Brief summary of the case
Court: Kerala High Court
Number: WP(C) NO. 31559 OF 2019
Petitioner: M/s M.trade Links
Respondent: Union of India
Date of decision: 04.06.2024
Judges: Hon’ble Mr. Dinesh Kumar Singh
Section 16(2) of the CGST Act:
The respondent argues that Section 16 is comprehensive, outlining both the entitlement to and conditions for claiming ITC under Clauses (a) to (d) of Section 16(2).
The legislative intent, as per Section 16(2)(c), is that ITC can only be claimed if the tax has actually been paid to the Government.
The burden of proof to claim ITC lies with the purchaser dealer, and ITC claims cannot be sustained if the supplier dealer has not paid the tax to the Government despite collecting it from the purchasing dealer.
Constitutional Validity:
The respondent contends that Section 16(2)(c) is not in violation of Article 14 of the Constitution of India. The ITC concession is subject to conditions and restrictions imposed by the legislature.
These restrictions ensure tax payment by the supplier and the application of time limits for claiming ITC, which apply to all dealers universally.
Case Law References:
Reliance is placed on judgments such as Astha Enterprises v. The State of Bihar and State of Karnataka v. Ecom Gill Coffee Trading (P) Ltd., where it was held that conditions for availing ITC specified in Section 16(2) must be satisfied together and in isolation.
Other judgments like Gobinda Construction v. Union of India and Thirumalakonda Plywoods v. Assistant Commissioner of State Tax support the constitutional validity of Section 16(4).
Legislative Intent and Limitations:
The respondent asserts that Section 16(4), which imposes a time limit for availing ITC, does not contradict other provisions and must be read in conjunction with Section 16(2).
The imposition of a time limit is not arbitrary or whimsical and does not violate Article 14, as it applies uniformly to all registered persons.
Principles of Taxing Statutes:
The respondent highlights that taxing statutes are subject to the principles of non-arbitrariness and reasonableness. The legislature has the discretion to impose classifications and conditions in the tax system as long as they do not violate fundamental rights.
The amendment to extend the time for filing returns from September to 30th November in each succeeding financial year was treated as procedural due to several reasons:
Initial Roll-out Challenges: The court recognized that the GST regime faced significant implementation challenges when it was first introduced. Many taxpayers encountered difficulties in transitioning to the new system, which impacted their ability to file returns and claim input tax credit (ITC) within the initially prescribed timelines.
Government Circulars: The Government issued Circulars No.183/15/2022-GST and No.193/05/2023-GST to address these initial difficulties. These circulars allowed for the availment of ITC under specific conditions, even when GSTR 2A was not available initially. This indicates an administrative acknowledgment of the practical issues faced by taxpayers and an attempt to provide relief.
Purpose of Amendment: The amendment aimed to provide additional time for taxpayers to file their returns, thereby reducing the pressure and potential non-compliance due to the initial transitional issues. The extension to 30th November was intended to be a relief measure, ensuring that taxpayers had adequate time to adjust to the new GST system.
Retrospective Application: The amendment was applied retrospectively to cover the period starting from 2017-18. This retrospective application was seen as a procedural adjustment to accommodate the genuine difficulties faced by taxpayers, rather than a substantive change in tax law. The court considered it necessary to treat the amendment as procedural to ensure fairness and avoid penalizing taxpayers for issues beyond their control.
Legal Precedents: The court likely relied on legal principles and precedents where procedural changes are distinguished from substantive changes. Procedural amendments typically aim to facilitate compliance and improve administrative efficiency without altering the fundamental rights or obligations of the taxpayers.
Avoiding Unjust Enrichment: Treating the amendment as procedural helps prevent situations of unjust enrichment where the government collects tax from both the supplier and the recipient without providing a mechanism for refunds in cases of double collection.
By treating the amendment as procedural, the court acknowledged the practical difficulties during the GST transition and aimed to provide a fair and reasonable approach to compliance and tax administration.
The constitutional validity of Section 16(4) of the GST Act was not accepted by the court due to several reasons:
Legislative Competence: The court likely found that the legislative body had the competence to enact Section 16(4) of the GST Act. Tax laws generally fall within the domain of the legislative authority, and the imposition of conditions or time limits for claiming Input Tax Credit (ITC) is within the scope of legislative powers.
Rational Basis and Reasonableness: Section 16(4) sets a time limit for availing ITC, which is a common feature in tax laws to ensure timely compliance and proper tax administration. The court probably determined that the provision had a rational basis and was reasonable in its objective to streamline tax processes and prevent indefinite claims of ITC, which could complicate tax administration and lead to revenue losses.
Procedural Requirement: The time limit imposed by Section 16(4) is seen as a procedural requirement rather than a substantive restriction. Courts generally uphold procedural requirements as long as they serve a legitimate administrative purpose and do not arbitrarily or unreasonably restrict taxpayers’ rights.
Avoidance of Abuse: The provision helps in avoiding potential abuse of the ITC mechanism. Without a time limit, taxpayers could claim credits long after transactions have occurred, leading to difficulties in verification and potential misuse of the ITC facility. The court likely viewed the time limit as a necessary measure to maintain the integrity of the tax system.
Precedent and Legal Principles: The court may have relied on legal precedents and principles where time limits for availing tax benefits are upheld as constitutional. It is common in tax laws to have deadlines for claiming deductions, credits, or refunds to ensure orderly and efficient tax administration.
Balancing Interests: The court would have balanced the interests of the taxpayers against the needs of the tax administration. While the imposition of a time limit might inconvenience some taxpayers, it serves a greater public interest by ensuring timely and accurate tax compliance.
Not Arbitrary or Discriminatory: The court would have assessed whether Section 16(4) was arbitrary or discriminatory. Given that the provision applies uniformly to all taxpayers and serves a legitimate administrative purpose, it was likely found to be neither arbitrary nor discriminatory.
In summary, the constitutional validity of Section 16(4) was upheld because it was within the legislative competence, had a rational basis, served a legitimate administrative purpose, and was not arbitrary or discriminatory. These factors collectively contributed to the court’s decision to uphold the provision.
The petitioners argue that if GSTR 2 and GSTR 3 were not considered returns, then the due date to claim input tax credit (ITC) should be the due date of the annual return.
Here are the main points of their argument:
1. Nature of GSTR 2 and GSTR 3: The petitioners contend that GSTR 2 and GSTR 3 were not treated as returns under the GST law. Therefore, compliance with these forms should not impact the eligibility to claim ITC
2. Section 16(4) Interpretation: According to Section 16(4) of the CGST Act, ITC for any invoice or debit note for the supply of goods or services must be claimed within a specified time limit. The petitioners argue that this time limit should align with the due date of the annual return (GSTR 9), rather than the monthly or quarterly returns (GSTR 3B).
3. Annual Return as a Comprehensive Document: The annual return, GSTR 9, is a comprehensive document summarizing the entire year’s transactions, including the reconciliation of ITC. Since it captures the overall tax liability and credit availability for the year, the petitioners believe it is more appropriate to use the due date of GSTR 9 for claiming ITC.
4. Harmonious Interpretation: The petitioners argue for a harmonious interpretation of the GST law. They contend that using the due date of the annual return for ITC claims would provide clarity and consistency, avoiding potential conflicts and confusion arising from different interpretations of the law.
5. Practical Considerations: By allowing ITC claims until the due date of the annual return, taxpayers would have a reasonable timeframe to reconcile their accounts and ensure accurate reporting. This approach would also reduce the administrative burden on taxpayers who might otherwise miss ITC claims due to shorter deadlines associated with monthly or quarterly returns.
6. Support from Circulars and Notifications: The petitioners might reference various government circulars and notifications that provide procedural relief and clarify compliance requirements. They could argue that these documents support their interpretation that the annual return due date is a more appropriate deadline for claiming ITC.
7. Precedent and Judicial Interpretation: The petitioners could cite judicial precedents and interpretations that emphasize the need for a clear and consistent framework for tax compliance. They might argue that the due date for the annual return aligns with these principles and ensures fair treatment of taxpayers.
8. In summary, the petitioners argue that if GSTR 2 and GSTR 3 are not considered returns, the due date for claiming ITC should be aligned with the due date of the annual return, GSTR 9. This approach would provide clarity, consistency, and a reasonable timeframe for taxpayers to reconcile their accounts and ensure accurate reporting of ITC.
The court likely rejected the petitioners’ argument for several reasons:
Legislative Intent and Clarity: The court would have considered the legislative intent behind Section 16(4) of the CGST Act, which specifies the time limit for availing Input Tax Credit (ITC). The provision clearly states that ITC must be claimed by the due date of furnishing the return under Section 39 for the month of September following the end of the financial year or furnishing the relevant annual return, whichever is earlier. This clarity in the statute leaves little room for reinterpretation.
Definition of Returns: The court would have adhered to the statutory definitions and provisions regarding what constitutes a return under the GST law. GSTR 3B, despite being initially introduced as a provisional return, has been consistently treated as a valid return for the purpose of discharging tax liabilities and claiming ITC. Thus, the court likely recognized GSTR 3B as a return under the relevant sections.
Procedural Compliance: The court would emphasize the need for procedural compliance within the specified time frames to ensure efficient tax administration and prevent potential misuse or indefinite delays in claiming ITC. Allowing ITC claims until the due date of the annual return could lead to administrative challenges and difficulties in tax reconciliation.
Objective of Section 16(4): The purpose of Section 16(4) is to ensure timely claims of ITC, which facilitates proper matching and reconciliation of credits between suppliers and recipients within a financial year. Extending the deadline to the due date of the annual return might undermine this objective by creating longer periods of uncertainty and potential mismatches.
Consistency and Certainty: Tax laws often require clear and consistent rules to provide certainty to taxpayers and the tax administration. By upholding the specific deadlines outlined in Section 16(4), the court would maintain the consistency and predictability of the tax system.
Judicial Precedents: The court might have referred to previous judicial decisions that uphold the validity and enforceability of procedural requirements in tax laws, including deadlines for claiming credits and filing returns. These precedents reinforce the importance of adhering to statutory timelines.
Administrative Efficiency: The court could consider the practical implications of allowing extended deadlines for claiming ITC. It might lead to increased administrative burdens on the tax authorities to verify and reconcile credits over longer periods, potentially delaying final assessments and settlements.
In summary, the court likely rejected the argument because the statutory language of Section 16(4) is clear, and adhering to it ensures timely compliance and efficient tax administration. The recognition of GSTR 3B as a return, the legislative intent, and the need for procedural certainty and administrative efficiency were key factors in the court’s decision.