[BREAKING] Section 16(4) GST ITC Availment Time Limit is November, Applies Retrospectively from Inception of GST: Kerala HC [Read Order]

In a regime-shaking decision, the Kerala High Court has held that the time limit to avail Input Tax Credit (ITC) under Section 16(4) of the Goods and Services Tax Act, 2017 is till 30th November in each financial year, with effect from 01.07.2017, the inception of GST, for the petitioners of the case.

The petitioners are traders and proprietors across Kerala, represented by Meera V Menon, K P Pradeep, Hareesh M R, T T Biju, T Thasmi, K P Abdul Azees, Akhil Suresh, T Archana, Aji V Dev, Alan Priyadarshi Dev, S Sajevan, Tomson T Emmanuel, K S Hariharan Nair, Harima Hariharan, G Remadevi, Rajath R Nath, P N Damodaran Namboodiri, A Krishnan, K N Sreekumaran, P J Anilkumar, N Santhoshkumar, A Kumar, G Mini and P S Sree Prasad.

For the petitioners, it was submitted that, “Section 16(4) is a procedural provision, and by recourse to the procedural provision, the substantive right of the taxpayer, i.e., the claim of

ITC on the inward supply, cannot be defeated. Input Tax Credit is the core concept of the GST regime as it avoids the cascading effect of taxes and ensures that tax is collected in the State where goods, services, or both are consumed.”

It was further submitted that, “Filing of returns with late fees and interest cures the defect of late filing. Once a return has been filed with a late fee, by applying the provisions of Section 16(4) of limitation, the substantial claim of the dealer should not be defeated regarding ITC, which is otherwise admissible to him under the provisions of the Act. Once the returns are accepted with the late fee, the dealer should be eligible for the ITC. Once the delay is regularised, such returns are to be construed to be filed within the due date. Section 47 of the Act provides for the filing of returns with late fees, and if a dealer files the return beyond the due date with late fees, such returns should be accepted without applying the rigour of limitation prescribed under Section 16(4) of the Act.”

It was further submitted that the provisions of Section 16(4) of the Act are arbitrary in nature and hence violative of Articles 14 and 19(1)(g) of the Constitution of India. The assessee cannot be made to suffer by disallowing ITC on account of the failure on the part of the Department to notify the FORM GSTR-2 and GSTR-3 respectively.

It is also submitted that the retrospective amendment to Rule 61 of the CGST Rules, 2017 is also unconstitutional, being violative of Article 14 of the Constitution. Similarly, retrospective amendment to Rule 61(5) of the Rules is also unconstitutional, being violative of Article 279A of the Constitution of India.

The main objective is to avoid cascading effects on the supply chain of goods and services and ease the taxing administration. The provision of Section 16(4) runs contrary to the said objective of the legislation and, in effect, is punitive. Section 16(4) is in contradiction with the policy framework under the Constitution, particularly Articles 246A, 286, 366(12A) and (26A).

It was also submitted that the provision under Section 16(4) mandating submission of a claim for ITC within a particular time should be read as a directory and not mandatory.

The filing of return in GSTR-3B is, therefore, only a condition precedent for allowing the claim of ITC, which has been claimed in the books of account, it was argued.

Representing the revenue-State, GSTN, CBEC and CBIC, appeared Special Government Pleader Muhamed Rafiq, Sreelal N Warrier, Malini K Menon, Sreejith P R, Preetha S Nair and P R Sreejith.

On behalf of the respondents, it was submitted that under the GST laws, the tax collected has to be assigned to the jurisdiction where consumption takes place.

The ITC, therefore, crosses a State during inter-state supplies. The GST Act prescribes the conditions, restrictions, time limit and the manner for availing ITC. These conditions, restrictions etc along with other provisions form the legal fulcrum that balances three requirements:

 a) granting of ITC for removing cascading effect

 b) Achieving collection of Tax by self-assessment method for each financial year; and

 c) ITC transfer compliance to the destination state on interstate- supplies- (through the IGST mechanism where the Centre collects tax equivalent to (CGST and SGST).

The counsel for the revenue further added that if the supplier dealer fails to deposit the tax collected from the recipient dealer, it would break the tax chain and the ITC in such a situation cannot be allowed as the State could not have received the tax, and therefore, there would be no question of making payment of the tax where the State has not received the tax.

Special Government Pleader (Taxes), submitted that the sales tax, though, is an indirect tax on the consumers, but the incidence of tax is on the sale of goods, which falls squarely on the dealer.  It may not be necessary for the dealer to have passed the incidence of tax on sale to the purchaser.

Therefore, the contention raised in the writ petition is that by denying the ITC under the provisions of Section 16(2) (c) and 16(4) of the Act, the levy loses its character as an indirect tax, has no merit and is to be reflected, he contended.

Having considered the rival submissions of the Counsel representing the petitioners, the Central Government, the State Government, and the CBIC, the following issues were framed for determination in the batch of writ petitions:

I) What are the grounds on which a taxing Statute can be held to be unconstitutional?

II) What is the nature of the claim to Input Tax Credit under the scheme of the GST Act and the Rules made thereunder?

III) Whether Section 16(2)(c) and Section 16(4) of the CGST/SGST Act infringe the Constitutional provisions and are unsustainable?

It was noted that, “both Central and State legislation have the power to enact the CGST/SGST Act, and the Constitution prescribes no limitation for enacting such legislation. Therefore, these legislations are valid legislations”, with regard to the first issue, as, “The power to levy tax is a sovereign power controlled only by the Constitution, and any limitation on that power must be express one.  Unless and until the Court finds or arrives at a conclusion that the Constitution itself has expressly prohibited legislation on the subject either absolutely or conditionally, the power of the Central/State to enact legislation within its legislative competence is a plenary power.”

It was noted by the bench that, “the nature of the claim for ITC by the dealer is in the nature of concession or entitlement, which is not an absolute right and is subject to the conditions and restrictions as per the scheme of the GST legislation.”

It was thus held that the court, therefore, does not find substance in the submissions of the Counsel for the petitioners that Section 16(1) of the GST Act provides an absolute right to claim Input Tax Credit and conditions in sub-section (2) of Section 16 cannot take away the right conferred under sub-section (1) of Section 16.

With regard to the most important and third issue in the matter, it was observed by the bench that, “Prior to the amendment in Section 39 by the Finance Act 2022, the date for furnishing the return under Section 39 was 30th September. Considering the difficulties in the initial stage of the implementation of the GST regime, its understanding, and compliance, the Legislature effected the amendment and extended the time for filing the return for September to 30th November in each succeeding Financial Year. 

It was further noted that, “The amendment is only procedural to ease the difficulties initially faced by the dealers / taxpayers.  Therefore, where for the period from 01.07.2017 till 30.11.2022, if a dealer has filed the return after 30th September and the claim for ITC was made before 30th November, the claim for ITC of such dealer should also be processed if he is otherwise entitled to claim the ITC.”

It was further added that, “ This amendment being procedural has to be given retrospective effect and, therefore, it is provided that it should be treated that the time limit for furnishing the return for the month of September is 30th November in each Financial Year with effect from 01.07.2017, considering the peculiar nature of difficulties in the initial period of implementation of the GST regime.”

However, it was clarified that, “So far as the challenge to the constitutional validity of Section 16(2)(c) and Section 16(4) is concerned, the same is rejected.”

In result, it was held by the Single Bench of Justice Dinesh Kumar Singh that, “The liberty is granted to the petitioners, who can claim the benefit of the two Circulars, namely, Circular No. 183/15/2022 GST dated 27.12.2022 and Circular No. 193/05/2023- GST dated 17.07.2023 to make their claim within one month from today before the appropriate authority who shall examine the claim of the individual dealer and process the claim.”

“The time limit for furnishing the return for the month of September is to be treated as 30th November in each financial year with effect from 01.07.2017, in respect of the petitioners who had filed their returns for the month of September on or before 30th November, and their claim for ITC should be processed, if they are otherwise eligible for ITC”, the Single Bench of the Kerala High Court stated, concluding the matter.

To Read the full text of the Order CLICK HERE

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