Chattisgarh HC Affirms constitutional validity of Section 16(4) [Read Order]

The Chattisgarh High Court in the matter of M/s Jain Brothers Vs. Union of India has affirmed constitutional validity of Section 16(4).

The petitioner herein, which is a proprietorship firm registered under the provisions of the Central Goods and Services Tax Act, 2017 (for short, ‘the CGST Act’), seeks to challenge the constitutional validity of Section 16(4) of the CGST Act as violative of Articles 14, 19(1)(g) and 300A of the Constitution of India and further seeks a declaration that Section 16(4) is merely procedural in nature which cannot override substantive conditions as mandated under Sections 16(1) and 16(2) of the CGST Act, and eventually seeks to challenge the show cause notice dated 20-5-2022 (Annexure P-8) in light of Section 100 of the Finance Act, 2022 and to allow the ITC (Input Tax Credit) claimed in the month of March, 2019 and also to quash the proceedings initiated under Section 16(4) of the CGST Act by respondents No.3 to 5 herein.

The petitioner is a proprietorship firm engaged in the trading of Oils and allied products thereof, registered under the provisions of the CGST Act as well as the Chhattisgarh Goods and Services Tax Act, 2017 having GSTIN: 22ACJPJ0020A1ZR and certificate of GST registration has been filed as Annexure P-1. It is further case of the petitioner that the petitioner being a trader, regularly purchases goods and avails certain services thereof in relation to the business.

The petitioner being a registered firm under the specified GST Acts is required to furnish its monthly return under Section 39 of the CGST Act read with Rule 61 of the Central Goods and Services Tax Rules, 2017 (for short, ‘the CGST Rules’) in Form GSTR-3B. The petitioner for the financial year 2018-19 filed a return under Section 39 of the CGST Act in Form GSTR-3B for the month of March, 2019 on 13-11-2019. Return was specifically filed for the specified period and late fees was also paid in accordance with Section 47 of the CGST Act for the period March, 2019 in Form GSTR-3B of April, 2019 and interest under Section 50 was also paid in the return for the period March, 2019. The ITC claimed in the return for the month of March, 2019 was eligible ITC for the specified period in terms of Section 16(2).

Returns filed under Section 39 in Form GSTR-3B for the months of March, 2019 and April, 2019 have been annexed as Annexures P-2 and P-3. Thereafter, the petitioner was served with a demand letter dated 6-2-2020 (Annexure P-4) by respondent No.3 demanding an amount of Rs. 9,43,919 to be paid alleging that Input Tax Credit (ITC), as specified above, is availed in contravention of Section 16(4) of the CGST Act along with interest under Section 50 of the said Act, which the petitioner replied vide Annexure P-5 and prayed for quashment of the proceedings and not to issue any further notice, but respondent No.3 again issued a demand letter dated 28-1-2021 (Annexure P-6) rejecting the grounds raised by the petitioner stating that Section 16(4) provides for condition of availing ITC and accordingly demanded the payment of wrongly availed ITC along with appropriate interest, which the petitioner again replied by Annexure P-7 that he satisfies all the requirements of Section 16(2) of the CGST Act, but not satisfied with that, the petitioner was served with a show cause notice on 26-5-2022 vide Annexure P-8 alleging that the petitioner has wrongly availed ITC for the month of March, 2019 by contravening with the provisions of Section 16(4) read with Section 39 of the CGST Act and Rule 61 of the CGST Rules.

The petitioner was required to show cause as to why total goods and services tax amounting to Rs. 9,43,920 should not be demanded and recovered from him under Section 73(1) of the CGST Act, interest at applicable rate should not be demanded and recovered under Section 50 of the said Act and penalties should not be imposed under Section 73(9) of the said Act leading to filing of the instant writ petition questioning the constitutional validity of Section 16(4) of the CGST Act and eventually questioning the proceedings initiated for recovery of Rs.9,43,920 along with interest and penalties stating that the said recovery under Section 16(4) is violative of Articles 14, 19(1)(g) and 300A of the Constitution of India and that Section 16(4) is merely procedural in nature which cannot override substantive conditions as mandated under Section 16(1) and 16(2) and further called in question the recovery proceedings initiated in shape of show cause notice dated 20-5-2022.

Union of India has filed its return opposing the averments made in the writ petition stating inter alia that the writ petition as framed and filed is not maintainable and liable to be dismissed as premature, as the petitioner has also challenged the show cause notice issued by respondent No.3 and same has till date not been adjudicated by the concerned authority and after adjudication of same by the competent authority, the petitioner has option to file appeal before the appellate authority as per the provisions of the CGST Act.

It has further been pleaded that the provision of Section 16(4) of the CGST Act is a constitutionally valid provision and Section 16(4) is an integral part of the statute and therefore the conditions prescribed by Section 16(4) for availing of ITC are binding on the taxpayer. The availability of ITC is subject to the conditions and restrictions and if a taxpayer has not fulfilled the said conditions including the conditions provided in Section 16(4), it cannot be allowed to avail the benefit of input tax credit. It has also been submitted that the grant of input tax credit under Section 16 of the CGST Act is a concession or relaxation and nobody can claim it as a matter of vested right.

It is entirely for the legislature to make a provision and restrict the benefit or concession or relaxation either to a class of persons or even if it extends to all, it can restrict the term or period or limit up to which the concession can be availed. A similar provision has been given in the CENVAT Credit Rules, 2004. Any registered person is eligible for taking input tax credit, only if such availment is not restricted by conditions laid down in the law in this regard. It has been further submitted that Section 16(4) of the CGST Act is neither violative of Article 14 nor violative of Articles 19(1)(g) and 300A of the Constitution and the writ petition being premature is liable to be dismissed.

As such, in view of the mentioned legal provision flowing from Article 19(1)(g) of the Constitution and the principles of law laid down by their Lordships of the Supreme Court, the petitioner herein, which has filed the present writ petition, is only a proprietorship firm and not a citizen and therefore cannot claim protection of Article 19(1)(g). It is held accordingly and this ground claiming protection of Article 19(1)(g) is not available to the petitioner, which is a proprietorship firm.

The next ground that has been raised on behalf of the petitioner that Section 16(4) of the CGST Act is violative of Article 300A of the Constitution of India, is also not at all made out, as Article 300A is ‘right to property’ which is the constitutional right and clearly provides that it cannot be taken away except in accordance with law.

The decision of the Supreme Court and that of the Calcutta High Court and the Gujarat High Court in Chandavarkar Sita Ratna Rao (supra), Howrah Tax Payers’ Association (supra) and M/s Siddharth Enterprises (supra), respectively, relied upon by the petitioner, are clearly distinguishable to the facts of the present case.

In view of the mentioned discussion, in conclusion, we are of the considered opinion that the provision contained in Section 16(4) of the CGST Act is violative of neither Article 14 of the Constitution nor Articles 19(1)(g) and 300A of the Constitution, however, the ground under Article 19(1)(g) is not available to the petitioner, as the petitioner, in the instant case, is not a citizen and therefore Article 19(1)(g) is not available to the petitioner herein. Concludingly, the petitioner has failed to make a case to question the constitutional validity of Section 16(4) of the CGST Act as it is a constitutionally valid piece of legislation.

We hereby decline to entertain the writ petition. However, the petitioner is free to pursue the show cause notice issued to him on 20-5-2022. We have not commented upon the correctness of the said notice and the competent authority would consider the objection of the petitioner, if filed in accordance with law, expeditiously.

With the aforesaid observation and direction, the writ petition stands dismissed leaving the parties to bear their own cost(s).

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