M/S Arihantam Infraprojects Private ... vs Union Of India on 22 November, 2024

1. Outcome
The High Court allowed the batch of writ petitions, including W.P. No. 2964/2024 (M/S Arihantam Infraprojects Private Limited). The show cause notices and assessment orders disallowing Input Tax Credit (ITC) for the specified financial years, based on Section 16(4) of the CGST Act, were set aside. The State was reserved liberty to take appropriate action considering the recent amendment in GST law.

2. Core Issue
The central issue was the validity of disallowing Input Tax Credit (ITC) under Section 16(4) of the Central Goods and Services Tax Act, 2017 (CGST Act) on the sole ground of late filing of GSTR-3B returns. The petitions also challenged the constitutional validity of Section 16(4) as ultra vires Articles 14, 19(1)(g), and 300A of the Constitution of India.

3. Key Facts
* The petitioner (e.g., M/S Anand Steel in W.P. No. 2164/2024) is a proprietorship firm registered under the CGST Act, 2017.
* For the financial year 2018-19, the petitioner filed GST returns (FORM GSTR-3B) along with GST liability and applicable late fees.
* Respondent No. 3 issued a notice (FORM GST DRC-01A) under Section 73 of the CGST Act, proposing to disallow ITC for FY 2018-19 due to the late filing of GSTR-3B.
* Despite the petitioner's reply, the Assistant Commissioner passed an order under Section 74 of the GST Act, confirming the disallowance of ITC.
* This judgment was rendered for a batch of analogous writ petitions raising the same controversy.

4. Arguments (Taxpayer vs Revenue)
* Taxpayer (Petitioner):
* Section 16(4) of the CGST Act, imposing a time limit for claiming ITC, violates Articles 14, 19(1)(g), and 300A of the Constitution, and is thus ultra vires.
* The time limit constitutes an arbitrary restriction on the right to avail ITC, which accrues upon the purchase of goods/services for business use. Disallowing it for a procedural lapse is arbitrary.
* It causes loss to registered taxpayers by disallowing eligible and legal ITC, discriminating against them and violating Article 14.
* It contradicts the government's policy of removing the cascading effect of taxes, as outlined in the Constitution (122nd Amendment) Bill, 2014.
* Petitioners had already filed returns with late fees and interest; disallowing ITC again for the same delay amounts to double penalization.
* Sub-sections (1) and (2) of Section 16, which stipulate conditions for ITC, were complied with, and Section 16(4) contradicts these provisions.
* Based on "legitimate expectation," petitioners believed the time limit for GSTR-3B would align with Section 39(1) (FORM GSTR-3). The retrospective amendment to Rule 61(5) making GSTR-3B a return under Section 39, therefore, created an unfair situation.
* The CGST Act lacks a provision for condonation of delay in filing returns under Section 39 after the due date mentioned in Section 16(4).
* Revenue (Respondent):
* The controversy stands resolved by the amendment introduced in Section 16 of the GST Act through Section 118 of the Finance Act, 2024, which incorporated new sub-sections (5) and (6).
* A similar controversy was dealt with by the Madurai Bench of Madras High Court (W.P. No. 20773/2023), which remanded the matter back to the adjudicating authority after considering the Finance Act, 2024.

5. Court’s Reasoning
* The Court acknowledged the commonality of the issue across all petitions regarding the time limit for ITC under Section 16(4).
* It briefly outlined the concept of ITC and the conditions for its availment as per Section 16(1) and 16(2) of the CGST Act.
* The Court noted the critical development: the Central Government's amendment to Section 16 of the GST Act via Section 118 of the Finance Act, 2024. This amendment retroactively inserted sub-sections (5) and (6) with effect from 1st July 2017.
* Specifically, Section 16(5) provides that, notwithstanding Section 16(4), registered persons are entitled to take ITC for invoices/debit notes pertaining to Financial Years 2017-18, 2018-19, 2019-20, and 2020-21 if the return under Section 39 is filed up to November 30, 2021.
* The Court opined that Section 16(4), which restricts ITC solely due to belated return filing, is arbitrary because taxpayers have already paid the tax component to their suppliers.
* It further reasoned that Section 16(2), being a non-obstante clause, should have an overriding effect on Section 16(4), indicating a legislative intent that the right to ITC, once conditions of 16(2) are met, should not be extinguished by the time limit in 16(4).
* The Court considered that allowing taxpayers to file returns with late fees and interest (under Sections 47 and 50) and then disallowing ITC for the same delay constitutes double punishment, which is arbitrary and capricious, especially since the treasury is already compensated.
* Crucially, the Court chose to allow the petitions without examining the constitutional validity of Section 16(4), primarily because the Central Government had already resolved the controversy by introducing the retroactive amendment in the Finance Act, 2024, which directly addresses the petitioners' grievances for the relevant financial years.

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 (including sub-sections (1), (2), (4), (5) & (6) as amended)
* Section 29
* Section 30
* Section 39 (including sub-section (1))
* Section 41
* Section 47
* Section 49
* Section 50
* Section 73
* Section 74
* Income Tax Act, 1961
* Finance Act, 2024: Section 118
* Constitution (122nd Amendment) Bill, 2014 (referenced for objects and reasons)
* Rule 61(5) of CGST Rules (retrospective amendment making GSTR-3B as return under Section 39)

7. Precedents Cited
* MRF Ltd. Vs. Assistant Commissioner (Assessment) Sales Tax, 2006(206) ELT (SC) (cited by petitioner for "legitimate expectation").
* W.P. No. 20773/2023 of the Madurai Bench of Madras High Court (cited by respondent for similar controversy and remand post-Finance Act, 2024).