“Dive into the recent Patna High Court ruling on CGST Act Section 16(4). Explore the analysis of the judgment, addressing constitutional validity, procedural nuances, and implications on Input Tax Credit (ITC). Understand the key arguments presented by the petitioner and respondent. Uncover the court’s decision and its far-reaching consequences for taxpayers and businesses. Stay informed on the complexities surrounding denial of ITC and the potential financial setbacks for registered business owners. Disclaimer: The views expressed are for informational purposes; consult a professional for advice.”
Analysis of recent Patna High Court Judgment on Sec.16(4) of CGST Act, 2017
This article delves into the recent landmark judgment delivered by the Patna High Judgment in the case of Gobinda Construction vs Union of India through the Secretary. The case revolves around the interpretation and constitutional validity of Section 16(4) of the Central Goods and Services Tax (CGST) Act, 2017, and its implications on Input Tax Credit (ITC). The judgment, dated 8th September 2023, addressed crucial legal questions and has far-reaching consequences for taxpayers and businesses.
Facts of the Case:
- The Registered Person was regular in filing monthly returns in Form GSTR-1 during the financial year 2018-19.
- The Summary return, GSTR-3B of February 2019 was filed on 23.10.2019 & March 2019 on 11.2019.
- The Department served Show Cause Notice on 20.02.2020, u/s 73 disallowing ITC of Feb’19 & March’19 on the grounds of late filing of GSTR 3B.
- The last date for availing ITC of FY 2018-19, as stipulated u/s 16 (4) being the due date of filing GSTR 3B of September’19 return., i.e 20.10.2019
- The SCN had demand of tax with interest & penalty amounting to Rs. 1,34,12,983.
- Order u/s 73 of CGST Act, 2017 was passed on the ground that ITC availed in breach of conditions specified u/s 16(4) of CGST Act,2017.
- Aggrieved by the order of the Assistant Commissioner, the Registered Person preferred an appeal before the Additional Commissioner of State Tax (Appeal) Patna.
- filed a Writ Petition in the Hon’ble High court of Patna.
- The appeal was dismissed on the grounds that ITC availed for the period in question is inadmissible in view of Sec.16(4) dt.19.03.2020.
- The petitioner challenged the Appellate order whereby the ITC availed by the petitioner has been disallowed due to belated filing of form GSTR 3B, that is not in line with the provisions of Sec.16(4) of CGST Act,2017.
Issues:
1. Whether Sec.16(4) of CGST Act, 2017 is constitutionally valid, that restricts the valid ITC relating to previous Financial year being claimed beyond the due date specified therein. Sec.16(4) is violative of Art.14 and Art.300A of the Constitution of India.
2. The Sec.16(4) is procedural in nature and cannot override 16(2) of CGST Act.2017
3. The Sec.16(4) to be read down and declare the ITC restrictions specified therein are applicable only for invoices or debit note received after end of the financial year beyond, September of the preceding financial year.
4. The GSTR 3B is not a return seeking declaration that the Rule 61(5) of CGST Rules, 2017 as amended retrospectively prescribing GSTR3B as return is ultra vires of Sec.39(1) of CGST Act.2017.
Legal Provision: Sec.16 (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]”
Sec.16 (4) 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
Key Arguments of the Petitioner:
- Denial of ITC under Sec.16(4) of CGST Act, 2017is confiscatory in nature. In as much as, denial of ITC is implied confiscation of property in the shape of financial benefit belonging to a registered person.
- ITC is a vested right under Article 300A of the constitution. Such protected right cannot be taken away on the ground of belated filing of return.
- Alternatively, Sec.16(4) may be read down. The court 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.
- 16(4) is merely procedural in nature and cannot override the substantive conditions as mandated in Section 16(2)of CGST Act,2017.
- The Sec.16(4) violation of Art.14 of the constitution in the sense, the rational nexus with the objective of the GST Act, with respect to Input Tax Credit, is failed.
- imposes unreasonable and disproportionate restriction on right to freedom of trade and profession guaranteed under Article 19(1)(g) therefore, violates Article 300A of the Constitution and is in teeth of Article 13 of the Constitution of India.
- By disallowing ITC and invoking Sec.16(4) amounts to double taxation thus violates the principle of taxation on value addition.
- The denial of ITC results in withholding an amount 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.
- Relied on the judgment, denial of credit on technical or procedural grounds is invalid, 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.
Key Arguments of the Respondent:
- 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 Act.
- The ITC can be availed only as per conditions prescribed u/s 16 cannot be held to be arbitrary or violative of any right guaranteed under Art.19(1)(g) of the constitution.
- 16(4) is the condition precedent of availing the benefit of ITC as specified in Sec.16 of CGST.
- 300A –Right to property-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.
- 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. 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.
- 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. Sec.16(4) doesn’t fall within the two circumstances.
- 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.
Judgment:
- The provisions under Sec.16(4) are constitutionally valid and are not violative of Articles 19(1)(g) and Article 300-A of the Constitution of India.
- The provisions under Sec.16(4) of CGST Act, 2017 is not inconsistent with or in derogation of any of the fundamental right guaranteed under the Constitution of India.
- The writ applications, are accordingly dismissed
Conclusion: The denial of ITC and levying tax, interest and penalty for non-complying with the provisions of Sec.16(4) of the CGST Act, can lead to significant financial setbacks for the registered business owners. Further, this results in double taxation in the form of collecting tax from the purchaser and supplier on the same goods or service due to procedural error. It is well acknowledged that, Sec.16(4) of CGST Act, doesn’t permit to avail ITC relating to preceding financial year in case of delayed filing of subsequent year’s September month GSTR 3B. In the matters concerning taxation statutes, strict interpretation is commonly followed. However, considering the intricacies, complexity associated with return filing during the initial years of GST, Technical glitches, frequent amendments, the careful process followed in ascertaining eligible ITC, knowledge level of the taxpayer in understanding the flow of credit through a dynamic return GSTR 2A, and other related factors,
This case has not explored other facets of legal principles and interpretation including but not restricted to
- the application of “Doctrine of legitimate expectation” that the Sec.16(4) must allow certain special circumstances where the equity of allowing ITC overweighs the strict application of Sec.16(4).
- The harmonious interpretation of Sec.16(4) read with Sec.39(11), as proposed in Finance Act 2023.
- The harmonisation of Sec.16(4) with the Statement of objects and reasons of the legislature in bringing about the mechanism of ITC to obviate cascading effect and seamless flow of credit.
- A settled view of whether ITC is a property as per Art.300A of the Constitution of India.
- A final view of whether the legal right that is vested upon satisfying provisions of Sec.16(1), and Sec.16(2) can be taken away by the legislature.
- A final settled view of whether ITC is a legal right to which the Registered Person is entitled, to claim as per the text of Sec.16(1) or a concession / benefit allowed by the State as per view held by various courts, as carried over into GST from the previous state VAT laws.
Source: Case Name : Gobinda Construction Vs Union of India through the Secretary (Patna High Court), Appeal Number : Civil Writ Jurisdiction Case No. 9108 of 2021, Date of Judgement/Order : 08/09/2023
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DISCLAIMER: The views expressed by the author are only for information and knowledge sharing purposes. The author doesn’t accept any liability for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.
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Hello mam…the article was very informative, i will be very grateful if u could guide me in a very similar case where the recipient of a notice from GST for not showing sales invoices in 3B for f.y.19-20,
Actually for reasons un explainable the dealer has not declared sales as well as purchase for the similar period, and if the net liability is considered the tax liability gsts reduced considerably….!
pl guide whether it is possible to appeal against this order for double taxable and voilation of fundamental right to claim ITC in special cases.
Thanks in advance