Calcutta HC upheld’s constitutional validity of Section 16(4) of CGST Act

The Calcutta High Court in the matter of M/S. BBA INFRASTRUCTURE LIMITED Vs. SENIOR JOINT COMMISSIONER OF STATE TAX AND OTHERS upheld the constitutional validity of Section 16(4) of the CGST Act.

Key Points of the Judgment:

This intra court appeal filed by the writ petitioner is directed against the order dated 13.06.2023 in WPA 11339 of 2023. By the said order, the learned Single Bench held that there is no scope for passing any interim order and issue involved in the writ petition requires affidavit from the respondent for final adjudication. Accordingly, the respondents were directed to file their affidavit-in-opposition within a time frame and the writ petition as directed to be listed for hearing.

Mr. Vinay Shraff, learned Advocate appearing for the appellant submitted that though this appeal is against an order refusing to grant interim orders, requested this Court to hear the writ petition as well as questions of law are involved in the writ petition and may not even require an affidavit to be filed by the respondent. Mr. T.M. Siddiqui, learned Additional Government Pleader appearing for the respondent submitted that one opportunity may be granted to the respondents to file their affidavit-inopposition which request was granted by order dated 23.06.2023 and after the affidavit-in-opposition was filed by the respondent, the appeal as well as the writ petition were heard and are now disposed of by this common judgment and order.

The appellant filed the writ petition challenging an order-in-appeal dated 04.01.2023 and sought for a consequential direction upon the respondent to refund the tax amounting to Rs.28,63,680 which is alleged to have been recovered by the appellant in excess of 10% of disputed tax amount and to prohibit the respondents from taking further cohesive action against the appellant. The order impugned in the writ petition was passed under Section 107 of the Central Goods and Services Tax Act, 2017 and West Bengal Goods and Services Tax Act, 2017 (hereinafter referred as the GST Act) whereby the Input Tax Credit availed by the appellant amounting to Rs.28,65,780 from the period from November, 2018 to March 2019 was denied on the ground that the returns for the said period was filed beyond the statutory time limit stipulated in Section 16(4) of the GST Act, which time limit expired on 20.10.2019.

Facts leading to the filing of the writ petition are that a show-cause notice dated 28.10.2020 was issued to the appellant calling upon the appellant to explain as to why Input Tax Credit amounting to Rs. 28,64,780 for the period from November, 2018 to March, 2019 should not be denied as returns for the FY 2018-19 were filed beyond the statutory time limit that is 29.10.2019. The appellant by a representation dated 25.11.2020 requested for extension of time. On 04.01.2021 the second respondent passed an order directing the appellant to pay tax, penalty and interest on the ground that the statute has set down a time frame within which a taxable registered person can claim ITC. The appellant appears to have not paid the tax, penalty and interest as demanded and reminder was sent by the department on 06.09.2021 to deposit the entire dues on or before 10.09.2021. The appellant did not comply with the demand and consequently the department on 11.09.2021 debited the amount from the electronic cash ledger/ credit ledger of the appellant. The appellant filed an appeal before the statutory appellate authority. On 07.05.2022 the appellant was intimated by the office of the appellate authority that they have not deposited any pre-deposit amount on the disputed demand of tax. The appellant sent a reply on 01.06.2022 stating that the officer in-charge had initiated recovery proceedings and debited a sum of Rs.11,62,099 from the CGST Credit ledger and Rs.11,34,291 from the SGST credit ledger along with the interest from each cash ledger balances. The first respondent, the appellant authority by order dated 04.01.2023 confirmed the order passed by the second respondent holding that the statute has set a time frame within which the appellant can avail and utilize input tax credit and the appellant having done so beyond the time limit i.e. 20.10.2019 is not entitled for the ITC.

The appellant’s case is that they had submitted the returns in GSTR-3B for the period from November, 2018 to March, 209 on 20.10.2019 which is admittedly beyond the due date of submission of the return for the month of September, 2019. The department’s contention is that the returns having been filed beyond the statutory time limit the appellant becomes ineligible for Input Tax Credit and consequently he has to reverse the credit taken and having willfully mis-stated the particulars and availed the benefit they are liable to pay penalty. The contention of the appellant is that Input Tax Credit is not taken through the return but it is taken through the books of account immediately on receipt of goods and services in terms of first proviso to Section 16(2) of the GST Act. Therefore, it is submitted that the time limit under Section 16(4) cannot supersede or override the scheme of the statute as operation of Section 16(4) makes the non-obstante provision namely Section 16(2) meaningless. In other words, it is contended that Section 16(2) has overriding effect on Section 16(4) as is evident from the words used in the statute, “entitled to take credit”. Thus, it is contended entitlement of a particular right after fulfilling the prescribed and specified conditions results into a right, “taking” or “availing” or “utilizing” that right through procedural formalities or furnishing a return by the person who is entitled to that right is a matter of his choice. Further, it is the case of the appellant that in Section 16(1) of the GST Act, there is no mention of any time limit or time element and there is no visible linkage of Sub-section (1) with Sub-section (4) of Section 16. The learned Advocate for the appellant elaborately referred to the minutes of the 18th GST Council meeting held on 30th June, 2017 with particular reference to the type of returns to be filed etc. Reliance was placed on the decision of the Hon’ble Supreme Court in Union of India Versus Bharti Airtel Ltd.1 Reference was also made to the notification issued by the Government in Notification No. 12 of 2019-CT dated 07.03.2019 and Notification No. 76/2018-CT dated 31.12.2018 which pertained to the time limit for filing the monthly return from April, 2019 to June, 2019 which was extended and with regard to period from July, 2017 to September, 2019 wherein the late fee payable under Section 47 of the Act was waived. With regard to the extreme hardship which will be faced by the dealer/ assessee a reference was made to the decision in the case of Indsur Global Ltd. Versus. Union of India.

The Hon’ble Supreme Court in TVS Motor Company Limited after taking note of the decision in ALD Automotive held that ITC is a form of concession which is provided by the Act; it cannot be claimed as a matter of right but only in terms of the provision of the statute; therefore the conditions mentioned had to be fulfilled by the dealer. Very recently, the Hon’ble Division Bench of the High Court of Andhra Pradesh had considered an identical case as that of the case on hand, wherein a pari materia provision under the Andhra Pradesh General Sales Tax, 2017 namely Section 16(4) of the Act was considered in a challenge to its validity on the ground that it violates Article 14, 19(1)(g), and 300A of the Constitution of India; whether the non-obstante clause in Section 16(2) of the APGST, CGST Act, 2017 would prevail Section 16(4) of the APGST/CGST Act, 2017.

The argument advanced before us by the learned Advocate for the appellant were identical to that of the arguments which were placed by the petitioners/assessee in the said case and the same was rejected, in our view rightly on the ground that Section 16(2) prescribes, the eligibility criteria which is mandatory and in the absence of fulfillment of the eligibility criteria the dealer will not be entitled to claim ITC. We are in the respectful agreement with the view expressed. The contention that non obstante clause in the Sub Section(2) of Section 16 overrides the other provisions namely Section 16(4) was canvassed before the court which was also rightly rejected after taking note of the various decisions as to how the non obstante clause should be interpreted and rightly held that Section 16(2) does not appear to be a provision which allows Input Tax Credit, rather Section 16(1) is the enabling provision and Section 16(2) restricts the credit which is otherwise allowed to the dealers who satisfied the condition prescribed the interpretation given by the court that the stipulation in Section 16(2) is the restrictive provision is the correct interpretation given to the said provision. A similar challenge was made to Section 16(4) of the Bihar Goods and Services Taxes Act, 2017 in the case of a Gobinda Construction wherein the court held that in the language of Section 16 does not suffer from any ambiguity and clearly stipulates grants of ITC subject to the condition and restriction put therein. Further it was held that the right of registered person to take ITC under Section 16(1) becomes a vested right only if the conditions to take it are fulfilled, free of restriction prescribe under Sub Section (2) thereof. Further the court held that the provision under Sub Section (4) of Section 16 is one of the conditions which makes a registered person entitled to ITC and by no means Sub Section (4) can be said to be violative of Article 300A of the Constitution of India. The court noted the decision in ALD Automotive Private Limited, Godrej and Boyce Manufacturing Private Limited and Jayam and Company and ultimately upheld the constitutional validity of Section 16(4) of the Act.

Thus, for all the reasons, it found no ground to grant the relief sought by the petitioner in the writ petition.

Consequently, the appeal as well as the writ petition are dismissed. No costs.

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