Facts of the Case

M/S. Raunak Trade Links, a proprietary concern represented by its proprietor Sou Vijaya, based in Belagavi, Karnataka, filed a writ petition before the Dharwad Bench of the High Court of Karnataka under Articles 226 and 227 of the Constitution. The petitioner questioned the constitutional validity of Section 16(4) of the CGST Act/KGST Act, 2017, read with Rule 61(5) of the Karnataka GST Rules, 2017 (the time-limit for availing input tax credit) and Notification No. 49/2019-Central Tax, and sought quashing of a demand order in Form GST DRC-07 bearing No. CTO/LGSTO-390/BGV/22-23/B-1286 dated 11.08.2022 issued by the Assistant Commissioner of Commercial Taxes, LGSTO-390, Belagavi. The respondents included the State of Karnataka, the Union of India, the GST Council and the Principal Chief Commissioner of Central Tax, Bengaluru. The matter came up for preliminary hearing before Justice Anant Ramanath Hegde on 17.11.2023.

Issues Involved

  1. Whether Section 16(4) of the CGST/KGST Act, 2017, read with Rule 61(5) of the KGST Rules, 2017, is constitutionally valid.
  2. Whether the impugned Form GST DRC-07 order dated 11.08.2022 was liable to be quashed.
  3. In the absence of adjudication on constitutional validity, what remedy remains available to the petitioner against the impugned order.

Petitioner's Arguments

  • The time-limit for claiming input tax credit under Section 16(4) is illegal, unreasonable, arbitrary and discriminatory, violating Articles 14, 19 and 300A of the Constitution, and should be struck down or, alternatively, read down as merely procedural and directory.
  • The Form GST DRC-07 order dated 11.08.2022 was unreasonable, arbitrary, oppressive, excessive and premeditated, warranting quashing.
  • At the hearing, the petitioner elected not to press the constitutional challenge, placing that submission on record.

Respondent's Arguments

  • The constitutional validity of Section 16(4) read with Rule 61(5) already stands 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.
  • Analogous 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, supporting the constitutionality of ITC time-limits generally.
  • Since the issue stood concluded by binding precedent, the constitutional challenge should be rejected and the petitioner relegated to statutory remedies against the impugned order.

Court Order/Findings

  • Once the constitutional challenge and the alternative prayer to read down Section 16(4) were not pressed, the Court held it need not examine the validity of the impugned provisions, and the remaining grievance against the demand order/show cause notice had to be pursued before the appellate authority under the CGST/KGST Act.
  • The writ petition was disposed of without expressing anything on the merits of the impugned order or any show cause notice issued by the authorities.
  • Liberty was granted to the petitioner to avail statutory remedies, with the time spent prosecuting the writ petition to be excluded while computing limitation for any appeal or reply.

Important Clarification

Where a taxpayer does not press a constitutional challenge to Section 16(4) of the CGST Act, the court will not independently rule on its validity and will relegate the taxpayer to the statutory appellate mechanism. Importantly, the period spent litigating such a writ petition is excluded while computing limitation for the subsequent statutory remedy, so taxpayers who later abandon a constitutional challenge do not lose out on time.

Sections Involved

  • Section 16(4) of the CGST Act, 2017 — prescribes the time-limit within which input tax credit for a financial year may be availed.
  • Rule 61(5) of the KGST Rules, 2017 — procedural rule relating to filing of returns, referenced in the challenge to the ITC time-limit.
  • Notification No. 49/2019-Central Tax — the notification under challenge regarding the said Rule.

Decision – In Favour of

This is a procedural disposal rather than a substantive win for either side. The constitutional challenge to Section 16(4) was not pressed, so the Assessee did not succeed on that point, but the petitioner was also not shut out — liberty was granted to pursue the statutory appellate remedy, with the litigation period excluded from limitation. It cannot honestly be described as a decision in favour of either the Assessee or the Department on the substance of the ITC dispute.

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. 104617 of 2022 (T-RES)
  • CNR: 2023:KHC-D:13443
  • Coram: Hon'ble Mr. Justice Anant Ramanath Hegde
  • Decision Date: 17 November 2023
  • Disposal Nature: Disposed of without expressing opinion on merits; liberty to appeal

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