[BREAKING] Revenue cannot Levy Penalty on Belated GST Returns and then Disallow ITC due to Belated Filing: Madhya Pradesh HC [Read Order]

The Madhya Pradesh High Court recently held that the Revenue may not unfairly prejudice an Assessee by disallowing Input Tax Credit ( ITC ) citing delay in returns after already levying late fees for belated filing of Goods and Services Tax ( GST ) Returns.

The decision was given by the Madhya Pradesh High Court while jointly adjudicating ten Writ Petitions filed by multiple business entities against the decision of the Revenue. All the Petitioners are Proprietorship firms registered under the provisions of the Central Goods and Services Tax Act, 2017 ( CGST Act ).

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For the sake of the convenience, the High Court proceeded to pass the Order in light of the leading Petition filed by M/s Anand Steel.

The Petitioners had belatedly filed their GST Returns for the months between April 2018 to March, 2019 during the Financial Year (F.Y.) 2018-19, along with late fee on the outward supplies, while claiming Input Tax Rebate as per their aggregate inward supplies for the relevant period.

Thereafter, the Revenue issued notices under Section 73 of the GST Act intimating disallowance of the ITC for the tax period between 2018-19 bizarrely averring that the Assessee had delayed in filing return in FORM GSTR-3B. Despite filing a reply to the purported notice, the Assistant Commissioner of CGST proceeded to pass the impugned order under Section 74 of the GST Act.

Senior Advocate Sumit Nema, along with Arun Dwivedi appearing for Anand Steels among numerous grounds, contested the constitutional validity of imposing time limit for claiming ITC under Section 16(4) of the CGST Act, 2017 averring loss to registered taxpayer due to disallowance of claimable ITC.

Additional Advocate General, Khushbu Verma, appearing on behalf of the Revenue contended that the issue at hand had been adequately adjudicated by the Madras High Court in S.Banumathi vs The Commissioner, Greater Chennai Corporation and Ors. (2023).

The Division Bench of the Madhya Pradesh High Court constituted by Justice Sushrut Arvind Dharmadhikari and Justice Binod Kumar Dwivedi observed that a Right on ITC is created when a taxpayer duly fulfills all conditions as specified in Section 16(2) of the Act. Section 16(2), being a  non obstante provision, would override any time limit imposed through the inserted SECTION 16(4).

Furthermore, the Bench observed the lack of provisions governing filing of revised returns under  GST laws where taxpayers file monthly returns and are made to wait for long periods of time to reconcile any mismatched GST and allied financial records.

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In light of the observation, the Bench held that permitting a taxpayer to file late fees under Section 47 and interest under Section 50 of the Act to facilitate belated filing of GST Returns, then proceeding to disallow ITC on the grounds that the Returns had been filed belatedly results in punishing the Assessee twice by means of Section 16(4) for a single default is ‘arbitrary and capricious’.

Granting relief to the Petitioners, the Division Bench allowed the Petitions observing no requirement to examine the Constitutional validity of the Section 16(4) of the GST Act while setting aside all of the impugned show-cause notices and assessment orders.

To Read the full text of the Order CLICK HERE

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