2025 (7) TMI 772 - HC - GST

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

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: (i) Whether notifications issued under Section 168A of the Central Goods and Services Tax Act, 2017 (extending time limits under Section 73) are conditional or delegated legislation and whether they must be strictly construed as exceptions to the statutory limitation scheme; (ii) Whether the recommendation of the GST Council is a mandatory pre-condition to issuance of notifications under Section 168A and whether post-facto ratification or recommendation by the GST Implementation Committee (GIC) suffices; (iii) Whether the GST Council/Government failed to take into account relevant materials and acted on a mistaken assumption of law (including the effect of the Supreme Court orders excluding 15.03.202028.02.2022 for computation of limitation), thereby vitiating Notification Nos.9/2023 and 56/2023; (iv) Whether orders of the Supreme Court under Article 142 excluding the period 15.03.202028.02.2022 continue to operate alongside or are superseded by notifications under Section 168A.Issue (i): Whether notifications under Section 168A are conditional or delegated legislation and whether Section 168A/its notifications are to be strictly construed as exceptions to the limitation regime.Analysis: Section 168A confers power on the Government, on the recommendation of the Council, to extend prescribed time limits in special circumstances where actions cannot be completed or complied with due to force majeure. Distinction between conditional and delegated legislation applies: extension of statutory limitation alters legislative policy and thus resembles delegated legislation. Section 73(2) and 73(10) embody legislative limitation policy for issuance of notices and orders; Section 168A operates as an exception to that policy and therefore calls for strict construction.Conclusion: Section 168A and notifications issued thereunder are in the nature of delegated legislation and, being exceptions to statutory limitation, must be strictly construed; this conclusion favours the assessee.Issue (ii): Whether recommendation by the GST Council is a mandatory pre-condition and whether ratification by the Council or recommendation by GIC post-issuance cures non-compliance.Analysis: Section 168A requires issuance of notification 'on the recommendations of the Council.' The existence of a recommendation is a sine qua non for lawful exercise of the power; the GST Implementation Committee is not a substitute for the GST Council absent statutory delegation. Post-facto ratification or reliance on GIC recommendation that is later ratified does not satisfy the statutory prerequisite; statutory power conferred on a named body must be exercised on recommendation by that body unless express delegation exists.Conclusion: Recommendation by the GST Council prior to issuance is mandatory; issuance without such recommendation or based only on GIC recommendation later ratified does not comply with Section 168A and disfavors the revenue.Issue (iii): Whether the recommendations/notifications failed to take into account relevant materials and proceeded on a mistaken assumption of law (including the effect of Supreme Court orders), vitiating Notifications Nos.9/2023 and 56/2023.Analysis: Condition precedent under Section 168A requires (a) existence of force majeure as defined, (b) actions 'cannot be' completed or complied with, and (c) inability is 'due to' force majeurei.e., force majeure must be the proximate/causa causans. Relevant materials (central OMs restoring normalcy by Feb 2022, Home Secretary D.O., CAG reports on systemic deficiencies and staffing, GST Council minutes) demonstrate that systemic deficiencies and staff shortagesmatters attributable to administrationwere principal causes of delay rather than force majeure in the proximate sense. The notifications further proceeded on an erroneous assumption as to the applicable limitation because the Supreme Court's exclusion (15.03.202028.02.2022) when applied results in a longer limitation period than that provided by the impugned notifications; thus the notifications effectively curtailed or diminished a larger limitation otherwise available, contradicting the object of Section 168A (which permits extension). Delegated legislation can be struck down for failure to consider vital relevant material or for being founded on mistaken legal assumptions; diminishing vested rights by curtailing a larger limitation is impermissible and may be arbitrary under Article 14.Conclusion: The recommendations and Notifications Nos.9/2023 and 56/2023 failed to take into account relevant materials and proceeded on a mistaken assumption of law and fact; they are vitiated and therefore invalid, in favour of the assessee.Issue (iv): Whether the Supreme Court orders under Article 142 excluding 15.03.202028.02.2022 cease to have effect upon introduction of Section 168A or issuance of the impugned notifications.Analysis: Orders excluding a period operate on computation of limitation (exclusion) whereas notifications under Section 168A operate on the period of limitation (extension). The two concepts are distinct; exclusion under Article 142 adds days back into the available limitation period for pending proceedings and thus may provide a larger effective limitation than an executive extension that ignores the exclusion. Notifications under Section 168A cannot lawfully curtail or diminish a larger limitation already available through exclusion by the Supreme Court. The exclusion effected by the Supreme Court therefore continues to operate and coexists with statutory extensions; the impugned notifications that failed to account for the exclusion are founded on a mistaken assumption of law.Conclusion: The Supreme Court orders excluding 15.03.202028.02.2022 continue to apply for computation of limitation and prevail in the present context, resulting in a larger limitation period than that effected by the impugned notifications; this conclusion favours the assessee.Final Conclusion: Notification Nos.9/2023 and 56/2023 are invalid on multiple independent grounds (diminishing a larger limitation available due to Supreme Court exclusion; proceeding on an erroneous assumption of law; failure to consider relevant materials; and absence of GST Council recommendation prior to issuance in respect of Notification No.56/2023). The notifications are set aside and the authorities are directed to proceed afresh in accordance with law and with opportunity to the affected persons; the outcome is favourable to the assessee.Ratio Decidendi: Where a statutory provision empowers the executive to extend limitation as an exception to a legislative scheme, that power is to be exercised on the statutory preconditions (including recommendation where required), the exception must be strictly construed, the executive must take into account relevant materials and may not act on a mistaken assumption of law or fact, nor may a delegated act diminish a larger limitation already available by operation of a valid judicial exclusion of time.