Court strikes down unconstitutional CGST Act provision; petitions allowed

The court found that clause (iv) of subsection (3) of section 140 of the CGST Act was unconstitutional as it imposed a retrospective burden without justification. The provision was struck down, and the petitions were allowed. The judgment was stayed until 31.10.2018 at the request of the Revenue counsel.

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Issues Involved:
1. Whether the impugned provision makes an impermissible distinction between similarly situated persons forming a homogeneous class.
2. Whether the provision in question without proper justification takes away the vested right of the petitioners and thus acts with retrospective effect.
3. Whether clause (iv) of subsection (3) of section 140 of the CGST Act is required to be declared unconstitutional.

Issue-wise Detailed Analysis:

1. Impermissible Distinction Between Similarly Situated Persons:
The petitioners argued that under the old regime, first stage dealers were treated similarly to manufacturers concerning excise duty credit. The new regime under the CGST Act, specifically clause (iv) of subsection (3) of section 140, imposes a condition that invoices or documents must not be older than twelve months preceding the appointed day, which disadvantages first stage dealers compared to manufacturers. The respondents contended that the classification was reasonable, emphasizing the necessity for physical identification of goods and administrative convenience. The court noted that while reasonable classification is permissible, the classification must have a rational relation to the object sought to be achieved, which was not sufficiently demonstrated by the respondents.

2. Retrospective Effect and Vested Rights:
The petitioners contended that the new provision acts retrospectively, taking away vested rights without justification. They cited several judgments, including Eicher Motors Ltd. v. Union of India, asserting that CENVAT credit is akin to a duty paid and cannot be withdrawn retrospectively. The respondents argued that the legislature has the competence to impose conditions on CENVAT credit and that the provision was not unduly oppressive. The court observed that the right to pass on the credit of excise duty paid on goods was a vested right under the old regime. The new provision, by imposing a twelve-month limit retrospectively, takes away this right without a reasonable basis, which is unjustified.

3. Constitutionality of Clause (iv) of Subsection (3) of Section 140:
The court examined the statutory provisions and the principles of judicial review concerning legislative competence and violation of fundamental rights. It referenced several judgments, including Budhan Choudhry v. State of Bihar and Shayra Bano v. Union of India, highlighting that a statute can be struck down if it is manifestly arbitrary. The court concluded that clause (iv) of subsection (3) of section 140 imposes a retrospective burden without any rational or reasonable basis. The reasons cited for the restriction, such as administrative convenience and preventing undue advantage, were not convincing, especially since no such restriction existed under the old regime.

Conclusion:
The court held that clause (iv) of subsection (3) of section 140 of the CGST Act is unconstitutional as it imposes a retrospective burden without justification. The provision was struck down, and the petitions were allowed. The judgment was stayed until 31.10.2018 at the request of the Revenue counsel.

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