Tvl.Aanjaneya Pharmacy vs The Commissioner Of Commercial Taxes on 19 September, 2024

Judgment Summary

1. Outcome
The writ petitions were disposed of. The impugned assessment orders dated 29.01.2022 were set aside, and the matter was remanded to the assessing authority for a fresh assessment.

This outcome is conditional:
* The petitioner must deposit 25% of the disputed tax amount related to issues other than the denial of Input Tax Credit (ITC) under Section 16(4) within two weeks.
* Upon payment, the impugned orders will be treated as show-cause notices, and the petitioner must file objections within four weeks.
* If the petitioner fails to comply with these conditions, the original assessment orders will be revived.

2. Core Issue
The central legal issue is the validity of the denial of Input Tax Credit (ITC) to the petitioner for the financial years 2017-18 to 2020-21 based on the time limit prescribed in Section 16(4) of the CGST/TNGST Act, 2017. The case examines this denial in light of the new, retrospective amendment introduced by the Finance (No. 2) Act, 2024, which inserted Section 16(5) into the CGST Act.

Secondary issues include discrepancies between GSTR-3B and GSTR-2A and the validity of a best judgment assessment.

3. Key Facts
* The petitioner, Tvl. Aanjaneya Pharmacy, is a registered entity engaged in the wholesale business of drugs and medicine.
* The State Tax Officer passed assessment orders on 29.01.2022 for the financial years 2017-18, 2018-19, 2019-20, and 2020-21.
* The orders raised demands based on three grounds:
1. Denial of ITC: The petitioner had claimed ITC beyond the statutory deadline stipulated in Section 16(4).
2. Mismatch: Discrepancies were found between the data in GSTR-3B and GSTR-2A returns.
3. Best Judgment Assessment: The officer estimated the petitioner's output supply by adding a 10% gross profit margin to the value of inward supplies.
* The petitioner challenged these orders directly before the Madras High Court via writ petitions.

4. Arguments
* Petitioner's Arguments:
* The primary basis for the assessment—denial of ITC under Section 16(4)—is no longer valid due to the insertion of Section 16(5) in the CGST Act by the Finance (No. 2) Act, 2024.
* The new Section 16(5) is retrospective and specifically extends the deadline for claiming ITC for the financial years 2017-18 to 2020-21, allowing it in any return filed up to November 30, 2021.
* Given this statutory change, the assessment must be re-done.
* The petitioner also sought an opportunity to provide explanations for the alleged GSTR-3B/2A mismatch and to contest the best judgment assessment.
* Willingness was expressed to deposit 25% of the disputed tax (on issues other than the Section 16(4) matter) to be granted a final opportunity for a fresh hearing.

• Respondents' (Tax Department) Arguments:
  • The counsel for the respondents acknowledged the recent amendment introduced by the Finance (No. 2) Act, 2024.
  • They agreed to conduct a fresh assessment, taking the new Section 16(5) into consideration.
  • No serious objection was raised to the matter being remanded, subject to the conditions proposed.

5. Court’s Reasoning
* The Court recognized that the Finance (No. 2) Act, 2024, has fundamentally altered the legal landscape concerning ITC claims for the initial years of GST implementation.
* The insertion of Section 16(5) with retrospective effect from July 1, 2017, directly impacts the key issue in the assessment orders. The foundation of the department's case regarding the time-bar on ITC has been removed by this legislative amendment.
* Consequently, the Court held that the impugned orders were unsustainable and required reconsideration by the assessing authority in light of the amended law.
* The Court also deemed it fair to provide the petitioner an opportunity to present its case on the other two issues (mismatch and best judgment assessment).
* Balancing the interests of both parties, the Court set aside the orders and remanded the matter, while securing a portion of the revenue's interest (on the other issues) through the condition of a 25% pre-deposit.

6. Statutory References
* Constitution of India:
* Article 226
* Central Goods and Services Tax Act, 2017 (CGST Act):
* Section 16(4): Sets the original time limit for availing ITC.
* Section 16(5): Newly inserted provision (by Finance (No. 2) Act, 2024) extending the ITC claim period for FY 2017-18 to 2020-21 until November 30, 2021.
* Section 39: Pertains to the furnishing of returns.
* Tamil Nadu Goods and Services Tax Act, 2017 (TNGST Act): Referenced as the corresponding state law.
* The Finance (No. 2) Act, 2024:
* Section 118: The specific section that introduced the amendment to Section 16 of the CGST Act.

7. Precedents Cited
* M/s. K. Balakrishnan, Balu Cables vs. O/o. the Assistant Commissioner of GST & Central Excise (W.P.(MD)No.11924 of 2024, dated 10.06.2024): This judgment was relied upon by the petitioner's counsel to support the offer of paying a 25% pre-deposit on the disputed tax (for issues other than Section 16(4)) in return for having the matter remanded for a fresh hearing.