2023 (9) TMI 902 - HC - GST

Section 16(4) of CGST Act Upheld: Denial of ITC for Late Filing Is Lawful and Constitutional

The HC upheld the constitutional validity of Section 16(4) of the CGST/BGST Act, ruling that denial of ITC for delayed return filing is lawful and not ... Constitutional validity of Section 16(4) of the CGST/BGST Act - entitlement to input tax credit as a condition precedent - Article 300A - right to property - Article 19(1)(g) - freedom of trade and profession - doctrine of reading down - statutory concession subject to prescribed conditionsConstitutional validity of Section 16(4) of the CGST/BGST Act - entitlement to input tax credit as a condition precedent - Article 300A - right to property - Article 19(1)(g) - freedom of trade and profession - doctrine of reading down - statutory concession subject to prescribed conditions - Section 16(4) of the CGST/BGST Act is constitutionally valid and not violative of Articles 19(1)(g) or 300A (and related challenges under Article 14/13 are rejected). - HELD THAT: - The Court held that the language of Section 16(4) is plain and unambiguous and forms one of the conditions which a registered person must satisfy to become entitled to take input tax credit under Section 16(1). The entitlement to ITC under Section 16(1) is subject to conditions and restrictions prescribed by the enactment, and subsection (4) is a mandatory condition precedent rather than a mere procedural formality. The jurisprudential principle that concessions granted by statute are to be availed strictly in accordance with statutory scheme was applied. The Court found no necessity or reason to read down subsection (4); the doctrine of reading down is available only where a provision is ambiguous or another interpretation would save constitutionality. Reliance on precedents upholding similar statutory cut-off conditions for claiming input tax credit supported the conclusion that fiscal legislation uniformly applied cannot be struck down as violative of Article 19(1)(g). On Article 300A, the Court concluded that the right to ITC does not vest independent of compliance with statutory conditions; deprivation under subsection (4) therefore occurs in accordance with law and is not an unconstitutional taking of property. Consequently, challenges based on arbitrariness, confiscation, double taxation or absence of rationale for a cut-off date were rejected as unsustainable. [Paras 28, 29, 31, 37, 38]Sub-section (4) of Section 16 of the CGST/BGST Act is constitutionally valid; the writ petitions are dismissed.Final Conclusion: The batch of writ petitions challenging Section 16(4) of the CGST/BGST Act was dismissed; the Court upheld subsection (4) as a mandatory condition for availing input tax credit and found it not violative of Articles 19(1)(g), 14 or 300A. There shall be no order as to costs. Issues Involved:1. Constitutional Validity of Section 16(4) of the CGST/BGST Act2. Procedural vs. Substantive Conditions for Availing ITC3. Validity of GSTR-3B as a Return under Section 39(1) of the CGST ActSummary:1. Constitutional Validity of Section 16(4) of the CGST/BGST Act:The petitioners challenged the constitutional validity of Section 16(4) of the CGST/BGST Act, arguing that it denies entitlement of Input Tax Credit (ITC) after the due date of furnishing returns, which is violative of Articles 14 and 300A of the Constitution of India. They contended that ITC is a vested right under Article 300A and cannot be taken away due to late filing of returns. The court found that Section 16(4) of the CGST/BGST Act is clear and unambiguous, stipulating that a registered person cannot avail ITC after the due date. The court held that ITC is not an unconditional right but subject to conditions and restrictions under the Act. The court concluded that Section 16(4) is constitutionally valid and not violative of Articles 19(1)(g) and 300A of the Constitution.2. Procedural vs. Substantive Conditions for Availing ITC:The petitioners argued that the conditions prescribed in Section 16(4) are merely procedural and cannot override the substantive conditions for availing ITC under Sections 16(1) and 16(2). They claimed that the non-obstante clause in Section 16(2) should prevail over Section 16(4). The court held that the language of Section 16 is clear, and the conditions under Section 16(4) are mandatory for availing ITC. The court rejected the argument that Section 16(4) should be read down, stating that there is no ambiguity in the provision that would necessitate such an interpretation.3. Validity of GSTR-3B as a Return under Section 39(1) of the CGST Act:The petitioners sought a declaration that GSTR-3B cannot be treated as a return prescribed under Section 39(1) of the CGST Act, arguing that it does not satisfy the parameters of a return contemplated under Section 39(1). They also challenged Rule 61(5) of the CGST Rules, which prescribes Form GSTR-3B as a return under Section 39(1), as ultra vires. The court did not find merit in this argument, stating that the statutory scheme under Section 16 of the CGST/BGST Act with the restriction under sub-section (4) has uniform application and is not arbitrary.Conclusion:The court dismissed the writ applications, upholding the constitutional validity of Section 16(4) of the CGST/BGST Act and confirming that the conditions for availing ITC under this section are mandatory and not merely procedural. The court also rejected the challenge to the validity of GSTR-3B as a return under Section 39(1) of the CGST Act.