2023 (12) TMI 829 - HC - GST

Constitutional validity of Section 16(4) of the CGST Act - Validity of time limit for ailing benefit of input tax credit (ITC) - Period of limitation - violative of Articles 14, 19(1)(g) 300A of the Constitution of India - seeking declaration that Section 16(4) is merely procedural in nature which cannot override substantive conditions as mandated under Sections 16(1) 16(2) of the CGST Act HELD THAT - In the TTWYFORD TEA CO., LTD. VERSUS STATE OF KERALA 1970 (1) TMI 80 - SUPREME COURT , the Supreme Court has held that in taxation even more than in other fields, Legislatures possess the greatest freedom in classification. The burden is on the one attacking the legislative arrangement to negative every conceivable basis which might support it. The Supreme Court has further held that if a State can validly pick and choose one commodity for taxation and that is not open to attack under Article 14, the same result must follow when the State picks out one category of goods and subjects it to taxation. From the principles laid down by their Lordships of the Supreme Court, it is quite vivid that that the power of the legislature especially in fiscal statute is very wide and can only be challenged on two counts being it lacks legislative competence and that it infringes or takes away any of the fundamental rights or any of the constitutional provisions. However, in the instant case, the petitioner has challenged the constitutional validity of Section 16(4) of the CGST Act on the ground that it is violative of Articles 14, 19(1)(g) 300A of the Constitution. The grant of ITC has been made subject to conditions and restrictions put thereunder. Thus, the registered person is entitled for ITC in respect of any invoice or debit note for supply of goods if the requisite conditions stipulated therein are fulfilled. The right of a registered person to take ITC under sub-section (1) of Section 16 would become the vested right only if the conditions to take it are fulfilled. Similarly, in the matter of INDIA AGENCIES (REGD.) VERSUS ADDITIONAL COMMISSIONER OF COMMERCIAL TAXES, BANGALORE 2004 (12) TMI 372 - SUPREME COURT , the Supreme Court while dealing with Rule 6(b)(ii) of the Central Sales Tax (Karnataka) Rules, 1957, which requires a provision for furnishing original Form C to claim concessional rate of tax under Section 8(1) of the Central Sales Tax Act, 1956, held that the said requirement under the rule is mandatory and without producing specific documents, dealer cannot claim the benefits. As such, ITC is a nature of benefit or concession extended to the dealer and it can be availed by the beneficiary as per the scheme of the statute subject to fulfillment of the conditions laid down in Section 16(4) of the CGST Act. In that view of the matter, Section 16(4) cannot be held to be violative of Article 14 of the Constitution. Whether the petitioner, which is a proprietorship firm, can claim protection of Article 19(1)(g) of the Constitution? - HELD THAT - A careful perusal of the scheme of Article 19 of the Constitution would show that a group of rights are listed as clauses (a) to (g) and are recognized as fundamental rights conferred on citizens. Similarly, the petitioner, which is a proprietorship firm, has filed this writ petition under Article 226 / 227 of the Constitution of India, it has not been filed by any citizen in individual capacity, rather it has been filed by a proprietorship firm namely, M/s Jain Brothers through its Proprietor Mr. Amit Jain - The Supreme Court in the matter of INDIAN SOCIAL ACTION FORUM (INSAF) VERSUS UNION OF INDIA 2020 (3) TMI 1103 - SUPREME COURT has categorically held that a Company being a juristic person cannot be a citizen for the purpose of Article 19 of the Constitution. Thus, in view of the provision contained in Article 19(1)(g) of the Constitution and the principles of law laid down by their Lordships of the Supreme Court, it would appear that protection under Article 19(1)(g) of the Constitution is available to a citizen and in order to claim protection under Article 19(1)(g), the person coming to the court must be a citizen, however, in the instant case, proprietorship firm has filed writ petition claiming protection of Article 19(1)(g) - in view of the 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 provision contained in Section 16(4) of the CGST Act is violative of neither Article 14 of the Constitution nor Articles 19(1)(g) 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 out a case to question the constitutional validity of Section 16(4) of the CGST Act as it is a constitutionally valid piece of legislation. Petition dismissed.

Summary

Issues Involved:
1. Constitutional validity of Section 16(4) of the CGST Act.
2. Whether Section 16(4) violates Articles 14, 19(1)(g), and 300A of the Constitution.
3. The procedural nature of Section 16(4) vis-à-vis substantive conditions under Sections 16(1) and 16(2).
4. The maintainability of the writ petition against the show cause notice.

Summary:

Issue 1: Constitutional Validity of Section 16(4) of the CGST Act
The petitioner, a proprietorship firm, challenged the constitutional validity of Section 16(4) of the CGST Act, arguing that it violates Articles 14, 19(1)(g), and 300A of the Constitution. The petitioner contended that Section 16(4) is merely procedural and cannot override the substantive conditions under Sections 16(1) and 16(2). The petitioner also sought to quash the show cause notice dated 20-5-2022.

Issue 2: Violation of Articles 14, 19(1)(g), and 300A
The court examined whether Section 16(4) violates Articles 14, 19(1)(g), and 300A of the Constitution. The Union of India argued that the provision is constitutionally valid and that input tax credit (ITC) is a concession, not a vested right. The court held that ITC is a benefit or concession extended under the statutory scheme and can only be availed as per the conditions laid down in the statute. Therefore, Section 16(4) does not violate Article 14.

Regarding Article 19(1)(g), the court noted that the petitioner, being a proprietorship firm, cannot claim protection under this Article as it is not a citizen. The court cited precedents to establish that only citizens can invoke Article 19 rights. Consequently, the ground under Article 19(1)(g) is not available to the petitioner.

On the issue of Article 300A, the court held that the right to property cannot be taken away except in accordance with the law. Since Section 16(4) is a valid statutory provision, it does not violate Article 300A.

Issue 3: Procedural vs. Substantive Conditions
The petitioner argued that Section 16(4) is procedural and cannot override the substantive conditions under Sections 16(1) and 16(2). The court found that Section 16(4) imposes a time limit for claiming ITC, which is a condition for availing the benefit. The court held that the provision is an integral part of the statute and must be complied with to claim ITC.

Issue 4: Maintainability of the Writ Petition
The Union of India argued that the writ petition is premature as the show cause notice has not been adjudicated. The court agreed, stating that the petitioner has the option to file an appeal before the appellate authority as per the CGST Act. The court declined to entertain the writ petition and directed the petitioner to pursue the show cause notice issued on 20-5-2022.

Conclusion
The court concluded that Section 16(4) of the CGST Act is constitutionally valid and does not violate Articles 14, 19(1)(g), or 300A of the Constitution. The petitioner's challenge to the provision was dismissed, and the petitioner was advised to pursue the show cause notice through appropriate legal channels.