2025 (7) TMI 772 - HC - GST

GST time extension notifications under Section 168A quashed for invalid force majeure, lack of Council nod, limitation breach

Ms Tata Play Limited Represented by its Authorized Signatory And Others Versus Union of India, State of Tamil Nadu, Commercial Taxes Department, Commissioner of GST & Central Excise, Additional Commissioner, Office of the Additional Commissioner of GST and Central Excise, Central Board of Indirect Taxes and Customs, New Delhi And Others

HC held that N/Ns. 9/2023 and 56/2023 issued under Section 168A CGST Act, extending time for issuance of notices and orders under Section 73, are invalid. ... Extension of Time Limit for issuance of SCN - Validity of N/Ns. 9/2023 and 56/2023 - non-compliance with conditions precedent were non-existent for their issuance and mandatory procedural conditions (Recommendation of GST Council) for exercise of power under Section 168A of Central Goods and Services Tax Act, 2017 - conditional or delegated legislation - Section 168A is an exception to the legislative policy under the GST Act or not - delegated legislation can be challenged on the ground of failing to take into account relevant factors - mandatory recommendation by GST Council for issuance of notifications under Section 168A of CGST Act - ratification of recommendation by GIC by the GST Council post issuance of N/N. 56 of 2023 - suo muto orders of the Hon'ble Supreme Court under Article 142 of the Constitution. Whether notifications issued by the Government in exercise of its power under Section 168A of CGST Act is a piece of conditional or delegated legislation? - HELD THAT:- Section 168A of CGST Act read with the impugned notifications is in the nature of an exception to Section 73 of CGST Act, which as observed supra reflects the legislature's will/policy as regards limitation under CGST Act. It is trite law that exception ought to be strictly construed. In this regard, it may be relevant to refer to the judgment of the Hon'ble Supreme Court in Project Officer, IRDP and Others v. P.D. Chacko [2010 (5) TMI 872 - SUPREME COURT] wherein it was held 'It is trite law that an exception clause has to be strictly interpreted and cannot be assumed but be proved. An exception clause is always subject to the rule of construction and in case of doubt, it must befriend the general provision and disfavour the exception.' It may therefore be necessary to construe Section 168A of CGST Act and impugned notification issued thereunder which purports to extend limitation fixed by Parliament/State legislature strictly. Whether a delegated legislation can be challenged on the ground of failing to take into account relevant factors and if so, whether factors relevant for determining existence of circumstances warranting recommendation for exercise of power under Section 168A of CGST Act, were left out by the Council, thereby vitiating the recommendation and impugned notifications issued thereon such recommendation? - HELD THAT:- It is beyond any doubt that occurrence of a force majeure event in terms of explanation to Section 168A of CGST Act, is a sine qua non/condition precedent. Force majeure is defined to mean events mentioned in the Explanation to Section 168A of CGST Act, which includes epidemic. It is not in dispute that Covid-19 would constitute a 'force majeure' for the purposes of Section 168A of CGST Act. The expression “due to” would reveal that inability to complete or comply with actions to be taken under the Act within the time limit specified in a prescribed or notified must be closely/proximately connected to “force majeure”. In other words, force majeure must be shown to be the most proximate cause for the inability to complete or comply with actions within the time limit prescribed or notified under the Act. A mere casual connection between force majeure and inability to complete or comply with actions within the limitation provided under the Act, may not be adequate for exercise of power under Section 168A of CGST Act. Failure to take into account the relevant materials vitiates the recommendation. As a consequence the impugned notifications in the absence of a valid recommendation may also not comply with the mandate under Section 168A of CGST Act viz., notification must be issued on the recommendation of the GST Council. This Court is of the view that the impugned notifications suffers from the vice of not complying with the statutory mandate inasmuch as the recommendation itself is made without keeping in view relevant material. It is also found supra that a delegated legislation is open to challenge on the ground of failing to take into account relevant material. The impugned notification does not even contain a recital that actions under Section 73 of CGST Act viz., issuance of notice and passing of orders within the time limit provided under sub section (2) and (10) of Section 73 of CGST Act was only due to Covid (force majeure). In the circumstances this Court is of the view that the impugned notifications cannot be sustained. Whether recommendation by GST Council for issuance of notifications under Section 168A of CGST Act, is mandatory and non compliance would render the legislative exercise by the delegate a nullity? - HELD THAT:- The recommendation of GST Council under Article 279A of the Constitution cannot obviously be mandatory when it comes to legislative action in view of the fact that the power to legislate on Goods and Service Tax flows from Article 246A of Constitution of India, any attempt to suggest that the above legislative power would be subject to recommendation of an executive body albeit constitutional body i.e., GST Council may well strike an imbalance rather offend the doctrine of separation of powers between the three organs viz., legislature, judiciary and executive. It is important to remind ourselves that separation of powers is part of basic structure of Constitution and thus ought to be preserved, any construction which offends/infracts, the above rule ought to be eschewed. The recommendation of GST Council for issuance of notification under Section 168A of CGST Act is mandatory but not binding on the government for the purposes of issuance of notifications under Section 168A of CGST Act. Whether ratification of recommendation by GIC by the GST Council post issuance of Notification No. 56 of 2023, would constitute sufficient compliance with the mandate on recommendation contained in Section 168A of CGST Act or there was any abdication of authority by GST Council or arrogation/usurping of powers vested with the Council by GIC? - HELD THAT:- The impugned Notification came to be issued without recommendation of the GST Council, thus the mandate contained in Section 168A of CGST Act was not complied with. Recommendation by the GST Council was only by way of ratification of a decision of GIC and subsequent to the issuance of notification No.56 of 2023, this may not constitute compliance with the mandate of Section 168A of CGST Act. While in the demonetisation case relied by the Revenue, the Central Board which is the appropriate body to recommend in fact made a recommendation prior to the exercise of power by the Central Government under sub section (2) of Section 26 of RBI Act, 1934, though the Central Government may have possibly initiated the entire proposal. In the circumstance reliance on the judgment of the Supreme Court in the demonetization case appears to be wholly misplaced. This Court is of the view that the recommendation by GIC Council ratified by GST Council after issuance of impugned Notification No.56/2023, would not constitute compliance with the mandate contained on recommendation in Section 168A of CGST Act. Whether the suo muto orders of the Hon'ble Supreme Court under Article 142 of the Constitution, would continue to remain binding even after introduction of Section 168A of CGST Act and issuance of notifications by the Government in exercise of its power thereon? - HELD THAT:- The 'period of limitation' and 'computation of limitation' are distinct aspects. While the orders under Article 142 of the Constitution dealt with “exclusion of limitation” and thus “computation of limitation”, the notification under Section 168A of CGST Act provided for “extension of time” thus “period of limitation”. In other words, the former dealt with computation of limitation, while latter with period of limitation. They deal with different aspects thus question of supplanting or overlap may not arise. The submission of the petitioner that orders under Article 142 of the Constitution would cease to have effect with the introduction of Section 168A of the CGST Act, fails to bear in mind the above distinction in law. Notification under Section 168A of CGST Act can be issued only to extend the time limit and not diminish limitation. It appears to me that the impugned notifications is made without taking into account the effect of the order of the Hon'ble Supreme Court dated 10.01.2022 - The impugned notifications is based on an erroneous assumption of state of law relating to limitation applicable to Section 73(10) of the CGST Act and the impact of the orders of the Hon'ble Supreme Court on the limitation under sub section (2) and (10) of Section 73 of CGST Act. It is trite that legislation based on mistaken or erroneous assumption has not the effect of making that the law which the legislature had erroneously assumed to be so. The impugned notification diminishes the limitation available to the authorities to issue notices/pass orders under sub section (2) to Section 73 of CGST Act, by virtue of the order of the Supreme Court dated 10.01.2022 a consequence which is antithetical to the very purpose and object of Section 168A of CGST Act, thus unsustainable. Conclusion - i) It may be necessary to construe Section 168A of CGST Act and impugned notification issued thereunder which purports to extend limitation fixed by Parliament/State legislature strictly. ii) The impugned notification does not contain a recital that actions under Section 73 of CGST Act viz., issuance of notice and passing of orders within the time limit provided under sub section (2) and (10) of Section 73 of CGST Act was only due to Covid (force majeure). In the circumstances this Court is of the view that the impugned notifications cannot be sustained. iii) The recommendation of GST Council for issuance of notification under Section 168A of CGST Act is mandatory but not binding on the government for the purposes of issuance of notifications under Section 168A of CGST Act. iv) This Court is of the view that the recommendation by GIC Council ratified by GST Council after issuance of impugned Notification No.56/2023, would not constitute compliance with the mandate contained on recommendation in Section 168A of CGST Act. v) The impugned notification diminishes the limitation available to the authorities to issue notices/pass orders under sub section (2) to Section 73 of CGST Act, by virtue of the order of the Supreme Court dated 10.01.2022 a consequence which is antithetical to the very purpose and object of Section 168A of CGST Act, thus unsustainable. This Court is inclined to remand all the matters back to the assessing authority for passing orders afresh - Petition disposed off by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether notifications issued under Section 168A of the Central Goods and Services Tax Act, 2017 (CGST Act) are conditional legislation or delegated legislation proper. 2. Whether Section 168A read with the impugned notifications constitutes an exception to the legislative policy embodied in Section 73 (limitation for determination of tax) and therefore requires strict construction. 3. Whether delegated legislation issued under Section 168A can be challenged for failure to take into account relevant materials, and whether the GST Council omitted material facts when recommending exercise of power under Section 168A. 4. Whether recommendation by the GST Council is a mandatory pre-condition for issuance of notifications under Section 168A and whether post-facto ratification (including ratification of the GST Implementation Committee's recommendation) suffices. 5. Whether the suo motu orders of the Supreme Court under Article 142 excluding the period 15.03.2020-28.02.2022 for computation of limitation continue to operate after introduction of Section 168A and issuance of the impugned notifications, and whether the impugned notifications impermissibly diminish the limitation otherwise available. 6. Whether the impugned notifications suffer from other vices: non-application of mind, erroneous assumption of law, abdication or usurpation of power by GST Council/GIC, and arbitrariness under Article 14. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Nature of Notifications under Section 168A: conditional or delegated legislation Legal framework: Distinction between conditional legislation (legislation complete in itself whose operation is made dependent on occurrence of a condition) and delegated legislation proper (legislature prescribes broad policy and delegates ancillary detail to the executive/authority). Precedent treatment: Principles explained in authorities distinguishing conditional and delegated legislation (Hamdard Dawakhana and related authorities) were applied. Interpretation and reasoning: Section 168A confers power on Government 'on the recommendations of the Council' to extend time limits specified in the Act in respect of actions which cannot be completed due to force majeure; power includes giving retrospective effect. Because limitation is a matter of public policy (legislative in character), and Section 168A authorises modification of statutory limitation periods by executive notification, the Court concluded the power is more in the nature of delegated legislation proper rather than mere conditional legislation. Ratio vs. Obiter: Ratio - Section 168A is delegated legislation proper; hence subject to scrutiny applicable to subordinate legislation. Conclusion: Notifications under Section 168A must be treated and tested as delegated legislation subject to review on grounds appropriate to subordinate legislation. Issue 2 - Section 168A as an exception to legislative policy on limitation; need for strict construction Legal framework: Section 73(2) and (10) prescribe time limits for issuance of show cause notices and orders; limitation rules are grounded in public policy and provide finality and certainty. Precedent treatment: Principles that exceptions to a general statutory policy must be strictly construed and proved (Project Officer, IRDP v. P.D. Chacko and other authorities). Interpretation and reasoning: Since Section 168A permits extension of limitation (an exception to Section 73 policy), it must be strictly construed. The Court emphasised that the extension power is exceptional and should not be lightly invoked to override legislative limitation unless the statutory preconditions are satisfied. Ratio vs. Obiter: Ratio - Section 168A and any notification under it must be strictly construed as an exception to Section 73. Conclusion: Extensions under Section 168A are exceptions to statutory limitation and attract strict construction and close judicial scrutiny. Issue 3 - Challenge to delegated legislation for failure to consider relevant materials; application to GST Council's recommendation Legal framework: Subordinate legislation can be struck down if it fails to take into account vital facts which statute expressly or impliedly requires (Indian Express Newspapers principle). Section 168A requires force majeure and that actions 'cannot be' completed 'due to' force majeure. Precedent treatment: Indian Express Newspapers, and decisions permitting review of delegated acts where there is non-application of mind or omission of relevant considerations. Interpretation and reasoning: The Court identified jurisdictional facts: (i) existence of a force majeure event as defined; (ii) actions cannot be completed/complied with; (iii) inability is due to that force majeure (proximate/causa causans). The court analysed materials (central OMs advising return to regular office from Feb 2022, Home Secretary D.O. of March 2022, CAG reports acknowledging systemic deficiencies and staff shortages, and GST Council/Law Committee minutes) and found that many of the authorities' own materials showed systemic/administrative deficiencies and recovery of normal functioning earlier than assumed in the impugned recommendations. The Court held those materials were relevant and should have been considered by the GST Council; omission vitiates the recommendation and thus the notifications premised on it. Ratio vs. Obiter: Ratio - Delegated legislation under Section 168A may be invalidated if the recommending body failed to consider relevant and vital materials bearing on the statutory preconditions. Conclusion: The GST Council failed to take into account relevant materials; that failure vitiates its recommendation and the notifications issued on that basis. Issue 4 - Mandatory nature of GST Council recommendation and validity of GIC recommendation / post-facto ratification Legal framework: Section 168A mandates notifications be made 'on the recommendations of the Council'; Article 279A allows GST Council to decide procedures; GIC is a committee constituted by GST Council. Precedent treatment: Mohit Minerals (distinguishing binding effect of GST Council recommendations when issuing secondary legislation) and authorities on non-delegation (delegatus non potest delegare, Marathwada University). Also considered Vivek Narayan Sharma (RBI demonetisation) on contextual ratification/consultation. Interpretation and reasoning: The Court held that the existence of a recommendation by the GST Council is a mandatory precondition for exercise of power under Section 168A. While recommendations may not bind Government in all contexts, where statute prescribes action 'on the recommendations of the Council' the recommendation's existence is a sine qua non. GIC cannot substitute for the Council unless the statute permits; issuing a notification prior to any GST Council recommendation and relying on later ratification does not satisfy the statutory requirement. Ratification post-facto is not a cure for absence of the statutory precondition; sub-delegation or abdication of the Council's function to the GIC without statutory authority vitiates the exercise of power. Ratio vs. Obiter: Ratio - Recommendation by the GST Council is a mandatory precondition; GIC's recommendation and subsequent ratification by GST Council post-issue do not cure lack of prior GST Council recommendation. Conclusion: Notification No.56/2023 issued before GST Council recommendation (relying on GIC) contravened the statutory mandate and is invalid. Issue 5 - Interaction between Supreme Court's Article 142 orders (exclusion 15.03.2020-28.02.2022) and Section 168A notifications; whether notifications improperly diminish limitation Legal framework: Orders under Article 142 excluded specified period from computation of limitation for judicial/quasi-judicial proceedings; Section 168A permits extension of time limits (period of limitation). Distinction exists between 'computation of limitation' (exclusion) and 'period of limitation' (extension). Precedent treatment: Authorities explaining the distinction between extension and exclusion (Ajay G. Podar; Consolidated Engineering; Ketan Parekh; Kalpraj Dharamshi) and principles on legislation based on mistaken assumption of law (Peddinti; Hariprasad Shukla). Interpretation and reasoning: The Court found the Supreme Court's Article 142 order pertains to exclusion for computation, thereby enlarging the effective time available to authorities; notifications under Section 168A dealt with extension of statutory periods. Applying the exclusions increases limitation beyond the periods provided in the impugned notifications. The impugned notifications were issued without taking into account the effect of the Article 142 exclusion and therefore proceeded on an erroneous assumption of the legal position - resulting in notifications that, in effect, curtailed the larger limitation available under the Supreme Court order. A notification under Section 168A cannot be used to diminish or curtail limitation otherwise available; doing so contradicts the purpose and scope of Section 168A and risks extinguishing vested rights of action, contrary to settled principles that a shorter limitation cannot extinguish vested rights. Legislation (or subordinate legislation) founded on erroneous assumptions of law cannot validly change the law. Ratio vs. Obiter: Ratio - The Article 142 exclusion remains operative; notifications under Section 168A cannot diminish limitation created by that exclusion; notifications that proceed on erroneous assumption of limitation are invalid. Conclusion: The orders under Article 142 (exclusion 15.03.2020-28.02.2022) continue to apply for computation of limitation; the impugned notifications diminished the effective limitation available and were issued on a mistaken legal premise and are therefore unsustainable. Issue 6 - Other vices: non-application of mind, arbitrariness, extinguishing vested rights Legal framework: Subordinate legislation must conform to parent statute; exercise of discretion must not be manifestly arbitrary or based on non-application of mind; a shorter limitation cannot extinguish vested rights. Precedent treatment: Indian Express Newspapers; Renusagar; authorities on limitation and vested rights (B.K. Educational Services; Uttam Steel; Vinod Raikar). Interpretation and reasoning: The Court concluded the impugned notifications suffer multiple defects: (i) they were issued without considering relevant materials (non-application of mind), (ii) they proceeded on erroneous legal assumptions diminishing vested rights of authorities created by the Supreme Court's exclusion and thereby were arbitrary, and (iii) Notification No.56/2023 was issued prior to GST Council recommendation, compounding the invalidity. These vices render the notifications illegal and arbitrary within the meaning of Article 14 and inconsistent with the CGST Act. Ratio vs. Obiter: Ratio - Notifications are vitiated by non-application of mind, erroneous legal assumption diminishing vested rights, and lack of statutory recommendation. Conclusion: Notifications Nos.9/2023 and 56/2023 are invalid on multiple grounds identified above. FINAL CONCLUSIONS AND RELIEF DIRECTED (RATIO) 1. Section 168A is delegated legislation proper; notifications under it are subject to review on grounds applicable to subordinate legislation. 2. Extensions under Section 168A are exceptions to the legislative policy embodied in Section 73 and must be strictly construed. 3. Recommendation by the GST Council is a mandatory precondition for issuing notifications under Section 168A; a GIC recommendation and subsequent ratification do not cure absence of prior GST Council recommendation. 4. The Supreme Court's Article 142 orders excluding 15.03.2020-28.02.2022 for computation of limitation continue to operate; impugned notifications which diminish the effective limitation available (after applying the exclusion) proceed on an erroneous assumption of law and are invalid. 5. Notifications Nos.9/2023 and 56/2023 were issued without adequate consideration of relevant materials, proceeded on erroneous legal assumptions, and (in the case of No.56/2023) without prior GST Council recommendation; they are vitiated and illegal. 6. Practical consequence directed by the Court: authorities to proceed afresh - where the challenge is to an assessment/adjudication order, the order shall be treated as a show cause notice and petitioners afforded 8 weeks to file objections; where challenge is to a notice, petitioners shall file objections within 8 weeks and the authorities shall pass fresh orders after hearing. (Remand for fresh consideration is the operative remedial step.) Ratio vs. Obiter - overall note The core ratios are (a) characterization of Section 168A notifications as delegated legislation subject to judicial review for non-application of mind and omission of relevant considerations; (b) requirement that GST Council recommendation is a mandatory precondition; and (c) preservation of the Supreme Court's Article 142 exclusion for computation of limitation so that notifications cannot curtail the larger limitation thereby available. Observations on specific factual materials (CAG reports, Ministry OMs, council minutes) are applied to the facts of these petitions (ratio insofar as they support invalidation of the impugned notifications); any broader factual generalisations are ancillary observations.