Facts of the Case

The petitioner, M/s. Mahalakshmi Agencies, Gangavathi, Koppal District (GSTIN 29BHUPS5334R1Z0), represented by its proprietor Smt. Daroji Shobha Rani, approached the High Court of Karnataka, Dharwad Bench, questioning the constitutional validity of Section 16(4) of the CGST Act, 2017 and the Karnataka Goods and Services Tax Act, 2017 read with Rule 61(5) of the KGST Rules, 2017 and Notification No. 49/2019-Central Tax, as discriminatory and violative of Article 14 and/or 19 of the Constitution. The petitioner also sought quashing of the audit report bearing No. CTO(AUDIT-2)/BIR/GST/2023-24/T-58 dated 16.05.2023 issued by the Commercial Tax Officer (Audit)-2, Ballari, as unreasonable, arbitrary, oppressive, excessive and violative of Articles 14, 19 and 300A. The writ was entertained solely because a constitutional challenge had been raised; otherwise an alternate statutory remedy existed.

Issues Involved

  1. Whether Section 16(4) of the CGST/KGST Act, 2017 read with Rule 61(5) of the KGST Rules, 2017, restricting the time limit for availing input tax credit, is unconstitutional as violative of Article 14 and/or 19.
  2. Whether the impugned audit report dated 16.05.2023 was liable to be quashed as arbitrary and excessive.
  3. Whether the petitioner should be relegated to the statutory appellate remedy once the constitutional challenge was not pressed.

Petitioner's Arguments

  • Section 16(4) of the CGST/KGST Act and Rule 61(5) of the KGST Rules, along with Notification No. 49/2019-Central Tax, are discriminatory and violate Article 14 and/or 19 of the Constitution.
  • The impugned audit report is unreasonable, arbitrary, oppressive, excessive and premeditated, violating Articles 14, 19 and 300A.
  • At the hearing, however, the petitioner's counsel elected not to press the constitutional challenge or the alternative prayer to read down Section 16(4) as directory, given the weight of contrary precedent.

Respondent's Arguments

  • The constitutional validity of Section 16(4) of the CGST/SGST Act read with Rule 61(5) already stood upheld in Thirumalakonda Plywoods vs The Assistant Commissioner (Andhra Pradesh High Court) and Gobinda Construction vs Union of India (Patna High Court).
  • Similar time-limit provisions under the Tamil Nadu VAT Act were upheld by the Supreme Court in Jayam and Company vs Assistant Commissioner (2016) 15 SCC 125 and ALD Automotive Private Limited vs Commercial Tax Officer (2019) 13 SCC 225.
  • Given this body of precedent, the constitutional challenge deserved outright rejection.

Court Order/Findings

  • Since the petitioner's counsel placed on record that the constitutional challenge to Section 16(4) and the alternative read-down prayer would not be pressed, the Court held it need not examine the vires of the provisions.
  • Once the constitutional prayers were excluded, the Court held that the validity of the impugned audit report and notices had to be tested before the Appellate Authority under the CGST/KGST Act, and disposed of the writ petition without expressing anything on the merits of the orders or notices.
  • The petitioner was granted liberty to avail the statutory remedy, and the time spent in prosecuting the writ petition was directed to be excluded while computing limitation for filing an appeal or responding to the notices.

Important Clarification

Where a taxpayer withdraws a constitutional challenge to Section 16(4) of the CGST/SGST Act in light of contrary High Court and Supreme Court precedent upholding similar input tax credit time-limit provisions, courts will decline to examine the vires question and instead relegate the assessee to the statutory appellate remedy, without expressing any opinion on the merits of the underlying audit report or notices; the time spent in the writ is excluded from the limitation period for the appeal.

Sections Involved

  • Section 16(4), CGST Act, 2017 / KGST Act, 2017 — prescribes the time limit for availing input tax credit.
  • Rule 61(5), KGST Rules, 2017 — procedural rule tied to the ITC time limit.
  • Notification No. 49/2019-Central Tax — notification challenged as discriminatory.
  • Articles 14, 19 and 300A, Constitution of India, 1950 — grounds on which the audit report and provisions were challenged.

Decision – In Favour of

This is a disposal with directions, not a merits verdict. The constitutional challenge was not pressed and was left undecided; the audit report and notices were also left unexamined on merits, with the petitioner relegated to the statutory appellate remedy. Neither the Assessee nor the Department secured a substantive win — the underlying dispute remains to be fought out before the Appellate Authority.

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.: Writ Petition No. 107230 of 2023 (T-RES)
  • CNR: 2023:KHC-D:14456
  • Coram: Hon'ble Mr Justice Anant Ramanath Hegde
  • Decision Date: 11 December 2023
  • Disposal Nature: Disposed of; constitutional challenge not pressed, liberty to pursue statutory appeal

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