Facts of the Case

The petitioner, Shri. Mahadev S/o. Nagappa Kankale, a contractor registered under GSTIN 29AORPK456NIZZ, filed this writ petition before the Karnataka High Court, Dharwad Bench, challenging the constitutional validity of Section 16(4) of the Central Goods and Services Tax Act, 2017 and the corresponding Karnataka GST Act provision, read with Rule 61(5) of the Karnataka GST Rules, 2017 and Notification No.49/2019-Central Tax, insofar as they prescribed a time limit for availing input tax credit, with an alternative prayer to read down the time limit as directory. The petition also challenged audit observations dated 15.03.2022 issued by the Assistant Commissioner of Commercial Taxes (Audit-6), Belagavi, a FORM GST DRC-01A dated 15.07.2022, and a show-cause notice dated 18.08.2022 issued by the Assistant Commissioner of Commercial Taxes, LGSTO-430, Jamkhandi. As in the companion matter decided the same day, the writ petition had been entertained solely on account of the constitutional challenge.

Issues Involved

  1. Whether Section 16(4) of the CGST/SGST Act, 2017 read with Rule 61(5) of the KGST Rules is unconstitutional or should be read down as merely directory.
  2. Whether the writ petition could be used to examine the validity of the audit observations, FORM GST DRC-01A and show-cause notice once the constitutional challenge was not pressed.

Petitioner's Arguments

  • Section 16(4) of the CGST/SGST Act and Rule 61(5) of the KGST Rules, along with Notification No.49/2019-Central Tax, were illegal, arbitrary and discriminatory under Articles 14, 19 and 300A.
  • Alternatively, the input tax credit time limit should be read down as procedural and directory in nature.
  • The audit observations dated 15.03.2022, FORM GST DRC-01A dated 15.07.2022, and show-cause notice dated 18.08.2022 were similarly unreasonable, arbitrary and excessive.
  • At the hearing, counsel for the petitioner chose not to press the constitutional challenge or the alternative reading-down prayer.

Respondent's Arguments

  • Counsel for the respondents jointly submitted that the constitutional validity of Section 16(4) of the CGST/SGST Act read with Rule 61(5) of the KGST Rules stood upheld by the Andhra Pradesh High Court in Thirumalakonda Plywoods vs. The Assistant Commissioner and by the Patna High Court in Gobinda Construction vs. Union of India.
  • They further relied on the Supreme Court's decisions upholding a similarly structured time limit under the Tamil Nadu VAT Act in Jayam and Company vs. Assistant Commissioner (2016) 15 SCC 125 and ALD Automotive Private Limited vs. Commercial Tax Officer (2019) 13 SCC 225.

Court Order/Findings

  • Since the constitutional challenge and the alternative prayer to read down Section 16(4) were not pressed, the Court held it need not examine the constitutional validity of the provisions or the reading-down plea.
  • Once the constitutional prayers were excluded, the Court held that the validity of the impugned audit observations, FORM GST DRC-01A and show-cause notice had to be examined by the appellate authority under the CGST/KGST Act, and directed the petitioner to avail that statutory remedy.
  • The writ petition was disposed of without expressing anything on the merits of the impugned audit observations or notices, with liberty granted to pursue the statutory remedy.
  • The time spent in prosecuting the writ petition was directed to be excluded while computing limitation for any appeal or response to the impugned notices.

Important Clarification

  • As in the companion matter decided the same day, where a petitioner does not press a constitutional challenge to Section 16(4) of the CGST Act, the writ court will ordinarily relegate the taxpayer to the statutory appellate remedy rather than adjudicate the underlying audit observations or show-cause notice.
  • Time spent pursuing such a writ petition is liable to be excluded while computing the limitation period for filing an appeal or responding to the impugned notices, preserving the taxpayer's statutory remedy.

Sections Involved

  • Section 16(4), CGST Act 2017 / KGST Act 2017 — time limit for availing input tax credit.
  • Rule 61(5), KGST Rules 2017 — procedural rule tied to the Section 16(4) time limit, per Notification No.49/2019-Central Tax.
  • Section 65, CGST Act 2017 — audit by tax authorities, the basis for the impugned audit observations.
  • Article 226/227, Constitution of India — writ jurisdiction invoked and ultimately declined on the notice challenge.

Decision – In Favour of

Disposed of with directions; largely in favour of the Department on the constitutional question, which was left unadjudicated as not pressed; the petitioner retains the statutory appellate remedy against the audit observations, FORM GST DRC-01A and show-cause notice, with limitation protection for the time spent in the writ petition.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: High Court of Karnataka, Dharwad Bench
  • Case No.: WP No.101503 of 2023 (T-RES)
  • CNR: Not available
  • Coram: Justice Anant Ramanath Hegde
  • Decision Date: 17-11-2023
  • Disposal Nature: Disposed of, no merits expressed; liberty to avail remedy under CGST/KGST Act

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