Is the time limit prescribed u/s. 16(4) sacrosanct or whether mere fulfillment of conditions u/s. 16(2) of GST Act suffice the claim of Input Tax Credit?
Prologue
Ancient Greek Philosopher Plato said “No law or ordinance is mightier than understanding.” However at times it is difficult to understand law. And there comes a very important theory of Interpretation of Statues. Modern laws are drafted by draftsmen having domain expertise in the field of law, and it is expected that the law should leave no or little room for interpretation or construction. But the reality is far from the expectation.
It is not necessary that the words used in a statute are always clear, explicit and unambiguous and thus, in such cases it is very essential for courts to determine a clear and explicit meaning of the words or phrases used by the legislature and at the same time remove all the doubts, if any. Hence, the Rules of Interpretation have a very vital role to play in implementation of law and providing justice.
Brief discussion about the topic
The Central Goods and Services Tax Act 2017 (for the sake of brevity and convenience referred to as the CGST Act, 2017) throws up an interesting bout between two sub sections viz. sub section 2 and 4 of section 16, one of which is with a non-obstante clause.
In this article we will try to analyze, of the two which sub section would prevail over the other and its implication. More particularly the stand to be taken as a taxpayer who is asked by the Department to reverse or pay back the ITC which is claimed beyond the delineated period as enshrined under section 16(4) of the CGST Act, 2017.
Before diving deep into these two sub section, let us understand the basic framework of interpretation.
Meaning of Interpretation
The word interpretation has been derived from the Latin term ‘interpretari’, which means to explain, expound, understand or to translate. It is process of explaining, expounding and translating any text or anything in written form, which involves an act of discovering the true meaning of the language which has been used in the statute.
Various sources used are only limited to explore the written text and clarify what exactly has been indicated by the words used in the written text or the statutes. Interpretation of statutes is the correct understanding of the law. This process is commonly adopted by the Courts for determining the exact intention of the Legislature. Because the objective of the Court is not only merely to read the law but is also to apply it in a meaningful manner to suit from case to case. It is also used for ascertaining the actual connotation of any Act or document with the actual intention of the Legislature.
The purpose behind interpretation is to clarify the meaning of the words used in the statutes which might not be that clear. The art of finding out the true sense of an enactment by giving the words of the enactment their natural and ordinary meaning.
It is the process of ascertaining the true meaning of the words used in a statute. The Court is not expected to interpret arbitrarily and therefore there have been certain principles which have evolved out of the continuous exercise by the Courts. These principles are sometimes called “Rules of Interpretation”.
Statutory interpretation is the process by which courts interpret and apply legislation. Some amount of interpretation is often necessary when a case involves a statute. But in many cases, there is some ambiguity or vagueness in the words of the statute that must be resolved by the Judge. Interpretation of statute is the process of ascertaining the true meaning of the words used in a statute.
Object of Interpretation
When the language of the statute is clear, there is no need for the rules of interpretation.
But, in certain cases, more than one meaning may be derived from the same word or sentence. It is, therefore, necessary to interpret the statute to find out the real intention of the statute conveyed expressly or impliedly in the language used.
In the process of interpretation, several statutory or non-statutory aids are used like:
- Statutory aids may be illustrated by the General Clauses Act, 1897 and by specific definitions contained in individual Acts.
- Non-statutory aids are illustrated by common law rules of interpretation (including certain presumptions relating to interpretation) and also by case-laws relating to the interpretation of statutes.
Requirement of Interpretation of Statutes
- Legislative language may be complicated for a layman, and hence may require interpretation.
- Legislative Intent i.e. the intention of the legislature or Legislative intent assimilates two aspects viz.:
1. the concept of ‘meaning’, i.e., what the word means and
2. the concept of ‘purpose’ and ‘object’ or the ‘reason’ or ‘spirit’ pervading through the statute.
Non Obstante Clause
A non-obstante clause is generally appended to a section with a view to give the enacting part of the section, in case of conflict, an overriding effect over the provision in the same or other Act mentioned in the non-obstante clause. Meaning thereby in spite of the provisions or Act mentioned in the non-obstante clause, the provision following it will have its full operation or the provisions embraced in the non-obstante clause will not be an impediment for the operation of the enactment or the provision in which the non-obstante clause occurs. (Reference: “Principles of Statutory Interpretation”, 9th Edition by Chief Justice of Madhya Pradesh High Court Justice Guru Prasanna Singh, Chapter V, Synopsis IV)
Notwithstanding means despite; in spite of; without being opposed or impeded by; nevertheless; however, regardless of. A “non-obstante” provision is a provision in a statute that begins with the words ‘Notwithstanding anything contained’ and is often used in a statute to give an overriding effect to a particular section or the statute as a whole. A non-obstante clause is used in legislative drafting to make an exemption to or override the provision or Act that this phrase follows. A notwithstanding clause in a statute makes the provision independent of all other provisions in the law or other laws for the time being in force, even if the other laws stipulate to the contrary.
The Supreme Court in the case of Rai Brij Raj Krishna and Another Vs. S. K. Shaw and Brothers 1951 AIR 115 decided on 02.02.1951 had ruled that the phrase “notwithstanding anything contained in any other law” precludes reliance on any other law to the contrary.
Example of non-obstante clause in Section 129 of CGST Act, 2017 which reads as under:
129. Detention, seizure and release of goods and conveyances in transit.— (1) Notwithstanding anything contained in this Act, where any person transports any goods or stores any goods while they are in transit in contravention of the provisions of this Act or the rules made thereunder, all such goods and conveyance used as a means of transport for carrying the said goods and documents relating to such goods and conveyance shall be liable to detention or seizure and after detention or seizure, shall be released,…..
It has a non-obstante clause. It overrides the entire CGST Act. In case of conflict, this section shall prevail over all other provisions of the CGST Act.
Section 16(2) Vs. Section 16(4)
Section 16(2) and Section 16(4) of the CGST Act, 2017 reads thus:
“16(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, 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.
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 sub-section (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.”
Going through the above statutory provisions, the moot question is can a taxpayer raise a contention saying that section 16(2) is a non obstante clause with the words “Notwithstanding anything contained in this section ……..” and so it overrides the whole of section 16 including sub section 4 of section 16. And will the ITC claimed beyond the time limit as delineated under section 16(4) of the CGST Act, 2017 be allowed.
Let us try to analyze the given situation by using the Rules of Interpretation. The Role of Interpretation of Statutes would come into play in interpreting the provisions of the Statute in the way the situation demands. And the Rule which would be relevant here would be the Rule of Harmonious Construction. We will discuss the said Rule, its origin, its principles, its applicability, some judicial pronouncements and how to use the same in context of Section 16(2) and 16(4) of the CGST Act, 2017.
Doctrine of Harmonious Construction
The Constitution of India gives power to the Union and or State to legislate. While doing so, sometimes conflict occurs due to overlapping in their enforcement. This is because there are chances of certain gaps being left while framing of these provisions, which could not have been foreseen by Legislators. To deal with such conflicts, certain Doctrines and Rules are propounded by Courts that are used in the Interpretation of Statutes. One such Rule of Interpretation is the Doctrine of Harmonious Construction.
When there is a conflict between two or more Statues or two or more parts of a Statute then the Rule of Harmonious Construction needs to be adopted. Every Statute has a purpose and intent as per Law and should be read as a whole. While using the Harmonious Rule the Interpretation should be consistent with all the provisions of the Statute. In the case in which it shall be impossible to harmonize both the provisions, the Court’s decision regarding the provision shall prevail.
The basis of Principle of Harmonious Construction is that the Legislature must not have intended to contradict itself. The intention of Legislature is that every provision should remain operative. But when two provisions are contradictory, it may not be possible to effectuate both of them and in result, one will be rendered futile.
There is a settled legal maxim of “ut res magis valeat qauam pereat”, which means “It is better for a thing to have effect than to be made void, i.e., it is better to validate a thing than to invalidate it.”
In the landmark judgement of Marquest Industries v. Willows Poultry Farms, 1 D.L.R. (3d) 513 (1968, BCCA) Justice Bull of the British Columbia Court of Appeal wrote: “The primary rule of construction has been expressed by the maxim, ut res magis valeat quam pereat or as paraphrased in English, a deed shall never be void where the words may be applied to any extent to make it good. Every effort should be made by a Court to find a meaning, looking at substance and not mere form, and that difficulties in interpretation do not make a clause bad as not being capable of interpretation, so long as a definite meaning can properly be extracted.”
Therefore, such a construction should be allowed to prevail by which existing inconsistency is removed and both the provisions remain in force, in harmony with each other. It signifies that in case of inconsistencies, proper harmonization is to be done between the conflicting parts so that one part does not defeat the purpose of another.”
The Doctrine of Harmonious Construction is based on a cardinal principle in law that every statute has been formulated with a specific purpose and intention and thereby should be read as a whole. The normal presumption is that what the Parliament has given by one hand is not sought to be taken away from another. The essence is to give effect to both the provisions. To avoid conflict, the adopted Interpretation of the Statute should be consistent with all its provisions. The aim is to do interpretation in a manner that it resolves the repugnancy between the provisions and enables the Statute to become consistent as a whole and read accordingly.
Origin of Doctrine of Harmonious Construction
The Doctrine of Harmonious Construction was established as a result of Court Interpretations of a variety of cases. The Doctrine’s creation can be traced all the way back to the first amendment to the Constitution of India, with the landmark Judgment of Sri Shankari Prasad Singh Deo Vs Union of India, AIR 1951 SC 458 where the subject matter of the case was disagreement between Part III (Fundamental Rights) and Part IV (Directive Principles of State Policy) of the Constitution of India. The Apex Court used the Harmonious Construction Rule to hold that Fundamental Rights, which are rights granted against the State, may be revoked under certain circumstances and modified by Parliament to bring them into compliance with constitutional provisions. Both were given preference, and it was determined that Fundamental Rights and Directive Principles of State Policy are just two sides of the same coin that must be worked together for the greater good.
The cardinal principles of the Doctrine of Harmonious Construction are:
1. The Courts must avoid a head-on clash of seemingly contradicting provisions and they must construe the contradictory provisions so as to harmonize them. [Commissioner of Income Tax Vs Hindustan Bulk Carriers, (2003) 3 SCC 57, P. 74].
2. The provision of one section cannot be used to defeat the provision contained in another unless the Court, despite all its effort, is unable to find a way to reconcile their differences.
3. When it is impossible to completely reconcile the differences in contradictory provisions, the Courts must interpret them in such as way so that effect is given to both the provisions as much as possible. [Sultana Begum Vs Premchand Jain”, AIR 1997 SC 1006].
4. Courts must also keep in mind that interpretation reduces one provision to a useless number or dead is not harmonious construction.
5. To harmonize is not to destroy any statutory provision or to render it fruitless.
It is critical that the Court determine the degree to which the legislature wanted to grant one clause overriding authority over another. In Eastbourne Corporation Vs Fortes Ltd., (1959) 2 All ER 102 CA, it was decided that if two opposing sections could not be reconciled, the last section would take precedence.
Few landmark judgments on Doctrine of Harmonious Construction
1. In Venkataramana Devaru & Ors. Vs State of Mysore & Ors., AIR 1958 SC 255, the Supreme Court applied the Rule of harmonious construction in resolving a conflict between Articles 25 (2)(b) and 26 (b) of the Constitution of India and it was held that the right of every religious denomination or any section thereof to manage its own affairs in matters of religion [Article 26 (b)] is subject to a law made by a State providing for social welfare and reform or throwing open of Hindu religious institutions of a public character to all classes and sections of Hindus [Article 25 (2)(b)].
2. In the case of Calcutta Gas Company Private Limited Vs State of West Bengal & Ors., AIR 1962 AIR 1044; wherein the Oriental Gas Company Act was passed by the West Bengal Legislative Assembly in 1960. Under this Act, the Respondent attempted to take over the control of the Gas Company. The Appellant argued that the State Legislative Assembly lacked the authority to pass such legislation under Entries 24 & 25 of the State List since the Parliament had already passed the Industries (Development and Regulation) Act, 1951, which dealt with industries under Entry 52 of the Central List.
The Supreme Court noted that with so many subjects in three lists in the Constitution of India, there is bound to be some overlap, and it is the responsibility of the Courts in such situations to harmonise them, if possible, so that each of them can have effect. The State List’s Entry 24 includes all of the State’s Industries.
Only the Gas Industry is qualified for Entry 25. As a result, Entry 24 encompasses all industries except the gas industry, which is explicitly protected under Entry 25. Entry 52 in the Union List corresponds to Entry 24 in the State List. As a result, it became apparent that the Gas Industry was solely protected by Entry 25 of the State List, over which the State has complete influence. As a result, the State had complete authority to enact legislation in this region.
3. Gujarat University Vs Krishna Ranganath Mudholka & Ors., AIR 1963 SC 703 –
According to the Supreme Court separating Education in two Lists under the Head of Medium Of Instruction to Parliament and Education dehors to State, is not reasonable. The Medium Of Instruction related to specific Universities is also provided under the Union List, Entry 66 and that Entry has enabled Parliament to make Laws to improve standards of Education and provide financial assistance to Backward Universities but under Entry 11 of State Law, State can make Law for imparting Education.
Therefore, the Harmonious Construction was invoked and it was found that Parliament has specific competence over the subject and State has the general competence. Therefore, it was held that Parliamentary Law should prevail and the University did not confer the power to impose any language as Medium Of Instruction and examination.
4. Sirsilk Ltd. & Ors Vs Govt. Of Andhra Pradesh & Anr., AIR 1964 SC 160 –
An intriguing question involving a conflict between two equally mandatory provisions of the Industrial Disputes Act, 1947, namely Sections 17 (1) and 18 (1), is a good example of the significance of the concept that any attempt should be made to give effect to all of an Act’s provisions by harmonizing every apparent conflict between two or more of them. Section 17 (1) of the Industrial Disputes Act, 1947 requires the Government to publish any award of a Labour Tribunal within thirty days of receipt, and Section 17 (2) of the Act states that the award becomes final upon publication.
A contract between an employer and employees is binding on the parties to the arrangement, according to Section 18 (1) of the Act. In a situation where a settlement was reached after the Government received a Labour Tribunal Award but before it was released, the issue was whether the Government was indeed obliged to report the Award under Section 17 (1). The Supreme Court held that the only way to address the conflict was to hold that the Industrial Dispute ends with the settlement, which becomes valid from the date of signing, and the Award becomes infructuous, and the Government cannot publish it.
5. Commissioner Of Sales Tax, Madhya Pradesh, Indore & Ors. Vs Radha Krishna & Ors., AIR 1979 SC 1588 – The Commissioner sanctioned criminal prosecution of the Respondent partners in this case under Section 46 (1) (c) of the Madhya Pradesh General Sales Tax Act, 1958, after the assessee failed to pay the Sales Tax despite repeated demands. The Respondent argued that the Act had two separate Sections, namely Section 22 (4–A) and Section 46 (1)(c), in which two different procedures for realizing the amount due were prescribed, but that there was no provision of law that could say which provision should be enforced in which case. The provision prescribed under Section 46 (1)(c), according to the Supreme Court, was more serious.
The inference drawn from the harmonious construction of these two clauses was that the Commissioner had Judicial discretion in deciding which procedure to follow in which case. The Court has the authority to interfere if the Commissioner fails to act Judicially. However, in this situation, the Commissioner was right in deciding that the more severe procedure under Section 46 (1)(c) needed to be used because the assesse company had failed to pay Sales Tax despite the Sales Tax Officer’s repeated demands.
6. Jagdish Singh Vs Lt. Governor, Delhi & Ors., AIR 1997 SC 2239 – The Supreme Court decided that where there is a conflict between two provisions, their harmony should be tried to establish between them. It requires:
“It is a cardinal principal of construction of a Statute or the Statutory Rule that efforts should be made in construing the different provisions, so that, each provision will have its play and in the event of any conflict a Harmonious Construction should be given, Further a Statute or a Rule made thereunder should be read as a whole and one provision should be construed with reference to the other provision so as to make the Rule consistent and any construction which would bring any inconsistency or repugnancy between one provision and the other should be avoided. One Rule cannot be used to defeat another Rule in the same Rules unless it is impossible to effect harmonisation between them.
The well-known Principle of Harmonious Construction is that effect should be given to all the provisions, and therefore, this Court had held in several cases that a construction that reduces one of the provisions to a ‘dead letter’ is not a harmonious construction as one part is being destroyed and consequently court should avoid such a construction.”
7. In Nagraj (Dead) by LRs & Ors. Vs B. R. Vasudeva Murthy & Ors., (2010) 3 SCC 353, the Supreme Court held that Statutes opposing provisions but with same subject matter have to be read together.
8. SBEC Sugar Ltd & Anr. Vs Union of India & Ors., (2011) 4 SCC 668 – It was held that a cardinal principle of construction is that the provisions of the notification have to be harmoniously construed as to prevent any conflict with the provisions of the Statute.
9. In Union of India & Ors. Vs Dileep Kumar Singh, Civil Appeal Nos. 2466-2467 OF 2015, the Apex Court held that the provisions of Statute must be read harmoniously together. Where this is not possible and there is irreconcilable conflict between two Sections, it must be determined which provision is leading provision and which provision is subordinate provision and that which one must give way to the other.
Going by the sum and substance of the above landmark judgments, one can conclude that in drafting of law there is always the risk of uncertainty, contradictions, inconsistencies, absurdities, hardships, repugnancy, duplication, and other issues. In such cases, the Laws of Interpretation of Statute would apply and the provisions are construed to give them the most effect and to make Justice to the situation at hand. In reading laws, the concept of Harmonious Construction is very important and is used in a lot of situations.
It aids in the clarification of complex problems and facilitates the delivery of decisions. As a result, the value of the law of Harmonious Construction is recognized and felt by the Judiciary, just as it is by many other laws of application of Statutes.
The need for interpretation arises because there laws are not clear and unambiguous. Therefore, the Doctrines help the Court to interpret specific provisions according to its requirement. Among which, the Principle of Harmonious Construction has been dealt with in the following article in an elaborate manner, highlighting the fact that it reduces conflicts between two or more provisions [(here section 16(2) and section 16(4) of the CGST Act, 2017] and helps to adopt the provision of broader scope rendering Justice to the people.
Analysis / Interpretation of section 16(2) vis-à-vis section 16(4)
It is important to understand the scheme of Input Tax Credit under the CGST Act, 2017. Let us start by first ascertaining whether Input Tax Credit a Right, Benefit, Reward or Privilege?
- One school of thought is that ITC is an indefeasible right of the assesses, as observed by the Supreme Court in the landmark case of Collector Of Central Excise, Pune v Dai Ichi Karkaria Ltd ., (1999) 8 TMI 920 in the context of the MODVAT scheme. The court stated that unless there is anything to the contrary, a person is entitled to take credit without any limitation in time.
The Supreme court again in the case of Eicher Motors Ltd. v. Union of India ( 1999) 106 E.L.T. 3 (S.C.), in the context of MODVAT, said that the credit is as good as tax paid.
Going by the stand that credit is an indefeasible right and equivalent as tax paid, credit should be available as a matter of right as and when claimed for. A taxable person can utilize ITC in respect of a tax period based on the current purchases as well as preceding month’s purchases if not availed earlier. A taxable person may pay the output tax payable, either in cash or through the input tax credit account. This is paid by way of reducing the output tax payable, by the amount of input tax credit available with him.
- The other school of thought is that it is not the right of the assesse to get the benefit of ITC but a statutory benefit conferred to him – Jayam & Co. v. Assistant Commissioner & Anr (2016) 9 TMI 408, Supreme Court. Under this logic, there is no right to claim input tax credit without an appropriate scheme governing the same. The entitlement is created and governed by the statute with conditions and or restrictions.
Under the CGST Act 2017, input tax credit is a statutory benefit / entitlement conferred to a dealer which is created by a statute. The statute also prescribes conditions and or restrictions on availment of input tax credit and also time limit for claiming such input tax credit. All these restrictions are to be adhered to, to claim input tax credit under the Goods and Services Tax Act, 2017.
Section 9 of the CGST Act provides for levy of a tax called the CGST/ SGST on all intra-State supplies of goods and/or services and collection in such manner as may be prescribed.
Section 16(1) provides that every registered taxable person shall be entitled to take credit of input tax, as self assessed (which is actually subject to being proved by the claimant to be a valid claim) in his return. It further provides that every registered person shall be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business.
Section 16(2), 16(3) and 16(4) provides for conditions and or restrictions on availment of input tax credit and also time limit for claiming such input tax credit.
Section 17 of the CGST Act, 2017 however provides for restriction on claiming credit of tax paid on certain specified supplies of goods and services. This restriction is placed irrespective of the fact that such supplies are used for making some taxable outward supplies.
Clearly, the input tax credit under the GST regime is based on the second school of thought which says that input tax credit is a statutory benefit / entitlement conferred on to a dealer by a statute and the same is subject to conditions / restrictions prescribed therein which are to be fulfilled. So for the sake of argument one may argue that tomorrow if the Government intends not to allow ITC at all, it can do so though it defeats the very purpose of implementation of GST. And the dealer would not have any legal recourse as it is not an indefeasible right which can be claimed as matter of right. Extending the same argument, the Government may reduce the delineation time frame under section 16(4) or may put any goods or services under the blocked credit category of section 17(5) or so on and so forth.
Section 16(1) of the CGST Act, 2017 which is the substantive provision for entitlement of input tax credit says “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.”
Thus it is Section 16(1) which allows the input tax credit under the CGST Act, 2017. Section 16(2) just restricts the input tax credit which is otherwise allowed under section 16(1) in such cases where the conditions enumerated therein are not fulfilled. According to me the non-obstante clause of section 16(2) overrides the provision that enables the credit i.e. section 16(1).
It is interesting to see that the non obstante words “Notwithstanding anything contained in this section….” are followed by a negative sentence viz. “….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….”, which suggests that unless and until the conditions of section 16(2) are not fulfilled, input tax credit will not be eligible. Section 16(2) is a restricting provision which restrict input tax credit in cases where conditions enumerated therein are not satisfied. It is not an enabling provision. Section 16(1) is in fact the enabling provision.
Similarly section 16(4) is also a restricting provision which says “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.”
To say that section 16(2) will override section 16(4) and the dealer would be entitled to claim input tax credit beyond the period delineated under section 16(4); just because section 16(2) uses the words “Notwithstanding anything contained in this section….”, would not be a correct interpretation. This is because there is prima facie no contradiction between section 16(2) and 16(4). Both the sub sections are restricting provisions. Only difference is that section 16(2) is restricting provision with non obstante words and section 16(4) is also restricting provision but without non obstante words.
In this connection recourse can be had to the judgment of Apex Court in the case of R.S. Raghunath Vs. State Of Karnataka And Anr 1992 AIR 81, decided on 04.10.1991, in which it was held that “the non obstante clause is sometimes appended to a section or a rule in the beginning with a view to give the enacting part of that section or rule in case of conflict, an overriding effect over the provisions or act mentioned in that clause. Such a clause is usually used in the provisions to indicate that the said provision should prevail despite anything to the contrary in the provision mentioned in such non obstante clause. There should be clear inconsistency between two enactments before giving an overriding effect to the non obstante clause.” Accordingly overriding effect cannot be given unless and until such clear inconsistency is established. There is no inconsistency at all between section 16(2) and 16(4) of the CGST Act, 2017 as both as restrictive in nature, restricting the input tax credit which is enabled under section 16(1).
The Apex Court in para 2.1 of the said judgment was further stated that “But the non-obstante clause need not necessarily and always be co-extensive with the operative part so as to have the effect of cutting down the clear terms of an enactment and if the words of the enactment are clear and are capable of a clear interpretation on a plain and grammatical construction of the words the non-obstante clause cannot cut down the construction and restrict the scope of its operation. In such cases the non-obstante clause has to be read as clarifying the whole position and must be understood to have been incorporated in the enactment by the Legislature by way of abundant caution and not by way of limiting the ambit and scope of the Special Rules.”
It further stated that “Further, the influence of a non-obstante clause has to be considered on the basis of the context also in which it is used”.
The Hon’ble Apex Court in the case of Geeta Vs. State of Uttarpradesh, 2010 13 SCC 678 decided on 14.12.2010, had held that a non obstante clauses should be constructed harmoniously with the other provisions.
Epilogue
Clearly both section 16(2) and 16(4) are restrictive, but not contradictory to each other. Section 16(2) provides restriction with regard to the conditions to be satisfied for claiming input tax credit and section 16(4) provides restriction with regard to the time limit upto which the dealer is eligible to take input tax credit.
The “Statement of Objects and Reasons” to the Constitution (122nd Amendment) Bill, 2014, enacted as the Constitution (101st Amendment) Act, 2016 categorically included the elimination of cascading effect. The provisions of input tax credit provides for the availment of Input tax credit to the purchasing dealer in respect of the tax charged by the supplying dealer and thereby facilitate seamless flow of credit.
Under GST, the scheme of input tax credit is designed in a manner whereby section 16(1) entitles to take input tax credit, section 16(2) prescribes conditions subject to which the same is entitled, section 16(3) puts a restriction on the portion of input tax credit on which depreciation under Income-tax Act 1961 is claimed and section 16(4) prescribes the delineation of time beyond which a dealer is not entitled to input tax credit. Here section 16(1) is enabling provision and all other sections are restricting provisions and all the three are required to be understood and interpreted in that context. One of the three i.e. section 16(2) cannot be interpreted to have an overriding effect over the other just because it has a non-obstante words. And that it is real intention of the legislature as enumerated in “Statement of Objects and Reasons” to the Constitution (122nd Amendment) Bill, 2014, enacted as the Constitution (101st Amendment) Act, 2016; which is to eliminate cascading effect and facilitate seamless flow of credit by way of an efficient input tax credit mechanism; the entitlement of which is granted through one sub section i.e. 16(1) and which is restricted through other three sub sections i.e. 16(2), 16(3) and 16(4) of CGST Act, 2017.
Author Bio
Sir, Excellent article with in-depth analysis. Kindly throw some light on doctrine of unjust enrichment by Exchequer in light of restriction imposed u/s 16(4).