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The Andhra Pradesh High Court Upholds the Constitutional Validity of S. 16(4) of the CGST Act

Introduction

The Andhra Pradesh High Court (‘Court’), in the case of Thirumalakonda Plywoods v. Assistant Commissioner,[i] examined the constitutionality of the time limit for claiming input tax credit (‘ITC’) under s. 16(4) of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) and the Andhra Pradesh Goods and Services Tax Act, 2017 (‘APGST Act’). The Court's decision, which upheld the constitutional validity of s. 16(4) of the CGST Act has significant implications for businesses and tax compliance. The court confirmed that the time limit for availing of ITC does not violate Articles 14, 19(1)(g), and 300A of the Constitution of India, providing a clear legal framework for tax credit claims.

Brief Facts

  • Thirumalakonda Plywoods (‘Petitioner’), a business in the hardware and plywood industry, commenced operations in March 2020. However, due to the COVID-19 pandemic, the Petitioner was unable to file Form GSTR-3B for March 2020 on time. The Petitioner eventually filed the form on 27.11.2020, accompanied by late fees.

  • A notice was issued under s. 74(1) of the CGST Act, followed by an order that disallowed the ITC claimed by the Petitioner in the late-filed GSTR-3B. This was on the grounds that s. 16(4) of the CGST Act, which sets the time limit for availing eligible ITC, was not complied with. S. 16(4) of the CGST Act specifies the deadline for availing eligible ITC, and claims made after this date are invalid.

  • The Petitioner filed a writ petition before the Court challenging the validity of s. 16(4) of the CGST Act and APGST Act, arguing the following points:

    • The time limit for claiming ITC under s. 16(4) is unconstitutional, violating Articles 14, 19(1)(g), and 300A of the Indian Constitution.

    • S. 16(2) of the CGST Act, which lays down the conditions for availing ITC, should take precedence over s. 16(4), making the time limit in Section 16(4) irrelevant if the conditions in s. 16(2) are met.

    • Since the late return in Form GSTR-3B was accepted along with the late fees, the Petitioner should not be deprived of the right to claim ITC solely because of the delayed filing.

    • Does the summary of the order under Form GST DRC-07 issued by the respondent become invalid due to the failure to serve a show cause notice under Form GST DRC-01 as required by the procedure

    • Consequently, the Petitioner should be allowed the ITC.

Held

The Court dismissed the writ petition, affirming the constitutional validity of s. 16(4) with the following reasoning:

  • The Court held that ITC was a concession or benefit, not a statutory or constitutional right. Consequently, the Legislature had the authority to impose conditions, including time limits, for availing such benefits, which could not be challenged as violating constitutional provisions. Rulings in Jayam and Co. v. Assistant Commissioner supported this argument.

  • S. 16(1) of the CGST Act outlines the entitlement to ITC, while s. 16(2) specifies the conditions that must be met to claim ITC. These conditions are prerequisites for eligibility. 16(2), a restrictive provision that limits the eligibility provided under s. 16(1).

  • S.  16(2) sets eligibility conditions for claiming ITC, whereas s. 16(4) imposes a time limit within which this eligible ITC can be claimed. The court emphasized that these sections operate independently and collectively, s. 16(2) does not override or control s. 16(4). Instead, both sub-sections are distinct and operate independently.

  • The collection of late fees for delayed return filings is intended to process and verify returns and does not affect the statutory limitation imposed under s. 16(4) of the CGST Act.

  • The Assessment Order shows that the respondent thoroughly addressed and rejected the Petitioner's objections regarding the improper form of the notice and lack of opportunity for a hearing. Therefore, these contentions lack merit.

Conclusion

The Court rightly upheld the constitutional validity of s. 16(4) of the CGST Act, affirming that the prescribed time limit for claiming Input Tax Credit (ITC) is a legitimate legislative condition. By distinguishing the independent functions of ss. 16(2) and 16(4), the Court clarified that eligibility conditions and time limits are distinct provisions that operate collectively to regulate ITC claims.







End Note

[i] W.P. No. 24235 of 2022






Authored by Nitish Solanki, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.

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