Section 16(2)(c) of GST Act and Rule 36(4) of CGST Rules Constitutionally Valid: Kerala HC [Read Order]

In a significant development, the High Court of Kerala at Ernakulam has dismissed two writ appeals challenging the constitutional validity of certain provisions under the Central Goods and Services Tax ( Central GST ) Act and Rules. The appeals were filed by two businessmen, Nahasshukoor, proprietor of M/s N. S. Metals, and Ansil Ibrahim, proprietor of M/s Light House, both located in Alappuzha, Kerala.

The appellants had contested the denial of input tax credit under the CGST Act and State Goods & Service Tax (SGST) Act by the Assistant Commissioner, Second Circle, State Goods & Service Tax Department, Alappuzha. The Assessing Authority had rejected their claims citing discrepancies between GSTR 2A and GSTR 3B returns, leading to the imposition of penalties and initiation of recovery proceedings.

The primary issue revolved around the entitlement of purchasing dealers to claim input tax credit under section 16 of the CGST Act. The appellants challenged the constitutionality of Section 16(2)(c) of the CGST Act and Rule 36(4) of the CGST Rules, contending that these provisions were discriminatory and violated Article 14 of the Constitution.

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The High Court, comprising the Dr. Justice A.K. Jayasankaran Nambiar and Dr. Justice Kauser Edappagath, disposed of both writ appeals together, delivering a common judgment on November 3, 2023.

The court emphasized that input tax credit is a concession provided under the statute and not an absolute right. It pointed out that the burden lies with the dealer to prove eligibility for such benefits. In this case, the appellants failed to produce necessary tax invoices despite multiple opportunities and did not exhaust the alternative appellate remedy before approaching the court.

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The court also rejected the constitutional challenges, stating that the provisions were not discriminatory and did not violate Article 14. It emphasized the need for judicial restraint in interfering with tax legislation unless manifest injustice or unconstitutionality is demonstrated.

Consequently, the High Court bench of Dr. Justice A.K. Jayasankaran Nambiar and Dr. Justice Kauser Edappagath dismissed both appeals without prejudice to the appellants' right to challenge the assessment orders in accordance with the law.

To Read the full text of the Order CLICK HERE

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