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).
Input Tax Credit – A Vested Right or Conditional Right?
Declaring ITC a vested right solely after Section 16(2) compliance overlooks the restrictive provisions like Section 16(3). A more nuanced understanding recognizes that different conditions at various stages contribute to the validity and ultimately, the potential vesting of ITC.
Notable Decisions- Compilation of Decisions on 16(4) of CGST Act
Constitutional Validity of Section 16(4) of Central Goods and Services Tax Act: —
Jain Brothers vs Union of India CITATION: 2023 TAXSCAN (HC) 2007
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.
Gobinda Construction vs Union of India through the Secretary CITATION: 2023 TAXSCAN (HC) 1378
The Patna High Court has affirmed the constitutionally sound nature of Section 16(4) within the Central Goods and Services Tax (CGST) Act, 2017. This provision places limitations on Input Tax Credit (ITC) claims.
It was also emphasized that such restrictions were neither arbitrary nor violative of a dealer’s rights under Article 19(1)(g) of the Constitution of India.
The Patna High Court concluded that Section 16(4) of the CGST Act is constitutionally valid and does not violate Articles 19(1)(g) and Article 300A of the Constitution of India. The bench asserted that the provision is consistent with all the fundamental rights guaranteed under the Constitution of India.
The court clarified that ITC is a concession granted by the CGST Act, not a right, and its conditions must be strictly met.
Acceptance of Belated Returns and ITC Claims: —
Tirumala Konda 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.
Interest on belated ITC —
M/s.Refex Industries Limited Vs The Assistant Commissioner of CGST & Central Excise
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 ruling was made by the bench composed of member Dr Justice Anita Sumanth in the case of M/s.Refex Industries Limited Vs. The Assistant Commissioner of CGST & Central Excise.
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.
Overriding Effect of ITC Claims over Time Limits of GST Return Compliance —
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.
It further observed by the Calcutta High Court Division Bench that, “Very recently, the Hon’ble Division Bench of the High Court of Andhra Pradesh had considered an identical case as that of the case on hand, wherein a pari materia provision under the Andhra Pradesh General Sales Tax, 2017 namely Section 16(4) of the Act was considered in a challenge to its validity on the ground that it violates Article 14, 19(1)(g), and 300A of the Constitution of India; whether the non-obstante clause in Section 16(2) of the APGST, CGST Act, 2017 would prevail Section 16(4) of the APGST/CGST Act, 2017.
It was noted that, “the argument advanced before us by the learned Advocate for the appellant were identical to that of the arguments which were placed by the petitioners/assessee in the said case and the same was rejected, in our view rightly on the ground that Section 16(2) prescribes, the eligibility criteria which is mandatory and in the absence of fulfillment of the eligibility criteria the dealer will not be entitled to claim ITC.”
For all the above reasons, the Calcutta High Court found no ground to grant the relief sought for by the petitioner in the writ petition.
Hopeful Decision on belated filing of GSTR-3B and Rejection of ITC —
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 most important observations being, “Hence if the GSTN provided option for filing GSTN without payment of tax or incomplete GSTR-3B, the dealer would be eligible for claiming of input tax credit. The same was not provided in GSTN network hence, the dealers are restricted to claim ITC on the ground of non-filing of GSTR-3B within prescribed time if the option of filing incomplete filing of GSTR-3B are provided in the GSTN network the dealers would avail the claim and determine self-assessed ITC in online. The petitioner had expressed real practical difficulty. The GST Council may be the appropriate authority but the respondents ought to take steps to rectify the same. Until then the respondents ought to allow the dealers to file returns manually”, the bench allowed the appeal in favour of the assessee.
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