Notification No. 56/2023-CT ultra vires S. 168A for extending timeline for passing GST Order for FY 2018-19 and 2019-20

The Hon'ble Gauhati High Court (High Court of Assam, Nagaland, Mizoram and Arunachal Pradesh) in M/s Barkataki Print and Media Services v. Union Of India and Others [Case No.: WP(C)/3585/2024 dated September 19, 2024] held that the Notification No. 56/2023-Central Tax dated December 28, 2023 is ultra vires the provisions of Section 168A of the Central Goods and Services Act, 2017 as well as there being no notification issued by the State Government in conformity with Section 168A of the Assam Goods and Services Act, 2017 and is not legally sustainable in law. Accordingly, the same is set aside and quashed.

Facts:

M/s. Barkataki Print and Media Services with 24 other parties ("the Petitioners") herein have challenged their respective Order-in-Original ("the Impugned Orders") passed under Section 73(9) of the Central Goods and Service Tax Act, 2017 ("the CGST Act") as well as Assam Goods and Services Tax Act, 2017 ("the AGST Act") on the ground that the Notification No. 09/2023-Central Tax dated March 31, 2023 ("Notification No. 09/2023-CT") and Notification No. 56/2023-Central Tax dated December 28, 2023 ("Notification No. 56/2023-CT") by which the period for passing of the order under Section 73(10) of the CGST Act was extended in exercise of the powers under Section 168A of the CGST Act, was ultra vires the CGST Act.

In addition to that, the Petitioners have assailed the imposition under the AGST Act on the ground that there is no corresponding Notification issued under Section 168A of the AGST Act, as issued by Union vide Notification No. 56/2023-CT, extending the period for passing the Impugned Orders under Section 73(10) of the AGST Act for FY 2018-19 and 2019-20.

Notification No. 09/2023-CT is challenged on the ground that in the absence of force majeure, the Government could not have exercised the power under Section 168A of the CGST Act.

In respect to Notification No. 56/2023-CT, the challenge is on the ground that the twin conditions for issuance of the Notification i.e.

1. existence of a recommendation of the Goods and Service Tax Council ("the GST Council") and

2. due to force majeure were absent.

Relevant Provisions of Law and its Interpretation:

· To decide the challenge to Notification No. 56/2023-CT, this Court takes note of the Constitutional provision of Article 246A of the Constitution as the said Article forms the basis of empowering the Parliament as well as the State Legislatures to make laws with respect to goods and service tax by the Union or by the State.

· The Parliament enacted the CGST Act and the State of Assam enacted the AGST Act in exercise of the powers conferred under Article 246A of the Constitution.

· It is important to note that as Article 246A vests upon the Parliament and the State Legislatures with the unique simultaneous law-making power on Goods and Service Tax.

· From the perusal of Article 279A, it would be seen that the GST Council has been given a Constitutional status. Article 279A grants the GST Council constitutional status, outlining its composition in Sub-Articles (2) and (3). Sub-Article (4) is crucial, as it specifies the areas where the GST Council must make recommendations to the Union and States. The purpose of Article 279A, introduced via the Constitution (122nd Amendment) (GST) Bill, 2014, was to promote cooperative federalism and harmony between the Centre and States. Sub-Article (6) emphasizes cooperative federalism, requiring GST Council recommendations to be made through harmonized deliberations between federal units.

· Further, on account of the outbreak of the COVID-19 pandemic and the difficulties faced by the assessee as well as the GST Authorities, the Taxation and other laws (Relaxation and Amendment of Certain Provisions) Act, 2020 was enacted on September 29, 2020. By the said Act of 2020, Section 168A was inserted into the CGST Act.

· Section 168A starts with a non-obstinate clause, thereby empowering the Government to issue a notification extending the time limit specified in or prescribed or notified in the Act in respect of actions which cannot be completed or complied with due to force majeure. Deciphering therefore Section 168A, it would show the following:

o The Government can extend the time limit specified or prescribed or notified in the Act-

§ On the recommendation made by the GST Council;

§ By issuance of a notification;

§ In respect of actions which cannot be completed or complied; and

§ Due to force majeure.

· Sub-Section (2) of Section 168A is also very relevant in as much as it empowers the Government to issue a notification in terms with Sub-Section (1) of Section 168A and such power shall also include the power to give retrospective effect from a date not earlier than the date of commencement of the Act.

· Original Last Date for issuance of the Order under Section 73 of the CGST Act read with Section 44 of the CGST Act, as follows:

· The records further reveal that various tax administrations requested before the GST Council seeking recommendations for extending the period in respect to the FY 2017-18, 2018-19 and 2019-20. The GST Council in its 49th Meeting recommended an extension of the time limit under Sub-Section (10) of Section 73 of the CGST Act for FY 2017- 18, 2018-19 and 2019-20 for only three months.

· The period was extended vide Notification No. 09/2023-CT but as the time limit for issuance of notice in terms of Section 73(2) of the CGST Act for the FY 2018-19 was expiring on December 31, 2023 and there was no meeting of the GST Council scheduled to be held, the Central Government issued the Notification No. 56/2023-CT thereby extending the time limit for passing of the order under Section 73(9) for the FY 2018-19 up to 30th April, 2024 and for the FY 2019-20 up to 31st August, 2024.

· It is pertinent to mention herein that in spite of the fact that there was no recommendation from the GST Council but in the Notification No. 56/2023-CT, the Central Government had used the phrase "on the recommendation of the Council". It is also apposite to take note of circular bearing No.FNO.CBIC-20/10/07/2021-GST/516 dated May 14, 2024 which was issued by the Deputy Commissioner, GST to all the Principal Chief Commissioners/ Chief Commissioners of Central Tax and Customs, DGRI, DGGI wherein at Clause 2.8.1, it was categorically mentioned that there was no recommendation taken prior to issuance of the Notification No. 56/2023- CT and the request for recommendation shall be placed before the GST Council for ratification in the next meeting.

· But, as per relevant excerpts of the Meeting of the GST Council in its 50th, 51st, 52nd, 53rd and 54th, there is no mention of any recommendation from the GST Council for issuance of Notification No. 56/2023-CT.

Contentions of the Petitioners:

· The Petitioners submitted that in spite of having no recommendations, the Central Government for reasons other than bona fide, have resorted to falsehood by mentioning in the Notification No.56/2023-CT that there was a recommendation and as such the manner in which the power has been exercised by the Central Government while issuing the impugned Notification No.56/2023-CT amounts to the colorable exercise of power.

· The Petitioners further submitted that the Respondent Authorities on the basis of Notification No.56/2023-CT had passed various the Impugned Orders under Section 73(9) of the CGST Act/ AGST Act and as such, the said orders are without jurisdiction having been passed beyond the period prescribed in Section 73(10).

· It has also been submitted to the effect that a perusal of Section 168A of the both the CGST Act and the SGST Act shows that the recommendation of the GST Council is a condition precedent, there cannot be a subsequent ratification by the GST Council.

· The Petitioners further submitted that although in the circular dated May 14, 2024, there is a mention that the matter would be placed before the next GST Council Meeting, however, from a perusal of the Minutes of the Meeting which followed after the 49th Meeting of the GST Council i.e. the 50th, 51st , 52nd, 53rd as well as on 54th, there is no agenda seeking recommendations for extension.

· The Petitioners submitted that when Section 168A of both the CGST Act and the AGST Act categorically mentions "on the recommendations of the Council", the power to extend can only be on the recommendation of the Council.

Contentions of the Revenue:

· The Respondent submitted that all recommendations made by the GST Council are not binding and are persuasive in nature and as such, the Union Government or the State Government can issue Notification under Section 168A of the CGST Act more so when the Supreme Court in Union of India and Another Vs. Mohit Minerals Private Limited [(2022) 10 SCC 700] had watered down the effect of the recommendations to be made by the GST Council.

Issue:

Whether Notification No. 56/2023-CT dated December 28, 2023, is ultra vires the provisions of Section 168A of the CGST Act?

Held:

The Hon'ble Gauhati High Court in WP(C)/3585/2024 dated September 19, 2024 held as under:

· Observed that, the Impugned Orders being challenged in these writ petitions pertain to the FY 2018-19 and 2019-20. Therefore, the challenge to Notification No. 09/2023-CT and the similar state notification dated September 06, 2024 for FY 2017-18 is irrelevant, and the Court is not considering those challenges.

· Noted that, the Government to exercise the powers under Section 168A to extend the time limit specified or prescribed or notified, it can be made on the recommendation of the GST Council by way of a notification in respect to acts which could not be completed or complied with due to force majeure. The challenge to Notification No. 56/2023-CT is on account of the absence of a recommendation by the GST Council and the existence of force majeure as defined in the Explanation to Section 168A of the CGST Act.

· Further, noted that there is no denial to the fact that Notification No.56/2023-CT was issued without the recommendation of the GST Council. The use of the phrase "on the recommendation of the Council" in Section 168A prima facie suggests that the power to be exercised under Section 168A by the Government is when a recommendation is made by the GST Council. The question therefore arises as to whether the recommendation of the GST Council is sine qua non for the exercise of the power under Section 168A by the Government.

· Emphasizes the need to interpret the term "recommendation" within the context of the Constitution and relevant laws. Articles 246A and 279A of the Constitution grant Parliament and State Legislatures the power to legislate on GST.. The Court highlights the role of the GST Council, guided by the need for a harmonized GST structure and national market, as explained by the Supreme Court in the Mohit Minerals case. The Court concludes that any act requiring the GST Council's recommendation must be based on a favourable report.

· The challenge to Notification No. 56/2023-CT argues that, without force majeure, the power under Section 168A could not be exercised. The Court notes that force majeure, as defined in Section 168A, includes natural calamities, war, and epidemics. The GST Council's recommendation must be based on such conditions. However, in its 49th meeting, the Council decided against any further extensions in time line for issuance of Notification No. 09/2023-CT. Since Notification No. 56/2023-CT was issued without considering force majeure or the Council's recommendation, the notification was issued improperly.

· Held that, Notification No. 56/2023-CT is ultra vires the CGST Act and legally unsustainable, and thus quashed it. The State of Assam did not issue any corresponding notification for the periods in question (after April 01, 2024 for FY 2018-19 and after July 01, 2024 for FY 2019-20). Consequently, the Impugned Orders under Section 73(9) of both the CGST and AGST Act were issued beyond the time limit set in Section 73(10), making them without jurisdiction. Therefore, these impugned orders were set aside.

Our Comments:

In a landmark judgment, the Hon'ble Gauhati High Court set aside orders passed under Notification No. 56/2023-Central Tax, dated December 28,2023, providing significant relief to taxpayers. The Court held that the notification, which extended time limits for proceedings related to FY 2018-19 and FY 2019-20, was ultra vires the CGST Act as it was issued without proper consideration of the force majeure requirement and without recommendations from the GST Council.

This ruling underscore the importance of adhering to procedural mandates under Section 168A of the CGST Act, ensuring that any extensions due to force majeure must be backed by the GST Council's recommendation. The judgment highlights the limits of executive powers, affirming that extensions cannot be granted arbitrarily, thereby protecting taxpayers from undue delays and uncertainty in compliance timelines. This decision sets a crucial precedent, reinforcing the principle that all extensions must be transparent, well-reasoned, and in strict compliance with statutory provisions.

Note:

The following High Courts upheld the legislative measures taken in response to the COVID-19 pandemic under Section 168A of the CGST Act, validating the extensions of limitation periods for FY 2017-18.

The Allahabad High Court in Graziano Trasmissioni v. State of Goods Tax [Writ Tax No. 1256 of 2023 and Oths. dated 31.05.2024] ignited this issue with its detailed order and noted that the issuance of the time extension notification under sec 168A was not an administrative action but a legislative function. The Court also noted that the spread of pandemic Covid-19 (i.e., force majeure), remained constant during the period March 15,2020 to February 28,2022. Therefore, it was observed that the first condition of the existence of circumstances for exercise of the said power described as conditional legislation, stood fulfilled. Thus, the Court dismissed the writ petition and held that the power to issue notification extending the time limit for adjudication existed and no excessive extension of time was granted.

Similarly, Kerala High Court in Faizal Traders Pvt. Ltd. v. Deputy Commissioner, Central Tax and Central Excise [WP(C) No. 24810 of 2023]wherein this Court upheld the notifications by holding that it's executive power to extend the period of limitation to COVID-19 for issuance of show cause notice by invoking the powers under sec 168A of the CGST Act.

Relevant Provision:

Sec 168A of the CGST Act, inserted by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, effective from March 31,2020, states:

(1) Notwithstanding anything contained in this Act, the Government may, on the recommendations of the Council, by notification, extend the time limit specified in, or prescribed or notified under, this Act in respect of actions which cannot be completed of complied with due to force majeure.

(2) The power to issue notification under sub-section (1) shall include the power to give retrospective effect to such notification from a date not earlier than the date of commencement of this Act.

Explanation.- For the purposes of this section, the expression "force majeure" means a case of war, epidemic, flood, drought, fire, cyclone, earthquake or any other calamity caused by nature or otherwise affecting the implementation of any of the provisions of this Act.

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