such a plea is not admissible having regard to the plain language of sections of the VAT Act, read along with other provisions of the said Act as referred to above.”
35. Relying on the said decision, in case of Jayam and Company (supra), the Supreme Court in case of ALD Automotive Private Limited (supra) upheld the constitutional validity of Section 19(11) of Tamil Nadu Value Added Tax Act, 2006 with a clear finding that the said provision neither can be said to be arbitrary nor violative of the right guaranteed to a dealer under Article 19(1)(g) of the Constitution.
36. Submission has been made, though feebly, on behalf of the petitioners that this Court may declare the requirement of sub-section (4) of Section 16 as directory and not mandatory. The said submission is not at all tenable in view of the clear language used in Section 16 of the Act. The concession of ITC under sub-section (1) of Section 16 of the CGST/ BGST Act is dependent upon the fulfillment of requisite conditions laid down under various provisions including sub-section (4) thereof.
37. For the reasons noted above, we are of the considered opinion that sub-section (4) of Section 16 of the CGST/ BGST Act are constitutionally valid and are not violative of Articles 19(1)(g) and Article 300-A of the Constitution of India. The said provision is not inconsistent with or in derogation of any of the fundamental right guaranteed under the Constitution of India.
38. We accordingly do not find any merit in these writ applications, which are accordingly dismissed.
39. There shall be no order as to costs.
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Author can be reached at [email protected])
Author Bio
Sir,
Refer my analysis in (2023) 40 J.K.Jain’s GST & VR 210 analysing HC Judgments and concluding that S.16(4) is superseded by S.16(2) based on clear language of the Act read with SC Cases on the subject matter.
CA Om Prakash Jain s/o J.K.Jain , Jaipur
Tel 9414300730/9462749040
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