Sections 16(2)(c) and 16(4) CGST/SGST Act upheld as constitutional regarding Input Tax Credit restrictions and time limits

The Kerala HC upheld the constitutional validity of Sections 16(2)(c) and 16(4) of the CGST/SGST Act regarding Input Tax Credit (ITC) restrictions and time limits. The court held that ITC is a statutory benefit/concession, not an absolute right, subject to conditions and restrictions. The provisions were deemed necessary to prevent revenue loss and ensure workable GST implementation. The court rejected arguments that time limits were arbitrary, noting that unrestricted ITC claims would impact revenue collection and budgetary allocations. Partial relief was granted for 2017-18 and 2018-19 periods through specific circulars, with extended deadlines for September returns until November 30th. The petition was disposed of with directions for processing eligible claims.

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Issues Involved:
1. Grounds on which a taxing statute can be held unconstitutional.
2. Nature of the claim to Input Tax Credit (ITC) under the GST Act and Rules.
3. Constitutionality of Section 16(2)(c) and Section 16(4) of the CGST/SGST Act.

Summary:

Issue I: Grounds on which a taxing statute can be held unconstitutional

The judgment outlines that a tax can be valid if it is within the competence of the legislature imposing it, for a public purpose, and does not violate fundamental rights. Article 246A empowers both Central and State legislatures to enact GST laws. The taxing statute can be declared unconstitutional if it infringes fundamental rights, including Article 14. The legislature must have wide discretion in classification for taxation purposes, provided there is no transgression of fundamental principles. The judgment cites several cases, including Vivian Joseph Ferreira v. Municipal Corporation of Greater Bombay and State of West Bengal v. Kesoram Industries Limited, emphasizing that the power to levy tax is a sovereign power controlled only by the Constitution.

Issue II: Nature of the claim to Input Tax Credit (ITC) under the GST Act and Rules

The judgment states that ITC is a benefit or concession extended under the statutory scheme, not an absolute right. It is subject to conditions and restrictions as per Sections 16(2) to 16(4), Section 43, and related rules. The Supreme Court in Godrej & Boyce Manufacturing Company Pvt. Ltd. v. Commissioner of Sales Tax and India Agencies (Regd.) v. Additional Commissioner of Commercial Taxes held that the rule-making authority can provide for abridgement or curtailment while extending a concession. The judgment also references Union of India & others V. VKC Footsteps (India) (P) Limited, which upheld restrictions on ITC refunds, emphasizing that ITC is subject to statutory conditions.

Issue III: Constitutionality of Section 16(2)(c) and Section 16(4) of the CGST/SGST Act

The judgment discusses that Section 16(2)(c) and Section 16(4) are not unconstitutional. Section 16(2)(c) ensures that ITC is granted only when the tax has been paid to the government, preventing revenue loss. The judgment cites Willowood Chemicals v. Union of India and Mahalaxmi Cotton Ginning Pressing and Oil Industries v. State of Maharashtra, which upheld similar provisions under different tax regimes. The judgment also references Union of India v. Bharti Airtel and others, explaining the procedure for availing ITC under GST laws. The judgment concludes that the conditions and time limits for availing ITC are reasonable and necessary for the tax collection framework.

Conclusion:

The judgment rejects the challenge to the constitutional validity of Section 16(2)(c) and Section 16(4) of the CGST/SGST Act. It grants liberty to petitioners to claim benefits under specific circulars within a month and directs authorities to process claims accordingly. The time limit for furnishing returns for September is treated as 30th November retrospectively from 01.07.2017, considering initial implementation difficulties.

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