Time Limit For Claiming ITC is 30th November of Following Year With Effect From 01.07.2017 and Section 16(2) and 16(4) Are Constitutionally Valid

Held by Hon’ble High Court of Kerala

In the matter of M/s M.TRADE LINKS Vs Union of India (WP(C) NO. 31559 OF 2019)

Summary:

The Petitioner was denied the Input Tax Credit despite the availability of valid tax invoice, proof of payment of value and receipt of goods. In some cases, ITC was disallowed as the respective supplier failed to disclose the supply in GSTR-1 or failed to pay the tax in GSTR-3B. The petitioner contended filing of ITC in GSTR-1 by the supplier is a facility and it does not impact the entitlement of ITC of the taxpayer. Further, Section 16(4) of CGST Act is a procedural provision. By recourse to the procedural provisions, the substantive right of the taxpayer, i.e., right to claim ITC, can’t be defeated. Also, the recipient dealer should be considered to have discharge the burden of proof under Section 155 if he is in possession of documents mentioned in Section 36. The recipient dealer cannot be burdened to ensure that the supplier has paid the taxes as such a condition will be impossible for the recipient.

Hon’ble High Court has held that In case of inter-state supply, the exporting state has to remit the tax amount (IGST) to the consuming state and same can’t be done unless the corresponding tax is collected by the exporting state. Therefore, without Section 16(2)(c), the originating State Government will have to transfer the amounts it never received to the destination States, causing loss to the tune of several crores in each tax period. Contention of the petitioner that once the conditions under Section 16(2) are met, the timeline provided for availing the input tax credit under Section 16(4) is arbitrary and unsustainable and cannot be accepted.

Further, Hon’ble High Court has held that:

1. The liberty is granted to the petitioners to claim the benefit of Circular No. 183/15/2022- GST dated 27.12.2022 and Circular No. 193/05/2023- GST dated 17.07.2023 within one month from date of the judgment.
2. The time limit for furnishing the return for the month of September is to be treated as 30th November in each financial year with effect from 01.07.2017, in respect of the petitioners who had filed their returns for the month of September on or before 30th November, and their claim for ITC should be processed, if they are otherwise eligible for ITC. 

Read Also: Cancellation of GST by Officer and Revocation of GST Cancellation

1. Brief Facts of the case

• The Petitioner has denied the Input Tax Credit despite that availability of valid Tax Invoice, proof of payment of value alongwith GST and receipt of goods.
• Following category of petitioner filed:
  • Category-1: The respective supplier has remitted the GST but failed to reflect the same in their GST Return due to some technical issues.
  • Category-2: The respective supplier has not remitted the GST to the government.
  • Category-3: The petitioner is available with the valid copy of Invoices but have no clear proof of payment and might have not received the goods in their possession

2. Relevant Provisions of GST Act

Provisions of GST Act relevant for this case law are as follows:

1. Section 16(2)(c): This section stipulates that a registered person can claim ITC only if the tax charged on the supply has been actually paid to the government by the supplier. 

2. Section 16(4): Limits the time frame within which ITC can be claimed to the earlier of the due date for filing the return for September of the following financial year or the date of filing the annual return. 

3. Contention of the Petitioner

The Petitioner contended that:

1. Admissibility of ITC

• The First Category of petitioners are entitled to the benefit of Circular No. 183/15/2022-GST dated 27.12.2022 issued by CBIC.
• Further, GSTR-2A is an auto-populated and read-only document containing details of inward supplies based on details of outward supplies filed by the supplier.
• CBIC vide press release dated 18.10.2018 clarified that furnishing of output details in FORM GSTR-1 by the supplier and facility to view the same in FORM GSTR-2A by the recipients does not impact the entitlement of taxpayer to avail ITC on self-assessment basis in accordance with Section 16 of the Act.
• Therefore,  the claim of ITC, for which a recipient is otherwise eligible, can’t be denied merely on the difference between GSTR-2A and GSTR-3B.

2. Burden of proof of genuineness of ITC is on the recipient:

• Section 155 of CGST Act places burden of proof on the recipient of goods or services to prove the genuineness of the ITC claimed by him. 
• Therefore, the recipient dealer should be considered to have discharge the burden of proof under Section 155 if he is in possession of following documents mentioned in Section 36:
  • Valid Tax Invoice, 
  • proof of payment of value of goods alongwith taxes; and 
  • actual receipt of goods 

• The recipient dealer cannot be burdened to ensure that the supplier has paid the taxes as such a condition will be impossible for the recipient.

3. Section 16(4) is unconstitutional and invalid

• Section 16(4) of CGST Act is a procedural provision. By recourse to the procedural provisions, the substantive right of the taxpayer, i.e., right to claim ITC, can’t be defeated.
• Filing of returns with late fees and interest cures the defect of late filing.
• If a dealer files the return beyond the due date with late fees, such returns should be accepted without applying the rigour of limitation prescribed under Section 16(4) of the Act.
• The condition that unless the return in Form 3B is filed within the stipulated time, the recipient dealer would not be entitled to ITC is arbitrary, unjust, and liable to be struck down.

4. Extended Time limit to claim the ITC

• The due date of furnishing of return under Section 39 in the month of September has been substituted with 30th day of November in Section 16(4). 
• Such substitution should apply retrospectively from 01.07.2017 to 30.11.2022, as it is only a procedural aspect. 
• In several cases, the claim was made before 30th November, which was the due date for furnishing the return under Section 39 for the month of September.

4. Submission of the Respondent

The Respondent submitted that:

1. Validity of Section 16(2)(c) of CGST Act:

• In case of inter-state supply, the tax collected by a state has to be transferred to the state where consumption has taken place.
• In absence of Section 16(2)(c), where the inter-state supplier defaults in making payment of tax and the inter-state recipient is allowed to take credit based on his invoice, the originating State Government will have to transfer amounts it never received to the destination States.
• Therefore, absence of Section 16(2)(c) shall upset the entire tax scheme.

2. Validity of Section 16(4) of CGST Act

• Prior to the 01.01.2022 amendment, the eligible credit had to be determined by the taxpayer based on ITC reflecting in GSTR-2A and by verifying his books of account.
• To complete this process and avail ITC, a recipient had a maximum of 18 months to a minimum of 6 months’ time under Section 16(4) of the Act as it stood prior to 01.01.2022. 
• For getting the invoice/debit note uploaded by the supplier and tax paid, a maximum of 20 months to a minimum of 8 months is available with effect from 01.01.2022. 
• The time limit for availing ITC in GST laws cannot be said to be a restriction. The estimation of budgetary allocation has to be taken by the government every year.
• Therefore, the time frame makes it a reasonable mechanism and cannot be said to be in violation of any of the rights of the petitioner.
• Further, time limit for availing the ITC is not a new provision under GST.
• Different VAT legislations and CENVAT Credit Rules provided time limits to claim eligible ITC.

Therefore, neither Section 16(2)(c) nor Section 16(4) are infarctions of Article 14 and 19(1)(g) nor unworkable.

5. Issues before Hon’ble High Court

Following issues arise for determination:

1. What are the grounds on which a taxing Statute can be held to be unconstitutional?
2. What is the nature of the claim to Input Tax Credit under the scheme of the GST Act and the Rules made thereunder?
3. Whether Section 16(2)(c) and Section 16(4) of the CGST/SGST Act infringe the Constitutional provisions and are unsustainable?

6. Findings and Analysis by Hon’ble High Court

Issue:1-What are the grounds on which a taxing Statute can be held to be unconstitutional?

Both the Central and State legislation have the power to enact the CGST/ SGST Act, and the Constitution prescribes no limitation for enacting such legislation. Therefore, these legislations are valid legislations.

Issue:2-What is the nature of the claim to Input Tax Credit under the scheme of the GST Act and the Rules made thereunder?

• The Input Tax Credit is a benefit or concession extended to the dealer under the statutory scheme. 
• Even if the same is held to be an entitlement, this entitlement is subject to the restrictions as provided under the Scheme or the Statute. 
• The claim of the Input Tax Credit is not an absolute right, but it is an entitlement subject to the conditions and restrictions as envisaged in Sections 16(2) to 16(4), Section 43, and Rules made thereunder.
• Therefore, there is no substance in the submissions of the petitioners that Section 16(1) of the GST Act provides an absolute right to claim ITC and conditions given under Section 16(2) cannot take away the right conferred under sub-section (1) of Section 16.

Issue: 3-Whether Section 16(2)(c) and Section 16(4) of the CGST/SGST Act infringe the Constitutional provisions and are unsustainable?

a. Validity of Section 16(2)(c):

• An inter-State supplier in the exporting State uses his CGST and SGST credit for payment of IGST collected. 
• The recipient based in the destination State will discharge his output tax liability by utilizing such IGST he paid to the inter-state supplier in the originating State.
• Now, the Central and the originating State have an obligation to transfer the CGST and SGST component utilized by the inter-state supplier to the IGST account so as to make it available for the destination State
• Therefore, without Section 16(2)(c), the originating State Government will have to transfer the amounts it never received to the destination States, causing loss to the tune of several crores in each tax period.
• This will render the whole GST laws and schemes unworkable. 
• Therefore, Section 16(2)(c) is neither unconstitutional nor onerous on the taxpayer.

b. Validity of Section 16(4) of CGST Act

• Section 16(2) restricts the eligibility of ITC under Section 16(1) for entitlement to claim ITC. 
• Section 16(2) is the restriction on eligibility and Section 16(4) is the restriction on the time limit for availing ITC. 
• These provisions cannot be read to restrict other restrictive provisions, i.e., Section 16(3) and 16(4). 
• Contention of the petitioner that once the conditions under Section 16(2) are met, the timeline provided for availing the input tax credit under Section 16(4) is arbitrary and unsustainable and cannot be accepted.

7. Conclusion:

a. Time limit of 30 days to claim the benefit of Circular No.183/15/2022- GST dated 27.12.2022 and Circular No. 193/05/2023- GST dated 17.07.2023:

• The Government realized that the GSTR 2A was not available initially in the Finance years 2017-2018 and 2018-2019 and In order to resolve all bona fide claims and mistakes, Circular No.183/15/2022- GST dated 27.12.2022 and Circular No. 193/05/2023- GST dated 17.07.2023 were issued. 
• Circulars cover the period from the introduction of GST till 01.01.2022, i.e. when Section 16(2)(aa) was inserted. 
• The ITC can be availed by the recipient for the bona fide scenarios listed in those Circulars on submitting proof of payment to the Government by the supplier. 
• Therefore, the petitioners who could have got the benefits of these Circulars and could not avail the benefits within the time limit prescribed, may approach the appropriate GST authority within a period of 30 days from today to avail the benefit.
• The GST authorities will examine the claim of the individual dealer by applying the provisions of the Circulars, and it will grant applicable relief to eligible dealers.

b.  Time limit for claim ITC is extended till 30th November of following year from 1st July, 2017

• Initially, date for furnishing return under section 39 was 30th September.
• Considering the difficulties in the initial stage of the implementation of the GST regime, due date of filing of return was extended for September to 30th November in each succeeding Financial Year. 
• The amendment is only procedural to ease the difficulties initially faced by the taxpayers. 
• Therefore, during the period of 01.07.2017 till 30.11.2022, if a dealer has filed the return after 30th September and the claim for ITC was made before 30th November,  the dealer should be entitled to such ITC if he is otherwise entitled to claim the ITC. 
• Therefore, if a person has furnished the return for the month of September till 30th November, their claim should also be considered and processed.
• This amendment being procedural has to be given retrospective effect.
• Accordingly, it should be treated that the time limit for furnishing the return for the month of September is 30th November in each Financial Year with effect from 01.07.2017.

However, the challenge to the constitutional validity of Section 16(2)(c) and Section 16(4) is concerned, the same is rejected.

8. Final Decision

The Hon’ble High Court held that:

1. The liberty is granted to the petitioners to claim the benefit of Circular No. 183/15/2022- GST dated 27.12.2022 and Circular No. 193/05/2023- GST dated 17.07.2023 within one month from date o judgment.
2. The time limit for furnishing the return for the month of September is to be treated as 30th November in each financial year with effect from 01.07.2017. ITC should be allowed to the petitioners who had filed their returns for the month of September on or before 30th November, and their claim for ITC should be processed, if they are otherwise eligible for ITC.

However, the challenge to the constitutional validity of Section 16(2)(c) and Section 16(4) is rejected.