Restriction on Input Tax Credit u/s 16(4) APGST/CGST upheld as constitutional; challenge dismissed, provisions operative

Whether Section 16(4) APGST/CGST (restricting Input Tax Credit) is constitutionally invalid under Articles 14, 19(1)(g) and 300A, and whether the non-obstante clause in Section 16(2) overrides Section 16(4). The court applied precedents (ALD Automotive; TVS Motor) recognizing legislative latitude in economic regulation and that ITC is a statutory concession subject to strict conditions and time limits; therefore restrictions are not arbitrary and must be strictly construed to prevent verification difficulties. Relying on a pari materia decision of a Division Bench of AP HC, the court rejected the constitutional challenge and held the statutory provisions operative. The writ and appeal were dismissed.

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Issues Involved:

1. Refusal to Grant Interim Orders
2. Challenge to Order-in-Appeal and Refund of Excess Tax
3. Eligibility for Input Tax Credit (ITC)
4. Interpretation of Section 16 of GST Act
5. Fraudulent Claim and Imposition of Penalty
6. Constitutional Validity of Section 16(4) of GST Act

Summary:

1. Refusal to Grant Interim Orders:
The intra-court appeal was filed against the order dated 13.06.2023, where the Single Bench held that there was no scope for passing any interim order and required an affidavit from the respondent for final adjudication. The respondents were directed to file their affidavit-in-opposition within a specified time frame.

2. Challenge to Order-in-Appeal and Refund of Excess Tax:
The appellant challenged the order-in-appeal dated 04.01.2023 under Section 107 of the GST Act, seeking a refund of Rs. 28,63,680/- alleged to have been recovered in excess of 10% of the disputed tax amount and to prohibit further cohesive action. The order denied ITC for the period from November 2018 to March 2019 due to the returns being filed beyond the statutory time limit stipulated in Section 16(4) of the GST Act.

3. Eligibility for Input Tax Credit (ITC):
The appellant argued that ITC is taken through books of account immediately on receipt of goods and services as per the first proviso to Section 16(2) of the GST Act, and the time limit under Section 16(4) cannot override this scheme. The department contended that returns filed beyond the statutory time limit make the appellant ineligible for ITC, necessitating the reversal of the credit taken and the imposition of a penalty for wilful misstatement.

4. Interpretation of Section 16 of GST Act:
The appellant contended that Section 16(2) has an overriding effect on Section 16(4) based on the statutory language "entitled to take credit." The respondents argued that the non-obstante clause in Section 16(2) does not limit the operation of Section 16(4) and that both sections complement each other in restricting the provisions. The legislative intent is not to make Section 16(4) otiose by applying Section 16(2).

5. Fraudulent Claim and Imposition of Penalty:
The respondents justified the imposition of a penalty, arguing that the appellant committed fraud by making a false representation in the GSTR-3B return and claiming ineligible ITC. The court referred to various judgments, including ALD Automotive Private Limited and TVS Motor Company Limited, which upheld the principle that ITC is a concession subject to strict compliance with statutory conditions.

6. Constitutional Validity of Section 16(4) of GST Act:
The court upheld the validity of Section 16(4), rejecting the argument that the non-obstante clause in Section 16(2) overrides Section 16(4). The court agreed with previous judgments that the conditions under which ITC is claimed must be strictly construed and that the statutory scheme does not violate constitutional rights.

Conclusion:
The appeal and the writ petition were dismissed, with the court finding no grounds to grant the relief sought by the petitioner. No costs were awarded.

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