M/S Shreenath Agro Enterpises Through ... vs Union Of Inida Through The Central Board ... on 22 November, 2024

1. Outcome
The High Court allowed all the writ petitions, including M/S Shreenath Agro Enterpises, and set aside the show cause notices and assessment orders passed by the respondent authorities. The State was reserved liberty to take appropriate action in light of the recent amendments in GST law.

2. Core Issue
The core issue was the constitutional validity and applicability of Section 16(4) of the Central Goods and Services Tax Act, 2017 (CGST Act), which prescribes a time limit for claiming Input Tax Credit (ITC), leading to disallowance of ITC when GSTR-3B returns are filed belatedly.

3. Key Facts
* The petitioner (M/S Anand Steel, taken as the lead case for facts, though the order covers a batch including M/S Shreenath Agro Enterpises) 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.
* The petitioner availed Input Tax Credit (ITC) for the relevant period as per inward supplies and Section 16 of the Act.
* Respondent No. 3 issued a notice in FORM GST DRC-01A under Section 73 of the CGST Act on 27.07.2023, proposing to disallow ITC for FY 2018-19 due to late filing of GSTR-3B.
* Despite the petitioner's reply, the Assistant Commissioner passed an impugned order dated 13.02.2024 under Section 74 of the GST Act, disallowing the ITC.
* The petitioner challenged this order, arguing that Section 16(4) is unconstitutional and arbitrary.

4. Arguments

• Taxpayer (Petitioner):

  • Constitutional Violation: 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 or carry on any occupation, trade or business), and 300A (right to property) of the Constitution, and is therefore ultra vires.
  • Arbitrary Restriction: Disallowing eligible ITC due to a procedural lapse (late filing) is arbitrary, irrational, unreasonable, and discriminatory, violating Article 14, as ITC accrues upon purchase.
  • Against Legislative Intent: 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 constitutes a second penalty for the same default.
  • Contradiction with S.16(1) & (2): Section 16(4) contradicts Section 16(1) and (2), which allow ITC upon fulfilling certain conditions already met by the petitioner.
  • Legitimate Expectation: The petitioner had a legitimate expectation that the time limit for GSTR-3B would align with GSTR-3 once notified, and the retrospective amendment to Rule 61(5) (making GSTR-3B a return under S.39) created confusion and panic.

• Revenue (Respondent):

  • The controversy has been resolved by an amendment to Section 16 of the GST Act through Section 118 of the Finance Act, 2024, which retrospectively inserted sub-sections (5) and (6).
  • Cited the Madurai Bench of Madras High Court in W.P. No. 20773/2023, which dealt with a similar matter post-Finance Act, 2024, by setting aside the impugned order and remanding the case.

5. Court’s Reasoning
* The Court noted that the Central Government had, through Section 118 of the Finance Act, 2024, retrospectively amended Section 16 of the GST Act, effective from 1st July 2017.
* The newly inserted Section 16(5) specifically allows registered persons to take ITC for Financial Years 2017-18, 2018-19, 2019-20, and 2020-21 in any return under Section 39 filed up to 30th November 2021.
* Since the financial year 2018-19 (relevant to the petitioner) is covered by this retrospective amendment, which effectively "jettisons the condition of time limit" for these specific years, the Court found it unnecessary to examine the constitutional validity of Section 16(4).
* However, the Court made strong observations, stating that Section 16(4) is prima facie arbitrary because:
* It deprives a taxpayer of ITC merely for filing a return late, despite the tax having been paid to the supplier.
* Section 16(2), being a non-obstante provision, should ideally override Section 16(4), implying that the right to ITC, once conditions are met, should not be curtailed by a procedural time limit.
* The GST laws do not allow for revised returns, and taxpayers often delay filing to reconcile records, incurring late fees and interest. Disallowing ITC in such cases, after late fees and interest have been paid (thereby compensating the treasury), amounts to "double payment of tax" and is deemed "arbitrary and capricious."
* Given the retrospective amendment providing relief for the relevant period, the Court allowed the petitions and set aside the impugned orders, allowing the State to proceed in line with the amended law.

6. Statutory References
* Constitution of India: Articles 14, 19(1)(g), 265, 300A.
* Central Goods and Services Tax Act, 2017 (CGST Act):
* Section 16 (Eligibility and conditions for taking Input Tax Credit) – sub-sections (1), (2), (4), (5) (inserted by Finance Act, 2024), (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 (Claim of Input Tax Credit and provisional acceptance thereof)
* Section 47 (Levy of late fee)
* Section 49 (Payment of Tax, interest, penalty and other amounts)
* Section 50 (Interest on delayed payment of tax)
* Section 73 (Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or willful misstatement or suppression of facts)
* Section 74 (Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or willful misstatement or suppression of facts)
* Finance Act, 2024: Section 118 (amending Section 16 of the CGST Act).
* Income Tax Act, 1961
* Rule 61(5) (of CGST Rules, relating to furnishing of returns).
* Constitution (122nd Amendment) Bill, 2014.

7. Precedents Cited
* By Petitioner:
* MRF Ltd. Vs. Assistant Commissioner (Assessment) Sales Tax reported in 2006 (206) ELT (SC) – cited for the principle of "legitimate expectation."
* By Revenue (and acknowledged by Court):
* Madurai Bench of Madras High Court in W.P. No. 20773/2023.