Ultraprime Cements India Pvt. Ltd vs Central Board Of Indirect Taxes And ... on 4 June, 2024

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. However, the Court granted liberty to petitioners falling under specific CBIC Circulars (No. 183/15/2022-GST dated 27.12.2022 and No. 193/05/2023-GST dated 17.07.2023) to claim benefits within one month. Additionally, the Court held that the amendment to Section 16(4) extending the due date for filing returns for September to 30th November should be given retrospective effect from 01.07.2017, allowing claims for ITC made by 30th November to be processed if otherwise eligible.

2. Core Issue
The core issues for determination were:
I) What are the grounds on which a taxing statute can be held to be unconstitutional?
II) What is the nature of the claim to Input Tax Credit (ITC) under the scheme of the GST Act and the Rules made thereunder?
III) Whether Section 16(2)(c) and Section 16(4) of the CGST/SGST Act infringe Constitutional provisions (Articles 14, 19(1)(g), 300A) and are unsustainable.

3. Key Facts
* The Goods and Services Tax (GST) regime was implemented in India from 01.07.2017, aimed at creating "One India, One Market, One Tax" and eliminating cascading tax effects through Input Tax Credit (ITC).
* Petitioners, registered dealers under CGST/KSGST Act, were denied ITC claims.
* Petitioners fell into three categories:
1. Possessed valid tax invoices, paid value of goods including GST to suppliers, and received goods, but the supplier's GSTR-1 did not reflect in GSTR-2A due to technical reasons.
2. Possessed valid tax invoices, paid value of goods including GST to suppliers, and received goods, but the suppliers had not remitted the GST collected to the government.
3. Possessed invoices but lacked clear proof of payment or receipt of goods.
* The challenge specifically targeted Section 16(2)(c) (requiring actual payment of tax to the government by the supplier for the recipient to claim ITC) and Section 16(4) (prescribing a time limit for claiming ITC).
* An amendment to Section 16(4) (by Finance Act, 2022) changed the due date for claiming ITC related to a financial year from the due date of furnishing the return for September (originally 20th October) to 30th November of the succeeding financial year.

4. Arguments

Taxpayer (Petitioners):
* Constitutional Violation: Sections 16(2)(c) and 16(4) violate Articles 14 (equality), 19(1)(g) (right to trade), and 300A (right to property) of the Constitution.
* Arbitrary & Onerous Conditions:
* Denying ITC to a bona fide purchaser (recipient) due to the supplier's default in remitting tax, despite the recipient having paid the tax, is unreasonable and impossible to comply with ("lex non cogit ad impossibilia").
* It burdens the recipient with the government's duty to collect tax from the supplier.
* It treats bona fide purchasers and those colluding with suppliers equally, which is discriminatory.
* It leads to double taxation if the government recovers tax from the supplier and also denies ITC to the recipient.
* GSTR-2A as Facilitator: GSTR-2A is merely an auto-populated, read-only document and a facilitator. Non-reflection of tax payment in GSTR-2A should not be a sole basis for denying ITC if the recipient has other valid documents (tax invoice, proof of payment, receipt of goods).
* ITC as a Right/Property: ITC is a vested right or property of the recipient dealer, not a mere concession. Denial of this right affects business operations and is against the principle of avoiding cascading effects, which is the essence of GST.
* Procedural Lapse: Section 16(4) (time limit) is a procedural provision and should not defeat a substantive right to ITC, especially considering initial complexities and technical glitches in GST implementation. Late filing with late fees regularises the return.
* Retrospective Effect of Amendment: The amendment to Section 16(4) (changing September's return due date to 30th November) should be applied retrospectively from 01.07.2017, as it is a procedural change aimed at easing difficulties.

Revenue (Respondents):
* ITC as Concession, not Right: ITC is a statutory concession/entitlement, not an absolute right. It is subject to conditions, restrictions, and time limits prescribed by the Act, which must be strictly followed.
* Integrity of GST Scheme: Section 16(2)(c) is vital for the integrity and workability of the GST scheme, especially for inter-state supplies. Without it, the originating state would have to transfer tax amounts to the destination state that it never received, leading to significant revenue loss and upsetting budgetary allocations.
* Self-Monitoring Mechanism: Sections 16(2)(c) and 16(4) along with rules constitute a self-monitoring and self-policing mechanism, incentivizing registered persons to ensure their suppliers are compliant.
* Burden of Proof: Section 155 places the burden on the recipient to prove the genuineness of their ITC claim.
* No Double Taxation: Denying ITC when the supplier defaults is not double taxation; it ensures tax is actually paid to the government. The recipient has recourse against the defaulting supplier.
* Time Limit is Reasonable: Time limits for availing ITC are not new (existed under VAT/CENVAT regimes) and are necessary for financial certainty, budgetary estimation, and timely tax collection. The GST law provides a more generous time limit.
* Constitutional Validity Upheld: Previous High Court judgments have upheld the constitutional validity of Section 16(4).
* Legislative Wisdom: The legislature has wide discretion in fiscal matters. Prescribing a cut-off date is a policy decision, applicable universally, and any incidental disadvantage to some taxpayers does not make the provision discriminatory or arbitrary.
* Circulars for Initial Difficulties: CBIC issued circulars (183/15/2022-GST and 193/05/2023-GST) to address bona fide claims and mismatches for the initial period of GST implementation (until 01.01.2022), providing relief based on proof of actual tax payment by the supplier.

5. Court’s Reasoning
* Competence of Legislature: The Court affirmed that both Central and State Legislatures have concurrent power to enact GST laws under Article 246A, and thus, the CGST/SGST Act is a valid legislation.
* Grounds for Unconstitutionality: A taxing statute can be declared unconstitutional if it falls outside legislative competence, is not for a public purpose, or violates fundamental rights (e.g., Article 14). However, the legislature enjoys wide discretion in fiscal matters, and a larger degree of classification is permissible.
* Nature of ITC: The Court unequivocally held that ITC is in the nature of a benefit or concession extended under the statutory scheme, not an absolute right. This entitlement is subject to conditions, restrictions, and time limits prescribed by the Statute (Sections 16(2) to 16(4), Section 43, and rules).
* Validity of Section 16(2)(c):
* The non-obstante clause in Section 16(2) signifies that its conditions are restrictive and override the general entitlement under Section 16(1).
* Section 16(2)(c) mandates "actual payment" of tax to the Government by the supplier. This is crucial for the workability of the GST scheme, especially for inter-state supplies and the IGST mechanism (Section 53). Without this condition, the originating state would have to transfer tax amounts that it never received, leading to severe revenue losses and disrupting budgetary allocations.
* The Court found this condition neither unconstitutional nor onerous, as it is integral to the tax structure.
* Validity of Section 16(4):
* Section 16(4) imposes a time limit for claiming ITC. This is a reasonable mechanism for efficient tax administration, ensuring certainty in tax collection and budgetary planning.
* Time limits for claiming ITC are not new and existed in pre-GST regimes; GST laws actually provide a larger window.
* The argument that it's a procedural lapse that should not defeat a substantive right was rejected, as ITC itself is a conditional entitlement.
* The Court relied on various Supreme Court and High Court judgments that upheld such conditions and limitations on ITC.
* Retrospective Application of Section 16(4) Amendment: The Court acknowledged the practical difficulties faced during the initial implementation of GST. It held that the amendment to Section 16(4) (changing the September return deadline to 30th November) is a procedural amendment intended to ease taxpayer compliance. Therefore, it should be given retrospective effect from 01.07.2017, meaning that any ITC claim filed on or before 30th November for the month of September in any financial year from 2017-18 onwards should be processed if the dealer is otherwise eligible.
* Circulars for Relief: The Court directed that petitioners who can claim benefits under CBIC Circulars No. 183/15/2022-GST and No. 193/05/2023-GST (addressing mismatches for periods before 01.01.2022 due to non-availability of GSTR-2A) may approach the appropriate GST authority within one month to have their claims examined and processed.

6. Statutory References
* Constitution of India: Articles 14, 19(1)(g), 300A, 246A, 246, 254, 265, 279A(5), 279A(6), 286, 366(12A), 366(26A), 31(1), 13, 302.
* Central Goods and Services Tax Act, 2017 (CGST Act):
* Section 2(46), 2(59)
* Chapter VI, Chapter IX
* Section 12, 12(1)
* Section 13
* Section 15
* Section 16, 16(1), 16(2), 16(2)(a), 16(2)(aa), 16(2)(b), 16(2)(ba), 16(2)(c), 16(2)(d), 16(3), 16(4) (and its proviso)
* Section 31, 31(3)(f)
* Section 34
* Section 37, 37(1)
* Section 38
* Section 39, 39(1), 39(6)
* Section 41, 41(1), 41(2)
* Section 43
* Section 43A
* Section 44
* Section 47
* Section 49, 49(2), 49(4), 49(5)
* Section 50
* Section 53
* Section 54, 54(3) (and its proviso), 54(3)(i), 54(3)(ii) (Explanation I)
* Section 59
* Section 73, 74
* Section 155
* Central Goods and Services Tax Rules, 2017 (CGST Rules): Rule 36, 36(1), 36(2), 36(3), 36(4), Rule 54(1), Rule 59, Rule 60(7), Rule 61, 61(5), Rule 117, 117(1)
* Integrated Goods and Services Tax Act: Section 53
* Income Tax Act, 1961:
* Finance Act, 2022: Section 100
* Customs Act, 1962:
* Central Sales Tax (Karnataka) Rules, 1957: Rule 6(b)(ii)
* Central Sales Tax Act, 1956: Section 8(1), 8(4), 8(8), 13, 13(1), 13(3), 13(4), 13(5)
* Central Sales Tax (R&T) Rules, 1957: Section 12(1), 12(2), 12(3)
* Tamil Nadu Value Added Tax Act, 2006: Section 3(2), 3(3), 19, 19(20), 19(11)
* Maharashtra Value Added Tax Act, 2002: Section 48, 48(1), 48(1)(a)(i), 48(1)(a)(ii), 48(1)(a)(iii), 48(1)(a)(iv), 48(1)(b), 48(2), 48(3), 48(4), 48(5) (and its proviso), 48(6)
* Maharashtra Tax on Entry of Motor Vehicles into the Local Areas Act, 1987:
* Maharashtra Tax on Entry of Goods into the Local Areas Act, 2002:
* Cenvat Credit Rules, 2004: Rule 4
* Bombay Sales Tax Rules, 1959: Rules 41, 41A
* Madhya Pradesh General Sales Tax Act, 1958:
* Entry Tax Act:

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]
* State of Karnataka v. Ecom Gill Coffee Trading (P) Ltd. [2023 SCC OnLine SC 248]
* Nahasshukoor v. Assistant Commissioner [WA. No.1853 of 2023:2023: KER: 69725 decided on 3rd November 2003]
* State of Himachal Pradesh v. Goel Bus Service [2023 SCC OnLine SC 46]
* Sharaya Bano & others v. Union of India [(2017) 9 SCC 1]
* Gobinda Construction & others v. Union of India & others [CWC No. 9108 of 2021, decided on 8th September 2023]
* Thirumalakonda plywoods v. Assistant Commissioner of State tax [2023 SCC OnLine AP 1476]
* Khandige Sham Bhat v. AITO [AIR 1963 SC 591]
* State of Bihar and others v. Bihar Pensioners Samaj [(2006) 5 SCC 65]
* Vivian Joseph Ferreira v. Municipal Corporation of Greater Bombay [AIR 1972 SC 845]
* Raja Jagannath v. U. P. [1963 (1) SCR 220: (AIR 1962 SC 1563)]
* East India Tobacco Co. v. Andhra Pradesh [1963 (1) SCR 404: (AIR 1962 SC 1733)]
* State of Andhra Pradesh v. Nalla Raja Reddy [1967 (3) SCR 28: (AIR 1967 SC 1458)]
* Ravi Varma v. Union of India [1969 (3) SCR 827: (AIR 1969 SC 1094)]
* Twyford Tea Co. Ltd. v. State of Kerala [1970 (3) SCR 383: (AIR 1970 SC 1133)]
* 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]
* 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]
* Union of India v. Bharti Airtel and others [(2022) 4 SCC 328]
* Willowood Chemicals v Union of India [2018 58 GSTR 310 (Guj)]
* R.S. Raghunath (not explicitly cited by full name but referred in relation to non-obstante clause interpretation)
* Jilubhai Nanbhai Khachar (not explicitly cited by full name but referred in relation to 'property' connotation)
* Aastha Enterprises v. State of Bihar & others [MANU/BH/1034/2023]
* Mahalaxmi Cotton Ginning Pressing and Oil Industries vs. The State of Maharashtra and others [MANU/MH/0620/2012]
* State of Madhya Pradesh vs. Indore Iron and Steel Mills Pvt. Ltd. [18 MANU/SC/0637/1998: AIR 1998 SC 3050]
* Reserve Bank of India v. Peerless General Finance and Investments Co. Ltd & Others [(1987) 1 SCC 424]