Case digest on Section 16(4) of CGST Act

The Section 16 (4) of CGST Act is defined as a specified time frame in which a registered taxpayer is required to claim input tax credit. Specific transactions or circumstances defined the exact time. Filing date of the monthly or quarterly return or annual return filing by the due date for financial year whichever is earlier.

Impact of Section 16(4) of CGST Act

Documentation is important - To claim ITC Proper documentation is needed. If the documentation is not correct, it results in rejection in ITC Claim. Complete and correct records of all the expenses and purchases need to be maintained by the businesses. To be levied with provision, a robust accounting system is needed.

Business are effected - For the business purpose input tax credit can be claimed to ensure that tax evasion is avoided and ITC can be claimed. This also promote accountability of the business for the ITC Claimed and transparency is ensured.

Requirement of compliance - In CGST Act the provision of section 16(4). This act makes sure that provisions of the act are known to the business and compiled also. Their are legal implication and penalties which prove to be burden to the business like small businesses

Time Limit on GST Input Tax Credit u/s 16(4) CGST Act: Supreme Court issues Notice to Revenue SHANTI MOTORS vs UNION OF INDIA & ORS. CITATION: 2024 TAXSCAN (SC) 171

In a significant development, the Supreme Court of India has taken up the challenge to the time limit imposed for availing Goods and Services Tax ( GST ) Input Tax Credit ( ITC ) under Section 16(4) of the Central Goods and Services Tax Act, 2017.

The case, Shanti Motors v. Union of India & Ors., questions the constitutional validity of the said provision, asserting that it infringes upon Articles 14, 19(1)(g), and 300A of the Constitution of India.

The Special Leave Petition ( SLP ) challenges the constitutional validity of Section 16(4) of the CGST Act, which sets a time limit for availing Input Tax Credit ( ITC ).

The petition contends that the provision is violative of fundamental rights enshrined in Articles 14, 19(1)(g) and 300A of the Constitution.

The Supreme Court has admitted the Special Leave Petitions and issued notices to the respondents, signaling the initiation of a thorough judicial examination of the issue. Alongside admitting the SLPs, the Supreme Court has issued notice on the interim reliefs as well.

Shanti Motors is represented by a formidable legal team, including Mr. Sujit Ghosh, Sr. Adv., Mr. Bimal Jain, Adv., Ms. Mannat Waraich, AOR, Mr. Ajinkya Tiwari, Adv., and Mr. Keshav Jatwani, Adv.

This legal challenge has far-reaching implications for businesses and taxpayers affected by the time constraints on availing GST credit. Stay subscribed as more details are awaited by the professionals as well as business owners.

Time Limit prescribed for claiming ITC U/s 16(4) APGST Act is not unconstitutional: Andhra Pradesh HC Thirumalakonda Plywoods vs Assistant Commissioner – State Tax CITATION: 2024 TAXSCAN (HC) 263

The Andhra Pradesh High Court has ruled that the time limit prescribed for claiming Input Tax Credit (ITC) under Section 16(4) of the Andhra Pradesh Goods and Service Tax (APGST) Act, 2017 was not unconstitutional

The division bench of the court comprising Justice Durga Prasad Rao and Justice T. Mallikarjuna Rao observed that without serving a proper show cause notice in Form GST DRC-01 and without granting sufficient opportunity to the petitioner U/s 74(5) of the CGST Act, and not considering the petitioner’s submissions and COVID-19 limitations r/w Amnesty Notifications, but confirming the demand of tax, interest, and penalty by restricting the credit with erroneous facts, despite collecting a late fee of Rs.10,000/- for the delay in filing the returns, was not only violated of principles of natural justice but also arbitrary, improper, illegal, and in violation of Article 14, 19(1)(g), 20, 21, and 300-A of the Constitution of India.

Extended Time Limit available for Statutory Appeal: Kerala HC dismisses Writ challenging Constitutionality of Section 16(4) of GST Act TYRE INDIA SPARE INDIA vs STATE TAX OFFICER CITATION: 2024 TAXSCAN (HC) 244

A Single Bench of the Kerala High Court has dismissed a challenge of constitutionality of Section 16(4) of Goods and Services Tax Act ( GST Act ) as withdrawn, preserving the liberty of the petitioner to approach the statutory authority to avail the benefit of extended time limit for filing of statutory appeal.

The Single Bench of Justice Dinesh Kumar Singh held that, “Considering the above submission of the learned Counsel for the petitioner, the present writ petition is dismissed as withdrawn with liberty as prayed above.”

The Input Tax Credit Conundrum: Section 16(4) GST Act Decoded with Recent Judgements on ITC

Section 16(4) of the Goods and Services Tax (GST) being the most attractive provision, allowing taxpayers to claim Input Tax Credit (ITC), reducing the cascading effect that existed in the VAT regime, came with significant catches and setbacks imposed in the form of conditions to be met, converting the vested nature of ITC to a conditional right.

The Goods and Services Tax (GST) Act, 2017 stands as a pivotal legislation poised to revolutionize the Indian economy. Celebrated for its role in economic integration and tax system simplification, the GST Act has, however, encountered hurdles that demand attention for the GST regime’s success.

Section 16(4) of the CGST Act, 2017 has emerged as a significant obstacle for the business community, resulting in considerable burdens. Non-compliance with this provision, often attributed to various reasons, has led to the issuance of substantial demand notices under Section 16(4) read with Section 73 of the Goods and Services Tax Act, 2017.

The ability to claim input tax credit (ITC) is a cornerstone of the Goods and Services Tax (GST) regime. However, claiming this benefit isn’t straightforward, as specific conditions and restrictions govern its validity. This article delves into the intricate interplay between Section 16 of the CGST Act and Article 300A of the Constitution of India, exploring whether ITC becomes a vested right at different stages of compliance.

The Conundrum: Pre- or Post-Compliance Vesting? Section 16(1) empowers registered taxpayers to claim ITC on eligible purchases used in their business. Yet, Section 16(2) lays out mandatory conditions – non-compliance renders the credit ineligible. This raises the question: does ITC become a vested right after fulfilling Section 16(2) only, or earlier upon complying with Section 16(1), thus making it a conditional right rather than a vested right.

Section 16(2) Takes the Wheel – Overriding Compliance Timelines under Section 16(4) Advocates of this argument point to the “non-obstante” clause in Section 16(2), which overrides other provisions within the section. They argue that Section 16(4), specifying a timeframe for claiming ITC, becomes redundant in light of Section 16(2)’s primacy. While Section 16(2) undoubtedly holds weight, considering other provisions is crucial. For instance, Section 16(3) restricts ITC claim on assets where depreciation has been claimed under the Income Tax Act. This further limits the scope of “enablement” of Section 16(1).

CBIC issues Circular on Implementation of Section 16(4) of IGST Act related to Restriction on Export of certain goods on Payment of IGST and Coverage under Refund Mechanism

On September 30, 2023, the Central Board of Indirect Taxes and Customs (CBIC) issued Circular No. 24/2023-Customs, notifying the circular regarding the implementation of Section 16(4) of the Integrated Goods and Services Tax (IGST) Act. This circular pertains to restrictions on the export of specific goods with IGST payment obligations and their inclusion in the refund mechanism.

Referring sub section (4) of section 16 of IGST act 2017 and Notification No. 01/2023-Integrated Tax dated 31.08.2023, vide Notification No. 27/2023-Central Tax dated 31.07.2023, Section 16(4) of IGST Act, 2017 will be effective from 01.10.2023. Further, in terms of above provision, vide Notification no. 01/2023-Integrated Tax dated 31.08.2023, it has been notified that all goods or services (except the goods specified in column (3) of the TABLE in Notification) may be exported on payment of integrated tax on which the supplier of such goods or services may claim the refund of tax so paid. In effect, Goods mentioned in the Table annexed to the above notification may be exported only under LUT.

In view of the above, it is requested that the concerned officers under your jurisdiction may be sensitized, especially for manual Shipping Bills in Non-EDI ports or even at EDI ports, or for export through posts/courier, to not allow export of such notified goods on payment of IGST so as to ensure that no undue benefits are taken by exporting such notified goods in accordance with the provisions of section 16(4) of the IGST act 2017.

The department also requested that suitable trade notices/ public notices may be issued in this regard to sensitise the trade for the same. The difficulties, if any, in the implementation of this circular may be brought to the notice of the Board on email id- dircus@nic.in.

Plea challenging Section 16(4) of the CGST Act for denying ITC if not claimed within due date of Furnishing of Return: Calcutta HC issues notice Rainbow Infrastructure Private Limited & Anr. vs Assistant Commissioner, State Tax, Goods and Service Tax CITATION: 2020 TAXSCAN (HC) 129

The Calcutta High Court has issued notice to the Centre and State Government on the plea challenging the constitutional validity and vires of Section 16(4) of the CGST Act, 2017 and of West Bengal Goods and Service Tax Act, 2017.

It is being further argued that ITC is not taken through return but instead it is taken through the books of accounts immediately on receipt of goods or services in terms of 1 st proviso to Section 16(2) of the Act. It is also being argued that the provision of section 16(4) of the CGST Act,2017/WBGST Act, 2017 is arbitrary and unreasonable as they are violative of Article

Acceptance of Belated Returns with Late Fee Not a Ground to Exonerate Assessee from Time Limit for ITC Claim u/s 16(4): Andhra Pradesh HC Thirumalakonda Plywoods vs The Assistant Commissioner CITATION: 2023 TAXSCAN (HC) 1239

The Andhra Pradesh High Court has held that the acceptance of belated returns of the assessee by the department along with the late fee is not a valid ground to exonerate the assessee from the time limit for Input Tax Credit (ITC) claim under Section 16(4) of the Andhra Pradesh Goods and Services Tax (APGST) Act and Central Goods and Services Tax (CGST) Act, 2017

The bench emphasised that the acceptance of late returns does not exempt the petitioner from the requirements of Section 16(4) and the time limits for claiming ITC are well within the legislative framework. The court thus upholds the validity of the assessment order passed by the authorities.

In conclusion, the division bench comprising Justice U. Durga Prasad Rao and Justice T. Mallikarjuna Rao dismissed the writ petition filed by Thirumalakonda Plywoods against the Assistant Commissioner of State Tax and others.

Section 16(4) of GST Act is Constitutionally valid: Chhattisgarh HC Jain Brothers vs Union of India CITATION: 2023 TAXSCAN (HC) 2007

A division bench of the Chattisgarh High Court held that  the provision outlined in Section 16(4) of the Central Goods and Services Tax Act, 2017 does not infringe upon either Article 14 or Articles 19(1)(g) & 300A of the Constitution, thus upholding the constitutional validity of the same.

The bench held that the petitioner has not presented a compelling case to challenge the constitutional validity of Section 16(4) of the Central Goods and Services Tax Act, as it stands as a constitutionally sound piece of legislation. The bench asserted that the provision outlined in Section 16(4) of the Central Goods and Services Tax Act does not infringe upon either Article 14 or Articles 19(1)(g) & 300A of the Constitution.

The bench Chattisgarh High Court Division Bench consisted of Justices Radhakrishnan K Agarwal and Sanjay K Agarwal.

The petitioner was represented by Palash Soni and the revenue was represented by Deputy Solicitor General of India Ramakant Mishra and Anmol Sharma.

Patna High Court Upholds Constitutionality of Section 16(4) of CGST Act Restricting ITC Availment Gobinda Construction vs Union of India through the Secretary CITATION: 2023 TAXSCAN (HC) 1378

The High Court of Patna has upheld the constitutional validity of Section 16(4) of the Central Goods and Services Tax (CGST) Act, 2017 imposing restrictions on Input Tax Credit (ITC) claims on the observation that Articles 19(1)(g) and 300A of the Constitution of India remains intact and Fundamental Rights and Legal Consistency are safeguarded.

Section 16(4) of the CGST Act, 2017 had faced scrutiny due to its denial of ITC for invoices or debit notes pertaining to goods or services supplied after the due date for filing returns for the month of September following the end of the financial year or the filing of the relevant annual return, whichever is earlier.

The bench pointed to a similar case of Jayam and Company vs. Assistant Commissioner & Anr. involving Section 19(11) of the Tamil Nadu Value Added Tax Act, 2006, where the Supreme Court had upheld the constitutional validity of a provision with similar restrictions on ITC claims. The clear finding was that 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 of India.

In result, the division bench comprising Justice Chakradhari Sharan Singh and Justice Madhuresh Prasad dismissed the writ applications challenging the constitutionality of Section 16(4) of the CGST Act without costs.

Direction to Declare Section 16(4) of CGST/SGST Act 2017 r/w Rule 61 of KGST Rules as Ultravires Constitution: Karnataka HC dismisses WP SHRI PRABHAYYA BASAYYA DANDAVATIMATH vs THE COMMISSIONER OF CENTRAL GOODS AND SERVICE TAX AND CENTRAL EXCISE CITATION: 2023 TAXSCAN (HC) 981

The High Court of Karnataka dismissed the Writ Petition direction to declare section 16(4) of the Central Goods and Service Tax (CGST/SGST) Act 2017 r/w Rule 61 of Karnataka Goods and Service Tax (KGST) Rules as ultra vires constitution.

A Single judge bench comprising Justice S Vshwajith Shetty dismissed the writ petition as not pressed with liberty to the petitioner to challenge the order dated 01.05.2023 passed by the 2nd respondent in a separate proceeding.

Sec 16(2) of CGST Act has No Overriding Effect on Sec 16(4): Both Declared Mutually Exclusive & Independent: Andhra Pradesh HC Thirumalakonda Plywoods vs The Assistant Commissioner CITATION: 2023 TAXSCAN (HC) 1239

The High Court of Andhra Pradesh has held that Section 16(2) of the Central Goods and Services Tax (CGST) Act, 2017 does not possess an overriding effect on Section 16(4), as both sections are considered mutually exclusive and independent in their operation

In conclusion, the division bench comprising Justice U. Durga Prasad Rao and Justice T. Mallikarjuna Rao dismissed the writ petition emphasising the interpretation and application of Section 16(2) and Section 16(4) of the CGST Act and thus resolved the complexities surrounding these Sections.

Overriding Effect of ITC Provisions over Time Limit of Filing Returns: Calcutta HC upholds Constitutional Validity of Section 16(4) of GST Act M/S. BBA INFRASTRUCTURE LIMITED vs SENIOR JOINT COMMISSIONER OF STATE TAX AND OTHERS CITATION: 2023 TAXSCAN (HC) 1970

The Calcutta High Court, reaffirming the prevalence of time limit conditions imposed on filing of Goods and Services Tax Returns over legal right to claim Input Tax Credit (ITC), upheld the constitutional validity of the Section 16(4) of the Central Goods and Services Tax Act, 2017.

The Division Bench of Calcutta HIgh Court presided over by Chief Justice T S Sivagnanam and Justice Hiranmay Bhattacharyya heard Vinay Shraff, Advocate appearing for the appellant, assisted by Priya Sarah Paul, advocate for the appellant and T.M. Siddiqui, Additional Government Pleader assisted by T. Chakraborty and S Sanyal for the respondent department.

The revenue contended that, “The language of Section 16 is clear that the non-obstante clause in Section 16(2) does not in any manner limit the operation of Section 16(3) or Section 16(4) and they are not contradicting, rather they all being to restrict the provisions, are basically complementing each other and are limiting the scope and operation of Section 16(4). Further, it is submitted that the legislative intent is not to make Section 16(4) otiose by applying Section 16(2) of the Act. Conjoint reading of Section 16(2)(d) and Section 16(4) make it clear that the entitlement to the credit of any Input Tax in respect of any supply of goods or services or both arises after filing of return under Section 39 of the Act.”

Time Limit on ITC Claim u/s 16(4) of CGST Act Deemed Constitutional, Articles 14, 19(1)(g) and 300A Remain Intact: Andhra Pradesh HC

The High Court of Andhra Pradesh has held that the time limit imposed on the claim of Input Tax Credit (ITC) under Section 16(4) of the Central Goods and Services Tax (CGST) Act, 2017 is not in violation of constitutional provisions.

In conclusion, the division bench comprising Justice U. Durga Prasad Rao and Justice T. Mallikarjuna Rao dismissed the writ petition and upheld the constitutionality of the time limit prescribed for claiming ITC under Section 16(4) of the CGST Act citing that the same is not violative of Articles 14, 19(1)(g) and 300-A of the Constitution of India.

No contradiction between S. 16 (2) and 16(4) of GST Act against availing ITC: Andhra Pradesh HC Thirumalakonda Plywoods vs Assistant Commissioner – State Tax CITATION: 2024 TAXSCAN (HC) 263

The Andhra Pradesh High court ruled that there was no contradiction between under Section 16(2) and 16(4) of the Andhra Pradesh Goods and Service Tax (APGST) Act, 2017 regarding the basic conditions for availing Input Tax Credit (ITC).

The division bench of the court comprising Justice Durga Prasad Rao and Justice Mallikarjuna observed that Section 16(4), being a non-contradictory provision and capable of clear interpretation, would not be overridden by the non-obstante provision U/s 16(2) of the CGST Act 2017.

As already stated 16(4) only prescribes a time restriction to avail credit. For this reason, the argument that 16(2) overrides 16(4) was not correct. Thus, in substance, Section 16(1) was an enabling clause for Input Tax Credit (ITC); 16(2) subjects such entitlement to certain conditions; Section 16(3) and (4) further restrict the entitlement given U/s 16(1). That being the scheme of the provision, it is out of context to contend that one of the restricting provisions overrides the other two restrictions.

Interest should be Levied on Belated GST Cash Payments but not on ITC: Madras HC

While allowing the Writ Petition, the Madras High Court has held that the GST Department could be levied interest only on the cash component of the tax remitted belatedly but not on ITC available.

The specific question for resolution before the court is as to whether the credit is due to an assessee, payment by way of adjustment can still be termed ‘belated’ or ‘delayed’.  The use of the word ‘delayed’ connotes a situation of deprival, where the State has been deprived of the funds representing tax component till such time the Return is filed accompanied by the remittance of tax. The availability of ITC runs counter to this, as it connotes the enrichment of the State, to this extent.  Thus, Section 50 which is specifically intended to apply to a state of deprival cannot apply in a situation where the State is possessed of sufficient funds to the credit of the assessee.  The court considered the proper application of Section 50 is one where interest is levied on belated cash payment but not on ITC available all the while with the Department to the credit of the assessee.

The Court observed that, As per Section 50(1) of the CGST Act interest shall be levied only on that part of the tax which is paid in cash, has been inserted with effect from 01.08.2019, but clearly seeks to correct an anomaly in the provision as it existed prior to such insertion. It should be read as clarificatory and operative retrospectively.

Cash Crunch led to Belated Filing of GSTR-3B: Madras HC remands ITC Claim for Fresh Consideration Tvl.Kavin HP Gas Gramin Vitrak vs The Commissioner of Commercial Taxes CITATION: 2023 TAXSCAN (HC) 2014

A Single Bench of Madras High Court has remanded the Input Tax Credit (ITC) Claim of Assessee owing to cash crunch that led the assessee to file GSTR-3B and GSTR-2 belatedly and in offline modes, while the same was rejected for belated filing.

The Single Bench of Justice S Srimathy thus held that, “impugned orders are quashed. The respondents shall permit the petitioner to file manual returns whenever the petitioner is claiming ITC on the outward supply / sales without paying taxes. Further the respondents are directed accept the belated returns and if the returns are otherwise in order and accordance to law, the claim of ITC may be allowed. Hence, the matter is remitted back to the authorities for reconsideration.”

The Madras High Court’s observation regarding the hindrance created by the absence of an option to file incomplete GSTR-3B online highlights the need for improvements in the GSTN infrastructure. The suggestion that the GST Council should address these practical difficulties and consider allowing manual filing until online options are optimized adds a policy dimension to the judgment.

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