2024 (11) TMI 1332 - HC - GST

Imposition of time limit for claiming ITC under Section 16(4) of the CGST Act - violation of Article 14 of the Constitution of India - doctrine of legitimate exception - HELD THAT - As per Section 16(4) of the Act, the assessee or 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 the due date of furnishing of the return under Section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier - The provision of Section 16(4) of the CGST Act which restricts the claim of ITC only on the ground that a return is filed after the date prescribed is arbitrary as well as the tax payer who is claiming the ITC has already made the payment of tax to the supplier from whom the foods and services has been received. The payments include both cost of service or goods and the amount of Tax, thus the taxpayer cannot be deprived from his right to claim ITC. The GST laws do not have any provision and scope for filing a revised return, taxpayers are extremely cautious to file the monthly return for March and may like to wait for a longer time to reconcile the entries and ensure that there is no unnecessary mismatch between the GST returns and the financial records - Allowing a taxpayer to file returns with payment of late fees and then disallow him the ITC, because the return was filed belatedly, is punishing him twice for a single default so committed. Moreover, with the payment of late fee u/S 47 as well as payment of interest u/S 50, the treasury has been suitably compensated for the postponement of the tax. Payment of late fees and interest are already there as deterrent for the taxpayers forcing them to be disciplined. Under such circumstances, saddling with double payment of tax by way of Section 16(4) is arbitrary and capricious. Since, the Central Government by way of the Act of 2024 has proposed to amend Section 16 of the GST Act by introducing Section 118 of the Act of 2024, thereby jettisoning the condition of time limit, this Court is of the considered opinion that this batch of petitions deserves to be allowed without examining the constitutional validity of Section 16(4). Petition allowed.

Summary

Issues Involved:

1. Imposition of time limit for claiming Input Tax Credit (ITC) under Section 16(4) of the CGST Act.
2. Alleged violation of constitutional provisions due to Section 16(4).
3. Impact of retrospective amendment to Section 16 by the Finance Act, 2024.
4. Legitimacy of penalties imposed for late filing of GST returns.

Issue-wise Detailed Analysis:

1. Imposition of Time Limit for Claiming ITC Under Section 16(4) of the CGST Act:

The primary issue revolves around the imposition of a time limit for claiming Input Tax Credit (ITC) as stipulated in Section 16(4) of the CGST Act. The petitioner argued that the restriction imposed by Section 16(4) is arbitrary, as it disallows ITC claims due to procedural lapses, despite the taxpayer having fulfilled all other conditions for availing ITC as per Section 16(1) and 16(2). The court acknowledged that the existing regime under Section 16(4) restricts the claim of ITC if the return is filed after the prescribed date, which is deemed arbitrary since the taxpayer has already paid the tax to the supplier. The court noted that this provision could potentially override the scheme of the statute, making the non-obstante Section 16(2) meaningless.

2. Alleged Violation of Constitutional Provisions Due to Section 16(4):

The petitioner contended that Section 16(4) violates Articles 14, 19(1)(g), and 300A of the Constitution of India by imposing arbitrary restrictions on the right to avail ITC. The petitioner argued that the accrual of ITC is a right that arises as soon as goods or services are purchased for business purposes, and disallowing it due to procedural delays is unjust. The court considered these arguments and recognized that the imposition of a time limit through Section 16(4) could be seen as arbitrary and capricious, especially when the taxpayer has already compensated the treasury through late fees and interest payments.

3. Impact of Retrospective Amendment to Section 16 by the Finance Act, 2024:

The court took note of the retrospective amendment to Section 16 by the Finance Act, 2024, which introduced sub-sections (5) and (6) to address the issues surrounding the time limit for availing ITC. The amendment allows for ITC claims for specific financial years to be made up until November 30, 2021, and provides provisions for cases where registration is canceled and subsequently revoked. The court observed that this amendment effectively resolves the controversy by eliminating the time limit condition, thus rendering the petitions moot without needing to examine the constitutional validity of Section 16(4).

4. Legitimacy of Penalties Imposed for Late Filing of GST Returns:

The petitioner argued that the imposition of penalties for late filing of GST returns, alongside the disallowance of ITC, amounts to double punishment. The court acknowledged that taxpayers often pay late fees and interest as deterrents for delayed filings, and disallowing ITC on top of these penalties is excessive. The court found that the punitive measures, when combined with the disallowance of ITC, are disproportionate and unfair.

Conclusion:

In conclusion, the court allowed the batch of petitions, setting aside the show cause notices and assessment orders issued by the respondent. The court recognized the retrospective amendment to Section 16 by the Finance Act, 2024, as a resolution to the issues raised, thus obviating the need for a constitutional examination of Section 16(4). The court reserved the liberty for the State to take appropriate action in light of the amendment to the GST law. The petitions were disposed of accordingly.