In multiple Writ Petitions bunched together, Hon'ble Patna HC has held that Section 16(4) of the CGST act which prescribe one of condition to avail the ITC under GST Law is constitutional. In this article, we will discuss the Decision in details including Petitioner's arguments, Department's Rebuttal and Basis of Decision of HC (Order of copy is attached in the last of the Article).
Section 16(4) of the CGST Act:
(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier.
(From 01.10.2022, for the words for ''due date of furnishing of the return under section 39... "30th November has been substituted).
Petitioner's Key Arguments (Simplified Form)
Refusal to allow ITC under Section 16(4) of the Act beyond the date contemplated therein is confiscatory (act of something being taken away from someone by a government) in nature.
ITC is a vested right under Article 300A of the Constitution of India and such protected and vested right cannot lightly be taken away on the ground of belated filing of return.
Article 300A: “No person shall be deprived of his property save by authority of law”.
Conditions as prescribed in Section 16(4) of the CGST/BGST Act are merely procedural in nature and cannot override the substantive conditions as mandated in Section 16(1) and 16(2) of the said Acts.
Section 16(4) of the CGST/BGST Act may be read down by this Court and it may be held that the embargo in the said provision would apply only to restrict claim of ITC in respect of only such invoices or debit notes received after the end of the financial year beyond September of the preceding financial year and not such claims in a belated return filed after such date.
Provision is violative of Article 14 of the Constitution of India as it creates distinction among equals resulting into discrimination.
Provision imposes unreasonable and disproportionate restriction on right to freedom of trade and profession guaranteed under Article 19(1)(g).
Disallowing ITC by invoking Section 16(4) of the CGST/BGST Act amounts to double taxation and, thus, violates the principle of taxation on value addition which is violative of Article 265 of the Constitution of India.
Article 265: No tax shall be levied or collected except by authority of law.
ITC is in the nature of benefit/ concession extended to a registered person under the CGST/BGST Act which can be availed only as per the scheme of the CGST/BGST Act.
Statutory scheme under Section 16 of the CGST/BGST Act with restriction available under sub-section (4) thereof has uniform application and cannot be said to be either arbitrary or violating any right guaranteed to a registered person under Article 19(1)(g) of the Constitution of India.
Basis of Decision (Simplified Form based on our interpretation)
On Right to Property
The right of a registered person to take ITC under sub-section (1) of Section 16 of the Act becomes a vested right (i.e. Property) only if the conditions to take it are fulfilled, free of restrictions prescribed under sub-section (2) thereof. In order to invoke Article 300-A of the Constitution by a person, two circumstances must jointly exist :-
(i) Deprivation of property of a person
(ii) Without sanction of law
Upon close reading of sub-section (1) of Section 16 of the CGST/ BGST Act, we are of the view that the provision under sub-section (4) of Section 16 is one of the conditions which makes a registered person entitled to take ITC and by no means sub-section (4) can be said to be violative of Article 300-A of the Constitution of India.
Since, without fulfilling conditions of Section 16, ITC does not become property of Taxpayer, there is no question of deprivation at all. (our interpretation)
It is also a fundamental rule of statutory interpretation that where the words are clear, there is no obscurity, there is no ambiguity and the intention of the Legislature is clearly conveyed, there is no scope for the Court to innovate or take upon itself the task of amending or altering the statutory provisions.
On Reading Down the Provisions (means there by gives interpretation by the Court)
Golden Rule of interpretation of Law also being a fundamental rule of statutory interpretation that where the words are clear, there is no obscurity, there is no ambiguity and the intention of the Legislature is clearly conveyed, there is no scope for the Court to innovate or take upon itself the task of amending or altering the statutory provisions.
Court has to remember that there is a line, though thin, which separates adjudication from legislation. That line should not be crossed or erased.
Doctrine of reading down applies only when general words used in a statute or regulation should be construed in a particular manner so as to save its constitutionality.
In this regard, it has been observed that the language of Section 16 of the CGST/BGST Act suffers from no ambiguity and clearly stipulates grant of ITC subject to the conditions and restrictions put thereunder.
Other Key Points
ITC is not unconditional and a registered person becomes entitled to ITC only if the requisite conditions stipulated therein are fulfilled. One of the conditions to make a registered person entitled to take ITC is prescribed under sub-section (4) of Section 16.
Fiscal legislation having uniform application to all registered persons, in our considered opinion, cannot be said to be violative of Article 19(1)(g) of the Constitution and the question of such statutory provision being violative of Article 302 of the Constitution and in teeth of Article 13 of the Constitution of India does not arise at all.
we are of the considered opinion that sub-section (4) of Section 16 of the CGST/ BGST Act are constitutionally valid and are not violative of Articles 19(1)(g) and Article 300-A of the Constitution of India. The said provision is not inconsistent with or in derogation of any of the fundamental right guaranteed under the Constitution of
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Disclaimer: We did interpretation of Hon’ble High Court Decision for purely academic purpose. In case, there is any mistake in understanding of the order, we are apologised to the High Court.
Copy of the Order