Challiyil Vijayan Shan vs Assistant Commissioner (Wc & Lt) on 4 June, 2024

Here's a summary of the judgment Challiyil Vijayan Shan vs Assistant Commissioner (Wc & Lt) on 4 June, 2024, structured as requested:

1. Outcome

• The High Court rejected the challenge to the constitutional validity of Sections 16(2)(c) and 16(4) of the Central Goods and Services Tax Act and State Goods and Services Tax Act, 2017.
• Liberty was granted to petitioners to claim benefits under Circular No. 183/15/2022-GST (dated 27.12.2022) and Circular No. 193/05/2023-GST (dated 17.07.2023) within one month, if applicable to their cases.
• The time limit for furnishing returns for the month of September under Section 16(4) is to be retrospectively treated as 30th November in each financial year, effective from 01.07.2017, for eligible petitioners.

2. Core Issue

The core issue was the constitutional validity of:
* Section 16(2)(c) of the CGST/SGST Act, which mandates that Input Tax Credit (ITC) is available only if the tax charged in respect of the supply has been actually paid to the Government by the supplier.
* Section 16(4) of the CGST/SGST Act, which prescribes a time limit (originally 20th October, later amended to 30th November) for a registered person to take ITC for any invoice or debit note pertaining to a financial year, i.e., up to the due date for furnishing the return for September of the succeeding financial year or the furnishing of the relevant annual return, whichever is earlier.

3. Key Facts

• The GST regime was introduced on 01.07.2017, aiming for "One India, One Market, One Tax" and the elimination of cascading tax effects through ITC.
• Petitioners are registered dealers who were denied ITC despite having valid tax invoices, proof of payment of goods/services value along with GST to their suppliers, and receipt of goods/services.
• Some suppliers either did not remit the collected GST to the Government or the tax remittance was not reflected in GSTR-2A/GSTR-3B due to technical reasons or non-filing.
• GSTR-2A is an auto-populated, read-only document meant to facilitate self-assessment.
• CBIC had issued Circulars 183/15/2022-GST and 193/05/2023-GST to address mismatches and bona fide claims for the period from GST inception until 01.01.2022.
• Section 16(4) was amended by the Finance Act, 2022, extending the ITC claim deadline for September returns from 30th September to 30th November.

4. Arguments (Taxpayer vs Revenue)

• Taxpayer (Petitioners):

  • Unconstitutionality: Sections 16(2)(c) and 16(4) violate Articles 14 (equal treatment of bona fide and colluding purchasers), 19(1)(g) (unreasonable restriction on trade, affecting business operations), and 300A (ITC is property, deprivation without authority of law).
  • Nature of ITC: ITC is a vested right, not a mere concession, based on Section 16(1)'s language "shall be entitled."
  • Impossibility & Double Taxation: Denying ITC for the supplier's default is impossible for the recipient to comply with and leads to double taxation, as the recipient has already paid the tax to the supplier. The government has other recovery mechanisms against defaulting suppliers.
  • GSTR-2A as Facilitator: Non-reflection in GSTR-2A should not override a bona fide recipient's claim if they hold valid documents.
  • Section 16(4) is Procedural: Time limits should be directory, not mandatory. Late filing with fees should regularize the return.
  • Retrospective Amendment: The amendment to Section 16(4) extending the deadline to 30th November should apply retrospectively from 01.07.2017 due to initial GST implementation complexities.

• Revenue (Respondents):

  • Nature of ITC: ITC is a concession/entitlement granted by statute, subject to strict conditions and restrictions (citing Godrej & Boyce Mfg. Co.(P) Ltd. and VKC Footsteps (India) (P) Ltd.). It is not an absolute or fundamental right.
  • Constitutional Validity: Taxing statutes enjoy wide legislative discretion. Sections 16(2)(c) and 16(4) are valid, reasonable, and non-discriminatory conditions applicable to all registered persons.
  • Integrity of GST Scheme: Section 16(2)(c) (actual payment) is vital to prevent revenue loss, especially in inter-state transactions where the IGST mechanism (Section 53) requires the originating state to transfer tax to the destination state. Without actual payment, the originating state would transfer funds it never received.
  • Time Limits: Necessary for budgetary certainty and revenue estimation (Willowood Chemicals). Similar time limits existed in prior tax regimes.
  • Burden of Proof: Section 155 places the onus on the claimant to prove eligibility for ITC.
  • No Double Taxation: The recipient's recourse is against the defaulting supplier, and the government can also recover from the supplier.
  • Circulars as Relief: Existing CBIC Circulars already address bona fide mismatches for the initial period.
  • Precedents: High Courts in Patna and Andhra Pradesh have upheld the constitutional validity of Section 16(4) (Gobinda Construction, Thirumalakonda Plywoods), and Section 16(2)(c) (Aastha Enterprises).

5. Court’s Reasoning

• Constitutional Validity of Taxing Statutes: Reaffirmed that taxing statutes are presumed constitutional and can only be struck down for lack of legislative competence or violation of fundamental rights. The CGST/SGST Act falls within legislative competence under Article 246A.
• Nature of ITC: Concurred with the Revenue that ITC is a concession or entitlement, not an absolute right, subject to statutory conditions and restrictions.
• Section 16(2)(c) (Actual Payment):
  • Held that this condition is constitutional and essential for the proper functioning and financial integrity of the GST regime, especially the IGST mechanism. Without it, the "one India, one market, one tax" principle would collapse due to untraceable tax flows and revenue losses for states.
  • Emphasized that the words "actually paid to the Government" are unambiguous and strictly applied.
  • Rejected the "impossibility" and "double taxation" arguments, noting that the registered person has an incentive and responsibility to ensure supplier compliance, and legal recourse against defaulting suppliers.
• Section 16(4) (Time Limit):
  • Affirmed its constitutional validity, citing its necessity for financial certainty, budgetary planning, and preventing indefinite claims.
  • Noted that the GST time limits (up to 20 months/30 November) are reasonable and even more generous than those under previous tax laws.
  • Concurred with other High Courts that this provision is a valid restriction and not arbitrary or discriminatory.
• Reliefs based on Circulars: Acknowledged the practical difficulties faced by taxpayers during the initial years of GST. Directed GST authorities to examine individual claims under CBIC Circulars 183/15/2022-GST and 193/05/2023-GST for the period up to 01.01.2022.
• Retrospective Application of Section 16(4) Amendment: Recognizing difficulties in the early phase of GST implementation, ruled that the amendment to Section 16(4) extending the deadline for September returns to 30th November is a procedural change. Therefore, it should be given retrospective effect from 01.07.2017, meaning claims filed between 30th September and 30th November for the relevant financial year should be processed if otherwise eligible.

6. Statutory References

• Constitution of India: Articles 14, 19(1)(g), 31(1), 246A, 265, 300A.
• Central Goods and Services Tax Act, 2017:
  • Sections 2(46), 2(59), 12, 13, 15, 16 (Sub-sections (1), (2)(a), (aa), (b), (ba), (c), (d), (3), (4)), 31, 34, 37, 38, 39, 41, 43, 43A, 44, 47, 49, 50, 53, 54, 59, 155.
• CGST Rules, 2017: Rules 36, 59 (FORM GSTR-1), 60 (FORM GSTR-2B), 61.
• Finance Act, 2022: Section 100.
• Other Laws: Central Sales Tax Act, 1956; Income Tax Act, 1961; Maharashtra Value Added Tax Act, 2002; Central Sales Tax (Karnataka) Rules, 1957; Cenvat Credit Rules, 2004.
• CBIC Circulars: No. 183/15/2022-GST dated 27.12.2022; No. 193/05/2023-GST dated 17.07.2023.

7. Precedents Cited

• Godrej & Boyce Mfg. Co.(P) Ltd. & others V. CST & others [(1992) 3 SCC 624]
• Mahalaxmi Cotton Ginning Pressing & Oil Industries v. State of Maharashtra [2012 SCC OnLine Bom 733]
• Union of India & others V. VKC Footsteps (India) (P) Ltd. [(2022) 2 SCC 603]
• Astha Enterprises v. The State of Bihar [CWC No. 10395 of 2023 / MANU/BH/1034/2023]
• State of Karnataka v. Ecom Gill Coffee Trading (P) Ltd. [2023 SCC OnLine SC 248]
• Thirumalakonda Plywoods v. Assistant Commissioner of State tax [2023 SCC OnLine AP 1476]
• Gobinda Construction & others v. Union of India & others [CWC No. 9108 of 2021, decided on 8th September 2023]
• Willowood Chemicals v Union of India [2018 58 GSTR 310 (Guj)]
• Union of India v. Bharti Airtel and others [(2022) 4 SCC 328]
• Jayam & Co. v. Assistant Commissioner & Another [(2016) 15 SCC 125]
• ALD Automotive (P) Limited v. Commercial Tax Officer [(2019) 13 SCC 225]
• Vivian Joseph Ferreira v. Municipal Corporation of Greater Bombay [AIR 1972 SC 845]
• Smt Ujjam Bai v. State of Uttar Pradesh [1962 AIR 1621]
• State of Karnataka v. M/s. M K Agro Tech Private Limited [(2017) 16 SCC 210]
• India Agencies (Regd.) v. Additional Commissioner of Commercial Taxes [(2005) 2 SCC 129]
• Khandige Sham Bhat v. AITO [AIR 1963 SC 591]
• Reserve Bank of India v. Peerless General Finance and Investments Co. Ltd & Others [(1987) 1 SCC 424]
• State of West Bengal v. Kesoram Industries Limited & others [(2000) 1 SCC 710]
• Yadlapati Venkateswarlu v. State of Andhra Pradesh & another [1992 Supp (1) SCC 74]
• Sharaya Bano & others v. Union of India [(2017) 9 SCC 1]
• R.S. Raghunath v. State of Karnataka [(1992) 1 SCC 335] (implicit reference via Thirumalakonda Plywoods)
• State of Madhya Pradesh vs. Indore Iron and Steel Mills Pvt. Ltd. [AIR 1998 SC 3050]