M/S Digiana Industries Private Limited ... vs Union Of India on 22 November, 2024

1. Outcome
The Writ Petitions (W.P. No. 2164/2024 and connected matters) are allowed. The show cause notices and assessment orders passed by the respondent authorities disallowing Input Tax Credit (ITC) for late filing of returns are set aside. Liberty is reserved for the State to take appropriate action considering the recent amendment in GST law.

2. Core Issue
The core issue was the constitutional validity and arbitrary nature of Section 16(4) of the Central Goods and Services Tax Act, 2017 (CGST Act), which imposed a time limit for claiming Input Tax Credit (ITC), leading to disallowance of ITC if GSTR-3B returns were filed after the prescribed due date. This was examined in light of a retrospective amendment to Section 16 of the CGST Act introduced by the Finance Act, 2024.

3. Key Facts
* The petitioner (M/S Anand Steel in W.P. No. 2164/2024, representative for the batch of petitions) is a proprietorship firm registered under the CGST Act.
* For the financial year 2018-19, the petitioner filed GST returns in FORM GSTR-3B, along with GST liability and late fees, and availed ITC on inward supplies.
* Respondent No. 3 issued a notice (FORM GST DRC-01A) under Section 73 of the CGST Act, proposing to disallow the ITC for FY 2018-19 solely due to the late filing of GSTR-3B returns.
* Despite the petitioner's reply, the Assistant Commissioner passed an order dated 13.02.2024 under Section 74 of the GST Act, disallowing the ITC.
* A batch of similar petitions challenging such orders and the underlying statutory provision (Section 16(4)) were heard analogously.

4. Arguments
* Taxpayer (Petitioner):
* Constitutional Violation: Section 16(4) is ultra vires and violates Articles 14, 19(1)(g), and 300A of the Constitution of India, as it imposes an arbitrary restriction on the right to avail ITC.
* Accrued Right: ITC accrues upon the purchase of goods or services for business as per Section 16(1); disallowing it for a procedural lapse (late filing) under Section 16(4) is arbitrary, irrational, and unreasonable.
* Cascading Effect: The restriction offends the government's policy to remove the cascading effect of taxes, as articulated in the Constitution (122nd Amendment) Bill, 2014.
* Double Penalty: The petitioner already paid late fees and interest for delayed filing. Disallowing ITC penalizes them twice for the same default, which is unjust.
* Section 16(1) & (2) Compliance: All conditions under Section 16(1) and (2) were met; hence, refusal under Section 16(4) is contrary to these subsections.
* Legitimate Expectation: Petitioners had a legitimate expectation that the time limit for filing GSTR-3 (under Section 39(1)) would govern ITC availment. The retrospective amendment to Rule 61(5) making GSTR-3B the return under Section 39 created panic. (Cited MRF Ltd. Vs. Assistant Commissioner (Assessment) Sales Tax).
* Revenue (Respondent):
* The controversy is resolved by the retrospective amendment to Section 16 of the GST Act via Section 118 of the Finance Act, 2024, which introduces sub-sections (5) and (6).
* Referred to a similar judgment by the Madurai Bench of Madras High Court (W.P. No. 20773/2023) where, considering the Finance Act, 2024, the matter was remanded to the adjudicating authority for fresh consideration.

5. Court’s Reasoning
* The Court acknowledged that Section 16(4) restricted ITC claims after the due date for furnishing returns.
* It strongly opined that Section 16(4) is arbitrary because taxpayers have already paid the tax component to the supplier and should not be deprived of ITC merely for late filing.
* The Court held that the right to ITC is created upon fulfilling the conditions in Section 16(2) (a non-obstante provision). It observed that Section 16(4) makes Section 16(2) meaningless and that Section 16(2) should have an overriding effect, reflecting clear legislative intent.
* The Court highlighted that GST laws do not permit revised returns, leading taxpayers to delay filings for reconciliation, often paying substantial late fees (Section 47) and interest (Section 50). Disallowing ITC after these payments means punishing the taxpayer twice for the same default, which it deemed "arbitrary and capricious" as the exchequer is already compensated.
* Crucially, the Court noted that the Central Government addressed the issue through Section 118 of the Finance Act, 2024, which retrospectively amended Section 16 of the GST Act from July 1, 2017. This amendment introduced sub-sections (5) and (6) to Section 16, effectively jettisoning the time limit condition for claiming ITC for Financial Years 2017-18, 2018-19, 2019-20, and 2020-21, allowing claims up to November 30, 2021.
* In light of this retrospective amendment resolving the controversy, the Court found it unnecessary to delve into the constitutional validity of Section 16(4).
* Therefore, the impugned notices and assessment orders were set aside, and the petitions allowed.

6. Statutory References
* Constitution of India: Articles 14, 19(1)(g), 226, 265, 300A
* Central Goods and Services Tax Act, 2017 (CGST Act):
* Section 16 (including sub-sections 1, 2, 4, 5, 6)
* Section 29
* Section 30
* Section 39 (including sub-section 1)
* Section 41
* Section 47
* Section 49
* Section 50
* Section 73
* Section 74
* Finance Act, 2024: Section 118
* Income Tax Act, 1961
* Constitution (122nd Amendment) Bill, 2014
* Rule 61(5) (CGST Rules, implicitly)

7. Precedents Cited
* MRF Ltd. Vs. Assistant Commissioner (Assessment) Sales Tax reported in 2006(206) ELT (SC) (cited by petitioner for legitimate expectation).
* Madurai Bench of Madras High Court in W.P. No. 20773/2023 (cited by respondent and considered by the Court).