M/S Anand Steel (Trade Name )(Pro. Shri ... vs Union Of India on 22 November, 2024

1. Outcome
The High Court allowed the petitions, setting aside the show cause notices and assessment orders issued by the respondent authority disallowing Input Tax Credit (ITC) for the specified financial years. The court reserved liberty for the State to take appropriate action considering the recent amendment in GST law.

2. Core Issue
The core issue was the constitutional validity of Section 16(4) of the Central Goods and Services Tax Act, 2017 (CGST Act), which imposes a time limit for claiming Input Tax Credit (ITC), leading to disallowance of ITC for returns filed belatedly. However, the matter was ultimately resolved by the Court based on the retrospective amendment to Section 16 of the CGST Act introduced by the Finance Act, 2024.

3. Key Facts
* The petitioner (M/S Anand Steel and other analogous petitioners) is a proprietorship firm registered under the CGST Act.
* For the financial year 2018-19 (and other relevant periods), the petitioner duly filed GST returns in FORM GSTR-3B, including GST liability and late fees, and correctly availed ITC as per inward supplies.
* The respondent authority issued a notice (DRC-01A under Section 73) proposing to disallow ITC for the tax period 2018-19, solely on the ground of late filing of the GSTR-3B return.
* Despite the petitioner's reply, the Assistant Commissioner of CGST passed an impugned original order dated 13.02.2024 (under Section 74 of the GST Act) disallowing the ITC.
* The petitions were filed challenging this disallowance and the constitutional validity of Section 16(4) of the CGST Act.
* During the pendency of the petitions, the Central Government introduced retrospective amendments to Section 16 of the CGST Act through Section 118 of the Finance Act, 2024.

4. Arguments
* Taxpayer (Petitioner):
* Section 16(4) of the CGST Act, imposing a time limit for claiming ITC, violates Articles 14 (equality), 19(1)(g) (right to practice any profession), and 300A (right to property) of the Constitution, and is therefore ultra vires.
* It places an arbitrary restriction on the right to avail ITC, which accrues upon purchase or receipt of goods/services for business, making disallowance due to procedural lapse arbitrary.
* The time limit in Section 16(4) is discriminatory, irrational, and unreasonable, thereby violating Article 14.
* Disallowing ITC for late GSTR-3B filing frustrates the core policy of GST, which is to remove the cascading effect of taxes, as articulated in the Constitution 122nd Amendment Bill, 2014.
* Petitioners were penalized twice: they already paid late fees and interest for delayed filing, and now face ITC disallowance for the same default.
* Petitioner had complied with the conditions for ITC eligibility under Section 16(1) and (2); hence, refusal under Section 16(4) is contrary to these provisions.
* Petitioners had a "legitimate expectation" that a time limit for GSTR-3 would be notified, and that date would govern ITC availment. The retrospective amendment to Rule 61(5) (making GSTR-3B the return under Section 39) caused undue hardship and was challenged citing the principle of legitimate expectation from MRF Ltd. Vs. Assistant Commissioner (Assessment) Sales Tax.
* Revenue (Respondent):
* The controversy is resolved by the amendment in Section 16 of the GST Act via Section 118 of the Finance Act, 2024, which introduced new sub-sections (5) and (6) to Section 16.
* Referred to a judgment by the Madurai Bench of Madras High Court in W.P. No. 20773/2023, where a similar issue was dealt with by remanding the matter back to the adjudicating authority considering the enactment of the Finance Act, 2024.

5. Court’s Reasoning
* The Court acknowledged the petitioner's arguments regarding the arbitrariness of Section 16(4), agreeing that restricting ITC solely due to late filing, despite the underlying tax having been paid to the supplier, is unjust.
* It emphasized that Section 16(2) is a non-obstante provision creating a right to ITC upon fulfilling specified conditions, and Section 16(4) should not override this statutory scheme.
* The Court noted the practical difficulties faced by taxpayers, such as the absence of revised return provisions and the need for reconciliation, often leading to delayed filings and payment of late fees and interest. Disallowing ITC in such scenarios, after late fees and interest are paid, amounts to double punishment and is arbitrary and capricious.
* Crucially, the Court observed that the Central Government had, through Section 118 of the Finance Act, 2024, retrospectively amended Section 16 of the GST Act with effect from July 1, 2017, by introducing sub-sections (5) and (6).
* Specifically, new Section 16(5) allows registered persons to take ITC for invoices or debit notes pertaining to FYs 2017-18, 2018-19, 2019-20, and 2020-21 in any return under Section 39 filed up to November 30, 2021. This amendment effectively "jettisons the condition of time limit" that was initially challenged.
* In light of this retrospective statutory amendment that addresses the core grievance, the Court decided it was unnecessary to delve into the constitutional validity of the unamended Section 16(4).
* Consequently, the Court allowed the petitions and set aside the impugned show cause notices and assessment orders, providing an avenue for the State to reassess the situations under the newly amended legal framework.

6. Statutory References
* Constitution of India: Articles 14, 19(1)(g), 300A, 226, 265.
* Central Goods and Services Tax Act, 2017 (CGST Act):
* Section 16 (Eligibility and conditions for taking ITC) - particularly sub-sections (1), (2), (4), (5) [inserted by Finance Act, 2024], and (6) [inserted by Finance Act, 2024].
* Section 29 (Cancellation of registration)
* Section 30 (Revocation of cancellation of registration)
* Section 39 (Furnishing of returns)
* Section 41 (Availment of ITC)
* Section 47 (Late fees)
* Section 49 (Payment of tax)
* Section 50 (Interest on delayed payment of tax)
* Section 73 (Determination of tax not paid or short paid etc. for reasons other than fraud)
* Section 74 (Determination of tax not paid or short paid etc. for reasons of fraud)
* Finance Act, 2024: Section 118 (amending Section 16 of the CGST Act).
* Income Tax Act, 1961: General reference to depreciation provisions.
* Rule 61(5) (CGST Rules, reference in petitioner's argument regarding GSTR-3B as return under Section 39).
* Constitution 122nd Amendment Bill, 2014 (reference in petitioner's argument).

7. Precedents Cited
* By Petitioner:
* MRF Ltd. Vs. Assistant Commissioner (Assessment) Sales Tax, 2006 (206) ELT (SC) (cited for the principle of legitimate expectation).
* By Revenue:
* Madurai Bench of Madras High Court in W.P. No. 20773/2023 (cited for similar controversy resolved by remand considering Finance Act, 2024 amendment).