Constitutional Validity upheld for TOLA which Extends Income Tax Reassessment Time limit

[CA Bimal Jain]

The Hon’ble Supreme Court in the case UNION OF INDIA & ORS. VERSUS RAJEEV BANSAL - 2024 (10) TMI 264 - SUPREME COURT (LB) set aside the judgments of the various High Courts which held that the reassessment notices issued under Section 148 of the new regime under the Income Tax Act, 1961, which is in pursuance of the deemed notices, ought to be issued within the time limit surviving under the Income Tax Act, 1961 read with the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions Act) 2020.  

Background:

The Income Tax Department (“the Appellants") had filed an Appeal in the Hon’ble Supreme Court against the various orders passed by the High Courts including Rajeev Bansal with 721 orders (“the Respondent"). The present batch of appeals involves the interplay of three Parliamentary statutes:

1. The Income Tax Act, 1961 (“the Income Tax”):

The Income Tax Act was enacted to levy and collect tax on the income of assesses. Three Sections 147 to 151 of the Income Tax Act deal with the procedure of reassessment of income chargeable to tax which has escaped assessment. Under the old regime (pre-2021), Sections 147 to 151 governed the reassessment process:

• 1. Section 147 allowed the assessing officer to reopen an assessment if they had "reason to believe" that income had escaped assessment.
  2. Section 148 required the officer to issue a notice to the assessee to submit a return of income.
  3. Section 149 specified time limits for issuing notices under Section 148 for an assessment year:
• 4 years from the end of the relevant Assessment Year (“AY”).
• 4 years but not more than 6 years from the end of relevant AY if escaped income was Rs. 1 lakh or more.
• 4 years but not more than 16 years from the end of relevant AY for income related to foreign assets.
  4.  Section 151 required the assessing officer to obtain the sanction of the specified authority before issuing a notice under Section 148. The Joint Commissioner for notices within 4 years or the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner after expiry of 4 years before issuing a notice.
  5. Based on GKN DRIVESHAFTS (INDIA) LTD. VERSUS INCOME-TAX OFFICER AND OTHERS - 2002 (11) TMI 7 - SUPREME COURT  the assessee had to be provided reasons for reassessment and an opportunity for hearing before the reassessment notice was issued.

2. The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act 2020, (“TOLA”):

The TOLA was enacted in the backdrop of the COVID-19 pandemic to provide relaxation of time limits specified under the provisions of the Income Tax Act and certain other legislations as defined under Section 2(1)(b) of TOLA. On 24 March 2020, a 21-day nationwide lockdown was announced due to COVID-19. To address taxpayer difficulties, the President promulgated TOLA on 31 March 2020, extending time limits for compliance under various Acts, including the Income Tax Act, until 30 June 2020.

Section 2(1)(b) defines “specified Act” to mean and include the Income Tax Act. Section 3(1) of TOLA extended the time limit for completion or compliance of actions under the “specified Act”, which fell for completion or compliance during the period from 20 March 2020 and 31 December 2020, to 31 March 2021. Later, as per Section 3(1) of TOLA,  the Central Government issued multiple notifications extending the time limit for actions under the Income Tax Act:

• Notification No. 93/2020 dated December 31, 2020 extended to 30 March 2021.
• Notification No. 20/2021 dated March 31, 2021 extended to 30 April 2021.
• Notification No. 38/2021 dated April 27, 2021 extended to 30 June 2021.

The effect of TOLA and the notifications issued under the legislation was that:

1. if the time prescribed for passing of any order or issuance of any notice, sanction, or approval fell for completion or compliance from March 20, 2020 to March 31, 2021; and
2. if the completion or compliance of such action could not be made during the stipulated period, then the time limit for completion or compliance of such action was extended to June 30, 2021

3.  The Finance Act 2021 (“the Finance Act”):

The Finance Act overhauled the reassessment scheme under Sections 147 to 151 of the Income Tax Act (“the New Regime”), effective from April 01, 2021:

1. Section 148 mandates prior information and approval from the specified authority before initiating reassessment.
2. Section 148A requires:

1. conduct any enquiry, if required, with the prior approval of the specified authority;
2. provide an opportunity of hearing to the assessee by serving a show cause notice with the prior approval of the specified authority;
3. consider the reply furnished by the assessee in response to the show cause notice; and
4. decide on the basis of available material, including the reply of the assessee, whether or not it is a fit case to issue a notice under Section 148 by passing an order.

3.  Section 149 reduced the time limit for reopening assessments to 3 years. Reopening is allowed up to 10 years if escaped income is Rs. 50 lakh or more. No reassessment notice can be issued if it is time-barred under the old regime.
4. Section 151 specifies the authorities for Section 148 and 148A.

Notices issued under the old regime between April 01, 2021 and June 30, 2021 were quashed by High Courts as the new regime applied. In UNION OF INDIA & ORS. VERSUS VERSUS ASHISH AGARWAL - 2022 (5) TMI 240 - SUPREME COURT the Court deemed the old regime notices to be under Section 148A(b) of the New Regime, allowing reassessment to proceed. The CBDT Instruction dated May 11, 2022 clarified that this decision applies to all extended reassessment notices. Several High Courts, however, invalidated notices as time-barred or issued without proper sanction.

Issues:

a. Whether TOLA and notifications issued under it will also apply to reassessment notices issued after 1 April 2021; and

b. Whether the reassessment notices issued under Section 148 of the New Regime between July and September 2022 are valid.

Contention of the Appellant:

1. TOLA as Relief Legislation: Parliament enacted TOLA to provide relief during COVID-19 by extending deadlines under the Income Tax Act for actions or proceedings that could not be completed within original time limits.
2. Benefits of Section 149: The New Regime under Section 149 offers three key advantages to taxpayers:

1. The time limit for reassessment is reduced from four years to three years;
2. Reassessment for past years cannot extend beyond six years;
3. A monetary threshold of Rs. 50 lakhs applies to reassessments for prior years.

3. Override of Time Limits by TOLA: Section 3(1) of TOLA overrides the time limits set by Sections 148 and 149 of the Income Tax Act for issuing reassessment notices.
4. TOLA’s Scope: TOLA provides a relaxation in time limits but does not extend the applicability of the old reassessment regime.
5. Interaction with the Finance Act: The Finance Act replaced the old reassessment regime. The first proviso to Section 149 does not bar TOLA’s application, and Section 3 of TOLA applies to the entire Income Tax Act, including the new regime.
6. Revenue Concession: For AY 2015-16, all notices issued on or after April 1, 2021 will be dropped as they fall outside the prescribed period under TOLA.
7. TOLA’s Continued Application: Section 2 of TOLA defines the “specified Act” to include the Income Tax Act, thus continuing TOLA's application to the new regime post April 01, 2021.
8. Ashish Agarwal Case: The Supreme Court in Union of India v. Ashish Agarwal (supra) deemed reassessment notices issued between April 1, 2021 and June 30, 2021 under the old regime to be issued under Section 148A(b) of the new regime, balancing the interests of both the Revenue and taxpayers.

Contention of the Respondent:

1. TOLA's Limited Scope: TOLA only applies to time limits expiring between March 20, 2020 and March 31, 2021. After the Finance Act, the New Regime governs reassessments.
2. TOLA's Non-Amendment of Old Section 149: TOLA did not amend the old Section 149 but extended its time limits. The first proviso to Section 149(1)(b) refers to the previous regime.
3. Notification No. 38/2021 dated April 27, 2021: Issued after the New Regime came into force, it cannot be applied to the old regime.
4. Categorization of Notices:

1. For AYs 2013-2014 and 2014-2015, notices are time-barred.
2. For AY 2015-16, notices were issued without appropriate sanctions.
3. For AYs 2016-2017 and 2017-2018, notices issued after April 01, 2021 lacked proper sanctions.
4. Ashish Agarwal did not apply to taxpayers who did not challenge the notices.
5. Limitation in New Regime: Even if TOLA applies, the July-September 2022 notices are beyond the extended time limits.
6. Article 142 Directions: The Ashish Agarwal decision should not negate statutory time limits under Section 149.
7. TOLA’s Non-Application to Section 151: TOLA applies only to time limits, not to sanctions under Section 151, which prescribes no time limits.

Legal Background:

1. Assessment as a quasi-judicial function:

The power to levy taxes is plenary, it is subject to constitutional limitations, primarily under Article 265, which mandates that no tax shall be levied or collected except by authority of law.

“Levy” in taxation includes both the imposition of tax and its assessment, while “collection” refers to the recovery of tax. The legislature holds the competence to decide the quantum of tax, the conditions of its levy, and the recovery procedure. The process of assessment includes determining the taxpayer's income, computing the tax, and the procedure for collecting it. An assessing officer, in performing these functions, must act in the public interest to prevent tax evasion.

In PROVINCE OF BOMBAY VERSUS KHUSHALDAS S. ADVANI - 1950 (9) TMI 15 - SUPREME COURT, the Supreme Court recognized that when a statutory authority’s actions can prejudicially affect a subject, the authority must act judicially, making the assessment process quasi-judicial. An assessment order, once finalized, creates vested rights for the assessee. Reassessment, defined under Section 2(8) of the Income Tax Act, is a fresh assessment that vacates the original assessment order and substitutes it with a new one. As reassessment prejudicially affects vested rights, it is considered quasi-judicial, as explained in COMMISSIONER OF INCOME-TAX, WEST BENGAL I VERSUS SIMON CARVES LIMITED - 1976 (8) TMI 4 - SUPREME COURT.

Before reassessment, administrative procedures are followed, including obtaining sanctions from specified authorities. Tax statutes outline the procedure for issuing notices, hearing objections, and determining tax liabilities, ensuring that the process is regulated by law.

2. Assessment as an issue of jurisdiction:

Jurisdiction refers to the power of a court, tribunal, or authority to hear and decide a case. Revenue officers must have jurisdiction under the Income Tax Act to perform their duties. Under the Income Tax Act of 1922, Section 34 allowed officers to reassess income that had escaped assessment, but only within specific time limits. Failure to issue a notice within these limits invalidated the reassessment.

In AHMEDABAD MFG. AND CALICO PRINTING CO. LTD. VERSUS SG. MEHTA, ITO - 1962 (11) TMI 48 - SUPREME COURT, the Supreme Court held that once the assessment period expires, the department cannot reopen assessments unless the law provides clear authority. The Court emphasized that the expiry of a time limit does not absolve the taxpayer of liability, but the tax is unenforceable unless the statute provides for a new power to reopen the assessment.

In SS. GADGIL VERSUS LAL AND COMPANY - 1964 (4) TMI 19 - SUPREME COURT, the Court held that the time limit under Section 34 is not a period of limitation but a statutory bar on the power of the Income Tax Officer. Consequently, reassessment notices issued after the expiry of the time limit were invalid. Assessments that have become final due to time bars cannot be reopened unless the statute has retrospective effect.

The Income Tax Act of 1961 also requires assessing officers to comply with preconditions before issuing reassessment notices. Section 149 sets time limits, and Section 151 requires approval from the specified authority. Failure to comply with these conditions, as held in CHHUGAMAL RAJPAL VERSUS SP CHALIHA AND OTHERS - 1971 (1) TMI 9 - SUPREME COURT, renders any notice or reassessment invalid, as the conditions are crucial safeguards. An order passed without jurisdiction is a nullity, and any subsequent actions are also invalid.

3. Principles of strict interpretation and workability:

The dominant principle in interpreting taxing statutes is to determine the legislature’s intent. Tax laws are interpreted strictly, meaning the language of the statute must be construed based on its plain meaning, without considering equity or fairness. If the language is clear, the courts cannot add or infer anything to fill perceived gaps.

When the statute is ambiguous, the interpretation most favorable to the taxpayer should be adopted. The charging provisions of a tax statute, which impose the liability, are to be construed strictly. However, the machinery provisions, which govern the process of assessment and collection, are interpreted to ensure they effectively fulfill the statute’s purpose. In BIRLA CEMENT WORKS & JK. SYNTHETICS LTD. VERSUS COMMERCIAL TAXES OFFICER AND STATE OF RAJASTHAN - 1994 (5) TMI 233 - SUPREME COURT, the Court emphasized that while the charging sections must be strictly construed, the machinery provisions should be interpreted to make the system workable and serve the legislative intent.

In COMMISSIONER OF INCOME-TAX VERSUS SUN ENGINEERING WORKS PVT. LIMITED - 1992 (9) TMI 1 - SUPREME COURT, the Court noted that Section 147 of the Income Tax Act, dealing with reassessment, is intended for the benefit of the Revenue and should not be used by the assessee as a means for review or revision, which would undermine the statute’s purpose.

4. Principle of harmonious construction:

The principle of harmonious construction requires courts to interpret conflicting provisions of the same or different statutes in a way that reconciles them and gives effect to both. A provision should not be rendered ineffective or redundant. When a non obstante clause is included in a statute, it gives overriding effect to that provision over conflicting provisions, but only to the extent intended by the legislature.

Implied repeal occurs when a later statute is inconsistent or repugnant to an earlier one, making it impossible to apply both simultaneously. However, courts should not easily presume repeal unless the provisions are clearly incompatible. The legislature is presumed to be aware of existing laws, and implied repeal is avoided unless there is a manifest intention to replace the earlier statute. The key test is whether the two laws can be reasonably reconciled and applied together.

If the legislature's intent is clear, the later law prevails only if it conflicts directly with the earlier law and cannot be harmonized.

Reading TOLA into the Income Tax Act:

1. First proviso to Section 149(1) of the new regime:

The proviso under Section 149(1)(b) of the new regime outlines essential criteria for issuing reassessment notices under Section 148 of the Income Tax Act:

1. Time Limit for Assessment Years: Notices cannot be issued for assessment years beginning on or before April 1, 2021, unless the prior time limits under Section 149(1)(b) of the old regime still apply.
2. Old Regime Time Limits: The old regime provided a four-year limit for assessments, extendable to six years if the escaped income exceeded Rupees one lakh. After April 1, 2021, the limit was reduced to three years for all situations, making reassessment notices under the new regime applicable only if the three-year window has not expired.
3. Prospective Application: The new ten-year limit only applies prospectively. For example, for assessment years prior to 2021, if the notice is issued after April 1, 2021, the three-year limit will govern.
4. Monetary Threshold: The new regime increases the monetary threshold for reassessment from Rupees one lakh to Rupees fifty lakhs. Thus, reassessment notices can only be issued post-three years if the income escaped exceeds Rupees fifty lakhs.
5. Legislative Intent: Courts must give full effect to the legislative intent to permit reassessment unless explicitly restricted. Any notices issued under the old regime's six-year limit must be dropped if the escaped income is less than Rupees fifty lakhs.

The revised framework under Section 149(1)(b) applies retrospectively, modifies the time limits for reassessment, and introduces a higher monetary threshold, benefiting assesses by protecting against retrospective reassessment for lesser amounts.

2. TOLA can extend the time limit till 31 June 2021:

1. Proviso to Section 149(1)(b): The proviso explicitly refers to time limits under the old regime (prior to the Finance Act) for the issuance of reassessment notices, which are integral to interpreting the amendments made.
2. The Constitution Bench in SHAMARAO V. PARULEKAR VERSUS THE DISTRICT MAGISTRATE, THANA, BAMBAY AND 2 OTHERS  - 1952 (5) TMI 12 - SUPREME COURT Thana established that when a statute is amended, the amendment must be read as incorporating the new provisions into the existing law. This principle emphasizes that the legislation post-amendment must be interpreted as if the old words were replaced by the new provisions.
3. The process of substitution involves repealing existing provisions and replacing them with new ones. After such substitution, references to the law must be interpreted as including the new amendments.
4. Amendments can be made retrospective if explicitly stated or if such intent can be inferred. In SHYAM SUNDER AND OTHERS VERSUS RAM KUMAR - 2001 (7) TMI 1243 - SUPREME COURT, the court highlighted that legislative changes can affect vested rights only if made retrospectively.
5. TOLA aims to relax time limits for compliance with actions prescribed under specified Acts, including the Income Tax Act, particularly due to the disruptions caused by the COVID-19 pandemic. Section 3(1) provides for extending deadlines for actions due from 20 March 2020 to 31 March 2021, interpreted to include all actions falling within this time frame.
6. After the substitution of provisions under the Income Tax Act by the Finance Act 2021, references to the Income Tax Act must be interpreted to include these amendments. TOLA remains applicable for actions due during the stipulated period, extending compliance deadlines, including reassessment notices under Section 148.
7. The non-obstante clause in Section 3(1) of TOLA operates to override conflicting provisions in the Income Tax Act but does not extend the statutory time limits laid out in Section 149. Instead, it provides additional time for compliance where deadlines would otherwise lapse due to pandemic-related delays.
8. For reassessment notices issued after April 01, 2021, the Revenue must consider both the new time limits under Section 149 and the extensions allowed by TOLA. This interpretation facilitates compliance with legislative intent and accommodates the operational challenges posed by the pandemic.

The interplay between the amendments introduced by the Finance Act and the provision of TOLA illustrates the legislature's effort to provide flexibility and relief during unprecedented circumstances while maintaining the integrity of the Income Tax Act's framework. The principles established in judicial precedents provide a clear basis for interpreting these legislative changes, ensuring that the application of tax laws remains equitable and aligned with the statutory framework.

3. Sanction of the specified authority:

Section 151 serves as a procedural safeguard by requiring the Revenue to obtain sanction from a specified authority before issuing reassessment notices under Section 148. This measure aims to prevent arbitrary or mechanical reopening of assessments and protects taxpayers from unnecessary harassment.

Regime	Time limits	Specified Authority
Section 151(2) of the old regime	Before expiry of four years from the end of the relevant assessment year	Joint Commissioner
Section 151(1) of the old regime	After expiry of four years from the end of the relevant assessment year	Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner
Section 151(i) of the new regime	Three years or less than three years from the end of the relevant assessment year	Principal Commissioner or Principal Director or Commissioner or Director
Section 151(ii) of the new regime	More than three years have elapsed from the end of the relevant assessment year	Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General

The table illustrates that the specified authority for granting sanction under Section 151 is linked to the time of issuing a notice, as follows:

• Old Regime:

(i) If the income escaping assessment was less than Rs. 1 lakh:

(a) Notice could be issued within four years with Joint Commissioner approval;

(b) No notice after four years.

(ii) If the income escaping assessment exceeded Rs. 1 lakh:

(a) Notice could be issued within four years with Joint Commissioner approval;

(b) After four years, but within six years, with approval from the Principal Chief Commissioner or Commissioner.

• New Regime (from April 01, 2021):

(i) For income escaping assessment below Rs. 50 lakhs:

(a) Notice can be issued within three years with prior approval of the Principal Commissioner or equivalent;

(b) No notice after three years.

(ii) For income escaping assessment above Rs. 50 lakhs:

(a) Notice can be issued within three years with prior approval of the Principal Commissioner or equivalent;

(b) After three years, approval must be obtained from the Principal Chief Commissioner or equivalent.

The grant of sanction by the appropriate authority is a precondition for the Assessing Officer's jurisdiction to issue a reassessment notice under Section 148. The new regime prescribes a higher level of authority when more than three years have elapsed, ensuring compliance with time limits for reassessment.

TOLA extends these time limits due to COVID-19, allowing the specified authorities under both regimes additional time to grant sanctions. For example, under the new regime, the time limit for AY 2017-18 expired on March 31, 2021, but TOLA extends the deadline for granting approval to June 30, 2021.

The Finance Act 2021 introduced additional requirements for obtaining sanctions at various stages under Section 148A. In Ashish Agarwal (supra), the Court allowed Section 148 notices from the old regime to be treated as notices under Section 148A(b), waiving certain procedural requirements but maintaining the need for sanction under Section 151 before issuing reassessment orders under the new regime.

4. Section 148 notices issued in June-September 2022

Article 142 of the Constitution grants the Supreme Court the authority to pass any decree or order necessary to do complete justice in any matter pending before it. This discretionary power is broad, allowing the Court to go beyond strict legal provisions to deliver justice, provided it remains consistent with constitutional principles and statutory law.

In Union of India v. Ashish Agarwal (supra), the Supreme Court addressed the validity of reassessment notices issued between April 01, 2021 and June 30, 2021 under the old Income Tax regime. The Court deemed these notices as show cause notices under the new Section 148A(b) of the Income Tax Act to balance the rights of both the taxpayers and the Revenue, which had issued approximately 90,000 such notices. The Court's decision applied PAN India, ensuring uniformity in addressing reassessment proceedings.

The legal fiction created in Ashish Agarwal allowed the reassessment process initiated under the old regime to continue under the new regime, without invalidating the notices already issued. This legal fiction was designed to prevent the need for restarting reassessment procedures, thus maintaining the continuity of the Revenue's actions while ensuring fairness to the assessees.

Under Section 148A(b), the Assessing Officer (“AO”) must issue a show-cause notice and supply all relevant material forming the basis of such notice to the assessee. Failure to provide this material renders the notice incomplete. In Ashish Agarwal, the Supreme Court recognized that AOs were effectively prevented from proceeding with reassessments until relevant material was supplied to the assessee, staying the proceedings from April 1, 2021, to May 4, 2022. The Court directed AOs to furnish this material within 30 days, with the time for assessee’s response also being excluded from the computation of the limitation period.

In interpreting the legal fiction created in Ashish Agarwal, the Court emphasized that the time from the issuance of the deemed notice until the provision of relevant material, plus two weeks for the assessee’s response, must be excluded from the period of limitation under the third proviso to Section 149. The clock for the AO to issue reassessment notices only begins after receiving the assessee’s response, and the AO must complete proceedings within the time remaining under TOLA.

For notices issued between April 1, 2021, and June 30, 2021, under the old regime, the time surviving after June 30, 2021, is carried forward under the new regime, allowing AOs to issue reassessment notices under Section 148. However, if reassessment notices are issued after the surviving time limit expires, they are time-barred and invalid. Thus, reassessment notices must comply with the time limits under Section 149 and prior approval under Section 151 to be valid.

Conclusion:

In view of the above discussion, the Supreme Court has concluded that:

1. After April 01, 2021, the Income Tax Act has to be read along with the substituted provisions;
2. TOLA will continue to apply to the Income Tax Act after April 01, 2021 if any action or proceeding specified under the substituted provisions of the Income Tax Act falls for completion between March 20, 2020 and March 31, 2021;
3. Section 3(1) of TOLA overrides Section 149 of the Income Tax Act only to the extent of relaxing the time limit for issuance of a reassessment notice under Section 148;
4. TOLA will extend the time limit for the grant of sanction by the authority specified under Section 151. The test to determine whether TOLA will apply to Section 151 of the new regime is this: if the time limit of three years from the end of an assessment year falls between March 20, 2020 and March 31, 2021, then the specified authority under Section 151(i) has extended time till June 30, 2021 to grant approval;
5. In the case of Section 151 of the old regime, the test is: if the time limit of four years from the end of an assessment year falls between March 20, 2020 and March 31, 2021, then the specified authority under Section 151(2) has extended time till 31 March 2021 to grant approval;
6. The directions in Ashish Agarwal (supra) will extend to all the ninety thousand reassessment notices issued under the old regime during the period April 01, 2021 and June 30, 2021;
7. The time during which the show cause notices were deemed to be stayed is from the date of issuance of the deemed notice between April 01, 2021 and June 30, 2021 till the supply of relevant information and material by the assessing officers to the assesses in terms of the directions issued by this Court in Ashish Agarwal (supra), and the period of two weeks allowed to the assesses to respond to the show cause notices; and
8. The AO were required to issue the reassessment notice under Section 148 of the new regime within the time limit surviving under the Income Tax Act read with TOLA. All notices issued beyond the surviving period are time barred and liable to be set aside;
9. The judgments of the High Courts rendered in RAJEEV BANSAL VERSUS UNION OF INDIA AND 3 OTHERS - 2023 (2) TMI 1081 - ALLAHABAD HIGH COURT, and other judgments of the High Courts which relied on these judgments, are set aside to the extent of the observations made in this judgment.
10. The appeals filed by the Appellant are accordingly allowed. The appeals filed by the Respondent will be governed by reasons discussed in this judgment. The transfer petitions are disposed of. Pending application(s), if any, stand disposed of.

Our Comment:

In Goods and Services Tax, on account of the outbreak of the COVID-19 pandemic and the difficulties faced by the assessee as well as the GST Authorities, TOLA was enacted on September 29, 2020. By TOLA, Section 168A was inserted into the Central Goods and Services Tax Act, 2017 (“the CGST Act”). Section 168A starts with a non-obstinate clause, thereby empowering the Government to issue a notification extending the time limit specified in or prescribed or notified in the CGST Act in respect of actions which cannot be completed or complied with due to force majeure. Further, it empowers the Government to issue a notification which includes the power to give retrospective effect from a date not earlier than the date of commencement of the Act.

Thereafter, the Central Board of Indirect Taxes and Customs (“the CBIC”) had issued multiple relaxation notifications for extending the time limit specified for issuance of the order under Section 73(10) of the CGST Act and for computation of the period of limitation for filing refund application under Section 54 and 55 of the CGST Act for the assessee.

Notification No. 13/2022-Central Tax dated July 05, 2022 has duly amended  Notification No. 35/2020-Central Tax, dated April 03, 2020, and Notification No. 14/2021-Central Tax, dated May 01, 2021, which was issued by the CBIC excluding the period from March 01, 2020, to February 28, 2022, for computing the time limit and came into effect from March 01, 2020.

The following High Courts upheld the legislative measures taken in response to the COVID-19 pandemic under Section 168A of the CGST Act, validating the extensions of limitation periods for FY 2017-18.

The Allahabad High Court in M/S GRAZIANO TRASMISSIONI, MS MJ CORPORATION, MS RKI INDIA LIMITED AND ANOTHER, U.P. CERAMICS POTTERIES PVT LTD, M/S SAVI INTERIORS AND ANOTHER, DEVENDRA PRATAP SINGH, ATUL TYRE HOUSE, M/D NEW MANISH SURGICAL K 61/115 SAPTSAGAR, M/S HAJI NABI BAKASH MOHD SALEEM, CIVIL LINES E.K. ROAD MEERUT, MEERUT UTTAR PRADESH, M/S VINOD KUMAR RAI, MS LG ELECTRONIC INDIA PVT LTD, M/S YUVAAN ENTERPRISES, M/S TARA PRODUCTS AND SERVICES PRIVATE LIMITED, M/S VDS CONTRACTOR, M/S MANI ELECTRICALS, M/S NEPTUNE SUPPLIERS PRIVATE LIMITED AND M/S SUBHASH INFRAENGINEERS PVT. LTD. VERSUS GOODS AND SERVICES TAX AND 5 OTHERS, GOODS AND SERVICE TAX COUNCIL AND 4 OTHERS, UNION OF INDIA AND 3 OTHERS AND STATE OF UP AND 2 OTHERS - 2024 (6) TMI 233 - ALLAHABAD HIGH COURT ignited this issue with its detailed order and noted that the issuance of the time extension notification under sec 168A was not an administrative action but a legislative function. The Court also noted that the spread of pandemic Covid-19 (i.e., force majeure), remained constant during the period March 15,2020 to February 28,2022. Therefore, it was observed that the first condition of the existence of circumstances for the exercise of the said power described as conditional legislation, stood fulfilled. Thus, the Court dismissed the writ petition and held that the power to issue notification extending the time limit for adjudication existed and no excessive extension of time was granted.

Similarly, Kerala High Court in FAIZAL TRADERS PVT. LTD., VERSUS DEPUTY COMMISSIONER, CENTRAL TAX AND CENTRAL EXCISE, PALAKKAD, CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS, NEW DELHI - 2024 (5) TMI 1183 - KERALA HIGH COURT wherein this Court upheld the notifications by holding that it’s executive power to  extend the period of limitation to COVID-19 for issuance of show cause notice by invoking the powers under sec 168A of the CGST Act.

Per Contra, the Hon’ble Gauhati High Court has passed an order stating that Notification No. 56/2023-Central Tax dated December 28, 2023, ultra vires Section 168A for extending timeline for passing GST Order for FY 2018-19 and 2019-20 The Hon’ble Gauhati High Court (High Court of Assam, Nagaland, Mizoram and Arunachal Pradesh) in M/S. BARKATAKI PRINT AND MEDIA SERVICES, DHRUBAJYOTI BARKOTOKY AND OTHERS VERSUS UNION OF INDIA AND 4 ORS., THE CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS, THE GOODS AND SERVICES TAX COUNCIL, THE PRINCIPAL COMMISSIONER STATE TAX, THE ASSISTANT COMMISSIONER STATE TAX AND OTHERS - 2024 (9) TMI 1398 - GAUHATI HIGH COURT held that the Notification No. 56/2023-Central Tax dated December 28, 2023 is ultra vires the provisions of Section 168A of the CGST Act as well as there being no notification issued by the State Government in conformity with Section 168A of the Assam Goods and Services Act, 2017 and is not legally sustainable in law. Accordingly, the same is set aside and quashed.

Further, various High Courts have granted stay for matters whereby the assessee has challenged Section 168A.

Now, it is noteworthy to refer the decision of the Hon’ble Supreme Court, which upheld the constitutional validity of TOLA in the context of issuing Income Tax notices. This ruling may have consequential implications for GST notices, as the provisions of TOLA, particularly Section 2(1)(b), define “specified Act” to encompass the Income Tax Act but does not include the GST Act. The relevant text of Section 2(1)(b) of TOLA, 2020 is reproduced below:

2. (1) In this Act, unless the context otherwise requires,—

(a) "notification" means the notification published in the Official Gazette; 

(b) "specified Act" means—

(i) the Wealth-tax Act, 1957;

(ii) the Income-tax Act, 1961;

(iii) the Prohibition of Benami Property Transactions Act, 1988;

(iv) Chapter VII of the Finance (No. 2) Act, 2004;

(v) Chapter VII of the Finance Act, 2013;

(vi) the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015;

(vii) Chapter VIII of the Finance Act, 2016; or

(viii) the Direct Tax Vivad se Vishwas Act, 2020.

Thus, it will be of significant interest to observe the outcomes of the pending cases across various High Courts that have challenged the legitimacy of Section 168A concerning the numerous extensions granted under the GST framework.

(Author can be reached at [email protected])