Section 16(4) of the CGST Act is constitutionally validity

The Hon'ble Patna High Court in Gobinda Construction v. Union of India [Civil Writ Jurisdiction Case No. 9108 of 2021 dated September 08, 2023] held that, Section 16(4) of the Central Goods and Services Tax Act, 2017 ("the CGST Act") is constitutionally valid and are not violative of Article 19(1)(g) and Article 300 (A) of the Constitution of India and is not inconsistent with or in derogation of any of the fundamental right guaranteed under the Constitution of India.

Facts

Gobinda Construction ("the Petitioner") is a regular taxpayer and filed GSTR-1 timely for the each of the month of financial year 2018-19. However, GSTR-3B for the month February 2019 and March 2019 on October 23, 2019 and November 07, 2019 respectively.

The Revenue Department issued a Show Cause Notice on February 20, 2020 ("the SCN") under Section 73 of the CGST Act ordering to disallow ITC for the tax period February and March 2019 on the ground of filing GSTR-3B after the time period prescribed under Section 16(4) of the CGST Act and alleged that the Petitioner has wrongly availed the ITC for the month February 2019 and March 2019.

The Petitioner in reply to the SCN claimed that it had filed its return in the prescribed Form GSTR-3B and had made necessary disclosures both in respect of inward and outward supply and also paid tax by way of ITC.

The Adjudicating Authority passed an order dated March 19, 2020 ("the Order") and held that the Petitioner is liable to pay the tax and interest Petitioner had availed ITC in breach of Section 16(4) of the CGST Act.

Aggrieved by the Order the Petitioner filed an appeal before the Appellate Authority wherein the authority dismissed the appeal vide an order dated February 06, 2021 ("the Impugned Order") on the ground that ITC availed by the Petitioner for the period February 2019 and March 2019 was inadmissible in view of Section 16(4) of the CGST Act.

Aggrieved by the Impugned Order the Petitioner filed a writ before the Hon'ble Patna High Court and contended that denial of ITC under Section 16(4) the CGST Act beyond the date contemplated therein is confiscatory in nature and 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.

The Respondent contended that ITC is in the nature of benefit/ concession extended to a registered person under the CGST Act which can be availed only as per the scheme of the CGST Act and the statutory scheme under Section 16 of the CGST Act with restriction available under section 16(4) of the CGST Act thereof has uniform application 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.

Issue

Whether Section 16(4) of the CGST Act is constitutionally valid?

Held

The Hon'ble Patna High Court in Civil Writ Jurisdiction Case No. 9108 of 2021 held as under:

• Relied upon the Judgement of Jayam and Company vs. Assistant Commissioner &Anr. reported [(2016) 15 SCC 125] wherein the Hon'ble Supreme Court upheld the constitutional validity of Section 19(11) of Tamil Nadu Value Added Tax Act, 2006 and stated that it is a trite law that whenever concession is given by statute or notification, etc. the conditions thereof are to be strictly complied with in order to avail such concession. Thus, it is not the right of the "dealers" to get the benefit of ITC but it is a concession granted by virtue of Section 19. Thus, the said provision neither can be said to be arbitrary nor violative of the right guaranteed to a dealer under Article 19(1)(g) of the Constitution.
• Opined that, submissions of the Petitioner are not tenable in view of the clear language used in Section 16 of the CGST Act and concession of ITC under Section 16(1) of the CGST Act is dependent upon the fulfilment of requisite conditions laid down under various provisions including section 16(4) of the CGST Act.
• Stated that, there is always a presumption of constitutional validity of a piece of legislation, with the burden of showing the contrary falling heavily upon someone who challenges its validity.
• Held that, Section 16(4) of the CGST Act is constitutionally valid and are not violative of Article 19(1)(g) and Article 300A of the Constitution of India and is not inconsistent with or in derogation of any of the fundamental right guaranteed under the Constitution of India.

Our Comments: Considering the substantial implications of Section 16(4) on businesses, the potential for the denial of ITC can significantly affect entity's overall business operations. Thus, it is advisable to all concerns who are filing belated GSTR-3B with late fees for any tax period pertaining to FY 2022-23 to file the return before the credit become time barred as per Section 16(4).