Introduction
In the case of M/s M. Trade Links v Union of India[i], the Kerala High Court (‘KHC’) ruled on the challenges to ss.16(2) & 16(4) of the Central Goods and Services Tax Act, 2017 (‘CGST’) and the State Goods and Services Tax Act, 2017 (‘SGST’) (collectively referred to as ‘the Act’). The KHC has upheld the validity of these provisions and clarified that the time limit for furnishing returns for the month of September is to be treated as 30th November in each financial year from 01.07.2017. This ruling has significant implications for assessees who file their returns for September on or before 30th November, as their claims for input tax credit ('ITC') should be processed if they are eligible.
Brief Facts
The petitioners in this batch of writ petitions, who are registered dealers, have contended that they have been unjustly denied the availment of ITC. Despite possessing valid tax invoices, proof of payment for the value of goods, including the GST components, and the receipt of the goods, they have been denied ITC.
The categories of petitioners in the batch petitions included:
Petitioners whose respective supplier has remitted the tax (GST) but not reflected in their return Form GSTR due to technical reasons.
Petitioners who received the goods or services had valid tax invoices and proof of payment of the value of goods along with the GST component to the respective supplier. Still, the suppliers had not remitted the GST on their supply to the petitioners.
Petitioners who were in possession of an invoice but have no clear proof of payment of consideration or tax towards inward supply might not have received goods in their possession.
The petitioners contended that Form GSTR 2A is an auto-populated, read-only form that contains details of inward supplies based on the outward supplies filed by the supplier. Consequently, the non-operability of Form GSTR 2A should be inconsequential, as the registered person submits returns based on self-assessment in the prescribed form manually on an electronic platform. Therefore, the non-availability of tax payment details in Form GSTR 2A cannot affect the taxpayers’ entitlement to avail ITC on a self-assessment basis, in accordance with the provisions of s. 16 of the Act.
The Central Board of Indirect Taxes and Customs (‘CBIC’), in its press release dated 18.10.2018, has clarified that furnishing of output details in Form GSTR-1 by the corresponding supplier(s) and the facility to view the same in Form GSTR-2A by the recipient is in the nature of taxpayer facilitation and does not impact the entitlement of taxpayer to avail ITC on self-assessment basis in consonance with the provisions of s.16 of the Act.
· Further, the following provisions were challenged by these writ petitions:
It was urged that s.16(2)(c) of the Act, being in violation of a.19(1)(g) of the Constitution of India (‘Constitution’), should be declared unconstitutional or read down to hold that on account any missing details in Form GSTR2A due to suppliers’ failure to furnish the correct details or otherwise should not be the basis for denying ITC to recipient dealer.
S.16(4) of the Act was challenged on grounds of it being arbitrary and violative of as. 14 and 19(1)(g) of the Constitution. It was argued that the ITC, being in the nature of vested rights, mere delay in making entries within stipulated time should not be the basis for denying the benefits of ITC as it would violate a. 300A of the Constitution.
The details of ITC are available in Form GSTR2A, which is available from the department prior to the date prescribed under s.16(4) of the Act, and the availment of ITC would be a mere disclosure in Form GSTR 3B. Therefore, substantial benefits cannot be denied due to procedural lapses in mere non-disclosure in Form GSTR-3B by the due date. Hence, the condition that unless a return in Form GSTR 3B is filed within the stipulated time, the recipient dealer will not be entitled to ITC is arbitrary, unjust and liable to be struck down.
After hearing the petitioner and the respondent, the HC framed the following issues:
Grounds on which taxing statute may be held unconstitutional?
Nature of the claim to ITC under the scheme of the Act and allied rules?
Whether s.16(2)(c) and s.16(4) of the Act infringe constitutional provisions and are unsustainable?
Held
On the first issue, it was held that a taxing statute may be declared unconstitutional if it infringes fundamental rights. However, given the inherent complexity of fiscal adjustment of diverse elements, a more considerable discretion has to be permitted to the legislature for classification so long as there is no transgression of fundamental principles underlying the doctrine of classification.
A statute would not be held unconstitutional merely because other objects could have been taxed but are not taxed by the legislature. It was further held that the power to tax is a sovereign power controlled only by the Constitution, and any limitation on that power must be expressed.
On the second issue, it was held that ITC is, in nature, a benefit or concession extended to the dealer under the statutory scheme. The claim to ITC is not an absolute right, but it can be said that it is an entitlement subject to conditions and restrictions as envisaged in ss.16(2) to 16(4), 43 of the Act and rules made thereunder.
Hence, it was held that there is no substance in the submission that s.16(1) of the Act provides an absolute right to claim ITC and conditions under s.16(2) of the Act cannot take away the right conferred under s.16(1) of the Act.
On the third issue, it was held that as per the scheme of the Acts, ITC can be claimed as a matter of entitlement subject to conditions and restrictions prescribed under the statute.
It was held that in the absence of s.16(2)(c) of the Act, where the interstate supplier’s supplier in the originating state defaults payment of tax, the inter-state supplier is allowed to take credit based on their invoice, the originating state will have to transfer amount it never received in the tax period in a financial year to destination state causing loss to the tune of several crores in each tax period.
Hence, the conditions under s.16(2)(c) of the Act cannot be said to be onerous or in violation of the Constitution. Hence, s.16(2)(c) of the Act is neither unconstitutional nor onerous on the taxpayer.
It was concluded that the petitioners' argument that once the conditions under s.16(2) of the Act are met, the timeline providing for availing the ITC under s.16(4) of the Act is arbitrary and unsustainable and, thus, liable to be rejected.
It was held that S.16(1) of the Act is subject to s. 49 of the Act and s.16(2)(c) of the Act is subject to s. 41 of the Act. Eligible ITC is self-assessed in the Form GSTR 3B return, and only then it is credited to the electronic credit ledger, which can be utilized for tax payment.
It was concluded by the HC that realizing the difficulties in rolling out of GST and resolving all bona fide claims and mistakes, circular no. 183/15/2022-GST dated 27.12.2022 and circular no 193/05/2023-GST dated 17.07.2023 were issued. These circulars covered the period from the introduction of GST till the introduction of s.16(2)(aa) of the Act.
S.16(2)(aa) of the Act stands introduced with effect from 01.01.2022, providing for communication of the matching of the recipient’s invoice with suppliers and outward supply via Form GSTR2A/2B. Further, s.38 of the Act stands substituted with a provision for auto-generated statement Form GSTR 2B, indicating eligible and ineligible credits in respect of inward supply
The ITC could be claimed by the recipient for bona fide scenarios listed in those circulars on submitting proof of payment to the government by the supplier. Hence, it was held that if, during the pendency of these writ petitions, the petitioners could not have got the benefits of these circulars and could not avail of the benefits within the prescribed time limits, they could approach the GST authorities within a period of 30 days of this order and avail the benefits of the fulfilled the conditions under the applicable circulars.
It was further held that considering the difficulties in the initial stage of the GST implementation, the legislature affected the amendment and extended the time for filing the return for September to 30th November in each succeeding financial year.
The amendment is procedural to ease the difficulties the dealers/taxpayers initially faced. 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 be processed if he is otherwise entitled to claim ITC.
Our Analysis
The Judgement of the HC, while upholding the constitutional validity of ss.16(2)(c) & 16(4) of the Act, has also stressed the importance of ensuring fair and equitable implementation of GST Laws. The HC has provided the extension of deadlines for claiming ITC, which aims to alleviate the challenges faced by bonafide taxpayers and enhance compliance to build a robust GST ecosystem. Further, the HC, while determining the nature of ITC claims, has ruled that ITC is in the nature of entitlement subject to restrictions and conditions stipulated under the provisions of the Act.
The HC, while providing substantial relief to bonafide recipients, has held that recipients/petitioners entitled to claim the benefit of the two circulars dated 27.12.2022 and 17.07.2023 could claim the benefit within one month of this judgment.
Further, the time limit for furnishing returns for the month of September is to be treated as 30th November is each financial year w.e.f from 01.07.2017, in respect of petitioners who had filed their returns for the month of September on or before 30th November. Their claim for ITC should be processed if they are otherwise eligible for ITC.
End Note
[i] [2024] 163 taxmann.com 218 (Kerala)
Authored by Huzaifa Salim, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.