CA Pratibha Goyal | Sep 15, 2023 |
Patna HC upholds constitutional validity of Section 16(4) of GST for claiming ITC
Patna High Court in a recent judgment upheld the constitutional validity of Section 16(4) of the CGST/BGST Act for claiming Input Tax Credit (ITC).
The Court said that ITC is not our Constitutional right. It is a concession given by the government and the government has the right to impose restrictions on the same.
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 law- maker 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, i.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.
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