2023 (11) TMI 1153 - HC - GST

Section 16(2)(c) CGST Act and Rule 36(4) upheld as constitutional for input tax credit requirements

Kerala HC dismissed appeals challenging constitutional validity of Section 16(2)(c) CGST Act and Rule 36(4) CGST Rules regarding input tax credit (ITC) ... Eligibility and conditions for taking input tax credit - input tax credit as a benefit or concession and not an absolute right - requirement of tax invoice and proof of receipt of goods or services - actual payment of tax to the Government as condition for credit - restriction under rule limiting credit for details not uploaded by supplier - burden on claimant to prove entitlement to input tax credit - constitutional challenge under Article 14 and the test of manifest arbitrarinessRequirement of tax invoice and proof of receipt of goods or services - burden on claimant to prove entitlement to input tax credit - Entitlement of the purchasing dealer to input tax credit where tax invoices were not produced and returns showed mismatch - HELD THAT: - The Court applied the statutory scheme that makes availability of input tax credit subject to specified conditions, including possession of the tax invoice and proof of receipt. The appellants failed to produce the tax invoices despite opportunities and did not appear for personal hearings. In view of the statutory burden on the dealer claiming credit to prove entitlement, the appellants did not discharge that burden. The assessment authority therefore validly denied the claim, levied interest, imposed penalty and commenced recovery; further, the appellants also resorted prematurely to the writ court without availing alternative appellate remedies. [Paras 8]Claim for input tax credit denied on facts for failure to produce invoices and failure to discharge the statutory burden; assessment order sustains.Restriction under rule limiting credit for details not uploaded by supplier - input tax credit as a benefit or concession and not an absolute right - constitutional challenge under Article 14 and the test of manifest arbitrariness - Validity of Section 16(2)(c) of the CGST Act and Rule 36(4) of the CGST Rules under Article 14 - HELD THAT: - The Court recognised that input tax credit is a statutory benefit which may be subject to conditions and restrictions. It held that prescribing conditions for availing the concession does not amount to prohibited discrimination. The challenge under Article 14 was assessed against the requirement of manifest arbitrariness; the Court found no such drastic unreasonableness, caprice or absence of an adequate determining principle in the impugned provisions. Accordingly, the provisions impugned were not declared unconstitutional. [Paras 9, 10]Section 16(2)(c) and Rule 36(4) upheld as constitutionally valid; Article 14 challenge rejected.Final Conclusion: Both appeals are dismissed. The impugned assessment orders denying input tax credit on the stated facts are sustained, and the constitutional challenge to the provisions permitting conditional denial of credit is rejected; appellants remain at liberty to pursue statutory appellate remedies. Issues involved:Entitlement of purchasing dealer to take credit of input tax under CGST Act; Constitutional challenge to Section 16(2)(c) of CGST Act and Rule 36(4) of CGST Rules.Entitlement to Input Tax Credit:The judgment addressed the entitlement of purchasing dealers to claim input tax credit under Section 16 of the Central Goods and Services Tax Act. It emphasized that input tax credit is a benefit granted under the statutory scheme and not an absolute right. The conditions for availing this benefit include possession of a valid tax invoice, proof of receipt of goods or services, and actual payment of tax to the Government. The judgment highlighted the importance of complying with these conditions to claim input tax credit.Challenges by Appellants:The appellants, engaged in businesses named M/s. N.S Metals and M/s. Light House, challenged the denial of input tax credit by the Assessing Authority based on discrepancies in their returns. They contested the constitutional validity of Section 16(2)(c) of the CGST Act and Rule 36(4) of the CGST Rules. The appellants argued that these provisions were discriminatory and arbitrary, violating Article 14 of the Constitution of India.Validity of Statutory Provisions:The judgment clarified that the provisions in question do not discriminate between purchasing and selling dealers. It emphasized that the conditions set forth for availing input tax credit are not arbitrary or unreasonable. The court highlighted that tax legislation should not be easily interfered with unless it is manifestly unjust or unconstitutional. The appellants' challenge to the constitutional validity of the provisions was deemed vague and lacking in concrete evidence of discrimination.Dismissal of Appeals:Ultimately, the High Court dismissed the appeals, upholding the impugned judgments. The court found no illegality or impropriety in the decisions, while also affirming the right of the appellants to challenge assessment orders through appropriate legal channels. The judgment emphasized the importance of following statutory provisions and fulfilling conditions for claiming input tax credit under the CGST Act.