Yohanan Thyparampil Easow vs State Tax Officer on 4 June, 2024

Here's a summary of the judgment from the perspective of a Senior GST Legal Analyst:

1. Outcome

The Kerala High Court, while upholding the constitutional validity of Sections 16(2)(c) and 16(4) of the CGST/SGST Act, 2017, granted the following specific reliefs to the petitioners:

• Petitioners who can claim benefits under Circular No. 183/15/2022-GST dated 27.12.2022 and Circular No. 193/05/2023-GST dated 17.07.2023 are granted liberty to approach the appropriate GST authority within one month. The authorities are directed to examine and process such claims if applicable.
• The amendment to Section 16(4) (changing the due date for furnishing returns for September from 30th September to 30th November) is declared to be procedural and is to be given retrospective effect from 01.07.2017. Accordingly, ITC claims of petitioners who filed their returns for September on or before 30th November (for the period from 01.07.2017 to 30.11.2022) should be processed if they are otherwise eligible.

2. Core Issue

The core issue was the constitutional validity and workability of Sections 16(2)(c) and 16(4) of the Central Goods and Services Tax Act and State Goods and Services Tax Act, 2017, which impose conditions and time limits for availing Input Tax Credit (ITC). Petitioners argued these provisions were arbitrary, unreasonable, violated fundamental rights (Articles 14, 19(1)(g), 300A), and led to double taxation.

3. Key Facts

• The batch of writ petitions challenged Sections 16(2)(c) and 16(4) of the CGST/SGST Act, 2017.
• Petitioners were registered dealers who were denied ITC despite possessing valid tax invoices, proof of payment of goods/services (including GST component) to suppliers, and actual receipt of goods.
• Categories of petitioners included those whose suppliers (a) remitted tax but it wasn't reflected in GSTR-2A due to technical issues, (b) did not remit the collected GST at all, or (c) had invoices but lacked clear proof of payment or receipt of goods.
• GSTR-2A is an auto-populated, read-only document meant to facilitate self-assessment of ITC.
• Section 16(2)(c) restricts ITC if the tax charged on the supply has not been "actually paid" to the Government by the supplier.
• Section 16(4) sets a time limit for availing ITC, initially the due date for the September return (20th October), later amended to 30th November, or the furnishing of the annual return, whichever is earlier.
• The GST regime was introduced to avoid the cascading effect of taxes and provide seamless ITC.

4. Arguments (Taxpayer vs Revenue)

Taxpayer's Arguments:

• Violation of Constitutional Rights: Sections 16(2)(c) and 16(4) violate Article 14 (arbitrary, unequal treatment of bona fide and colluding purchasers), Article 19(1)(g) (unreasonable restriction on trade, affects business operations), and Article 300A (ITC is property, denial without authority of law).
• Doctrine of Impossibility: Recipients cannot compel suppliers to pay tax or correctly file returns. Denying ITC for supplier's default is an impossible burden ("lex non cogit ad impossibilia").
• GSTR-2A as a facilitator: GSTR-2A is only a facilitation tool; non-reflection of tax payment there should not negate genuine ITC claims, especially when the taxpayer holds valid documents and has paid the tax to the supplier.
• Double Taxation/Unjust Enrichment: Denying ITC due to supplier default effectively means the government collects tax from the recipient (via supplier) and then again from the recipient (by disallowing ITC), leading to double taxation and unjust enrichment.
• ITC as a Right: ITC is a vested right under Section 16(1) and the core principle of GST to avoid cascading effects. It's not a mere concession.
• Procedural vs. Substantive: Section 16(4) (time limit) is procedural and should not defeat the substantive right to ITC. Late filing with fees should regularize the claim.
• Retrospective Effect of Amendment: The amendment to Section 16(4) changing the due date to 30th November should apply retrospectively from 01.07.2017 to address initial implementation difficulties.

Revenue's Arguments:

• ITC as a Concession/Entitlement: ITC is a statutory concession/entitlement, not an absolute right, and is subject to conditions, restrictions, and time limits prescribed by the Act.
• IGST Mechanism Protection: Section 16(2)(c) is vital for the proper functioning of the IGST mechanism. Without actual payment of tax by the originating state supplier, the destination state would incur losses when transferring ITC as per Section 53.
• Budgetary Certainty: Time limits for ITC (Section 16(4)) are essential for tax collection, budgetary allocations, and revenue deficit management. These are not new concepts in tax legislation.
• Self-policing Mechanism: The conditions encourage registered persons to ensure their suppliers are compliant, thus maintaining the tax chain.
• Constitutional Validity: The legislation is within the competence of Parliament/State Legislatures (Article 246A). Taxing statutes have a wide margin for classification and do not violate Article 14 merely because some may be incidentally disadvantaged. No manifest arbitrariness or unreasonableness in the provisions.
• Burden of Proof: Section 155 places the burden of proving ITC claims squarely on the registered person.
• Recovery Measures: The availability of recovery measures against defaulting suppliers does not absolve the recipient's responsibility to meet ITC conditions. The purchasing dealer can pursue recovery from the supplier.
• Judicial Precedents: Several High Courts have upheld the constitutional validity of Section 16(4) and similar provisions, affirming that ITC is a conditional benefit.

5. Court’s Reasoning

The Court addressed the issues methodically:

• Constitutional Validity of Taxing Statutes: Reaffirmed that taxing statutes are presumed valid unless they lack legislative competence, are not for public purpose, or violate fundamental rights. Found the CGST/SGST Act competent under Article 246A and for public purpose. Acknowledged wide legislative discretion in fiscal matters.
• Nature of ITC: Categorically held that ITC is a benefit or concession, not an absolute right. This entitlement is strictly subject to the conditions and restrictions laid down in the statute (Sections 16(2)-(4), 43, and rules). Relied on Supreme Court precedents (e.g., Godrej & Boyce, VKC Footsteps) that concessions require strict compliance.
• Validity of Section 16(2)(c):
  • Found Section 16(2)(c) constitutionally valid.
  • Emphasized its crucial role in the GST architecture, particularly the IGST mechanism and inter-state ITC flow (Section 53). Without the actual payment of tax by the supplier, the originating state would suffer immense revenue loss by having to transfer amounts it never received to the IGST account for the destination state. This would render the entire GST scheme unworkable.
  • Rejected the "doctrine of impossibility" argument, stating that the law incentivizes recipients to ensure supplier compliance.
  • Rejected arguments of double taxation or violation of Articles 14, 19(1)(g), and 300A, reiterating that legislative discretion in prescribing conditions for a statutory concession is permissible.
• Validity of Section 16(4):
  • Found Section 16(4) constitutionally valid.
  • Stated that time limits for availing ITC are reasonable and essential for budgetary certainty and the overall financial health of the Union and States. This is not a new phenomenon in tax laws.
  • Clarified that Section 16(2) acts as a restriction on eligibility, while Section 16(4) acts as a restriction on the time for availing ITC. Both are distinct and valid restrictions.
  • Upheld the rationale behind prescribing a cut-off date, citing precedents that incidental disadvantages to some taxpayers do not invalidate a generally applicable taxing provision.
• Relief on Procedural Aspects:
  • Acknowledged genuine difficulties faced during the initial rollout of GST, especially the lack of GSTR-2A in early years.
  • Directed authorities to process claims as per CBIC Circulars No. 183/15/2022-GST and 193/05/2023-GST for periods up to 01.01.2022, if petitioners approach within 30 days.
  • Held that the amendment to Section 16(4) (changing the September return due date for ITC claim to 30th November) is procedural and should be given retrospective effect from 01.07.2017 to ease initial compliance challenges. This means claims made before 30th November for September returns (even if the original due date was earlier) for the relevant period should be processed if otherwise eligible.

6. Statutory References

• Constitution of India: Articles 14, 19(1)(g), 31(1), 246A, 265, 279A, 300A.
• Central Goods and Services Tax Act, 2017: Sections 2(46), 2(59), 16 (1), (2)(c), (2)(aa), (3), (4), 31, 34, 37, 38, 39, 41, 43, 43A, 44, 47, 49, 50, 53, 54, 59, 155.
• Central Goods and Services Tax Rules, 2017: Rule 36, Rule 59, Rule 61.
• Integrated Goods and Services Tax Act.
• Other Acts/Rules: Customs Act, 1962, Income Tax Act, 1961, Maharashtra Value Added Tax Act, 2002, Central Sales Tax (Karnataka) Rules, 1957, Tamil Nadu Value Added Tax Act, 2006, Cenvat Credit Rules, 2004, Central Sales Tax Act, 1956, Finance Act, 2022 (Section 100).
• Circulars: Circular No. 183/15/2022-GST dated 27.12.2022, Circular 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]
• State of Karnataka v. Ecom Gill Coffee Trading (P) Ltd. [2023 SCC OnLine SC 248]
• Astha Enterprises v. The State of Bihar [CWC No. 10395 of 2023]
• Gobinda Construction & others v. Union of India & others [MANU/BH/1260/2023]
• Thirumalakonda Plywoods v. Assistant Commissioner [2023 SCC Online AP 1476]
• 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]
• Jayam & Co. v.Assistant Commissioner & Another [(2016) 15 SCC 125]
• ALD Automotive (P) Limited v. Commercial Tax Officer [(2019) 13 SCC 225]
• Willowood Chemicals v Union of India [2018 58 GSTR 310 (Guj)]
• Union of India v. Bharti Airtel and others [(2022) 4 SCC 328]
• State of Madhya Pradesh vs. Indore Iron and Steel Mills Pvt. Ltd. [AIR 1998 SC 3050]
• Other cases cited on constitutional principles: Raja Jagannath v. U. P., East India Tobacco Co. v. Andhra Pradesh, Khandige Sham Bhatt v. Agricultural Income Tax Officer, State of Andhra Pradesh v. Nalla Raja Reddy, Ravi Varma v. Union of India, Twyford Tea Co. Ltd. v. State of Kerala, State of West Bengal v Kesoram Industries Limited & others, Yadlapati Venkateswarlu v. State of Andhra Pradesh & another, Reserve Bank of India v. Peerless General Finance and Investments Co. Ltd & Others, Sharaya Bano & others v. Union of India, Nahasshukoor v. Assistant Commissioner, State of Himachal Pradesh v. Goel Bus Service, Khandige Sham Bhat v. AITO, State of Bihar and others v. Bihar Pensioners Samaj.