Facts of the Case

The petitioner, M/S. K.V. Hanchinal, a Class One Contractor holding GSTIN 29AAGFK8411R2ZL, filed a writ petition before the Dharwad Bench of the Karnataka High Court challenging the constitutional validity of Section 16(4) of the CGST/SGST Act, 2017 read with Rule 61(5) of the KGST Rules, 2017 — the provision prescribing a time limit for taking input tax credit — as violative of Articles 14, 19 and 300A of the Constitution. In the alternative, the petitioner sought that Section 16(4) be read down as merely directory rather than mandatory. The petitioner also challenged a show cause notice dated 17.04.2023 issued under Section 73(1) of the KGST/CGST/IGST Act, 2017 and the consequential assessment order dated 20.05.2023 passed under Section 73(9) read with Section 50, both relating to the assessment year April 2018 to March 2019.

Issues Involved

  1. Whether Section 16(4) of the CGST/SGST Act, 2017 read with Rule 61(5) of the KGST Rules, prescribing a time limit for claiming input tax credit, is constitutionally valid.
  2. Whether the said provision should instead be read down as directory rather than mandatory in nature.
  3. Whether the show cause notice dated 17.04.2023 and the assessment order dated 20.05.2023 were liable to be quashed.

Petitioner's Arguments

  • The petitioner initially contended that the time limit under Section 16(4) for availing input tax credit was illegal, unreasonable, arbitrary and discriminatory, and liable to be struck down.
  • In the alternative, it was argued that the provision should be read down and treated as procedural and directory, rather than a hard mandatory bar on claiming credit.
  • The show cause notice and assessment order were separately assailed as unreasonable, arbitrary, oppressive and excessive.
  • Once confronted with binding precedent upholding similar provisions, the petitioner's counsel elected not to press the constitutional challenge or the alternative reading-down prayer, placing that submission on record.

Respondent's Arguments

  • The respondents jointly submitted that the constitutional validity of Section 16(4) of the CGST/SGST Act read with Rule 61(5) of the CGST Rules had already been upheld in Thirumalakonda Plywoods vs The Assistant Commissioner (Andhra Pradesh High Court) and Gobinda Construction vs Union of India and Others (Patna High Court).
  • It was further submitted that similar time-limit provisions under the Tamil Nadu VAT Act had been held constitutional by the Supreme Court in Jayam and Company vs Assistant Commissioner (2016) 15 SCC 125 and ALD Automotive Private Limited vs Commercial Tax Officer (CT) and Others (2019) 13 SCC 225.
  • On this basis, the respondents urged that the challenge to the constitutional validity of Section 16(4) be rejected.

Court Order/Findings

  • Since the petitioner did not press the constitutional challenge or the alternative reading-down prayer, the Court held that it need not examine the constitutional validity of Section 16(4)/Rule 61(5) in this case.
  • The Court held that once the constitutional prayers were excluded, the petitioner was obliged to challenge the impugned assessment order and show cause notice through the statutory appellate remedy under the CGST and KGST Acts, and disposed of the writ petition without expressing any view on the merits of the order or notice.
  • Liberty was granted to the petitioner to avail the statutory appellate remedy, and the Court directed that the time spent in prosecuting the writ petition be excluded while computing limitation for filing the appeal or responding to the show cause notice.

Important Clarification

  • The constitutional validity of Section 16(4) of the CGST/SGST Act and Rule 61(5) of the CGST/KGST Rules — the time limit for availing input tax credit — has been upheld by the Andhra Pradesh High Court (Thirumalakonda Plywoods) and the Patna High Court (Gobinda Construction), and is supported by Supreme Court rulings on analogous VAT time-limit provisions (Jayam and Company; ALD Automotive).
  • Given this weight of precedent, petitioners raising a fresh constitutional challenge to Section 16(4) are likely to find courts unreceptive, and may be better served pursuing the statutory appellate remedy on the facts of the assessment itself.
  • When a writ petition invoking constitutional jurisdiction is not pressed on the constitutional issue, courts will typically relegate the petitioner to the ordinary appellate remedy, but will protect the petitioner by excluding the time spent in the writ proceedings from the limitation period for the appeal.

Sections Involved

  • Section 16(4), CGST/KGST Act, 2017 — prescribes the time limit within which input tax credit for a financial year must be availed.
  • Rule 61(5), CGST/KGST Rules, 2017 — procedural rule connected with the manner and time for taking input tax credit.
  • Section 73, CGST/KGST Act, 2017 — governs determination of tax not paid or short paid (other than by reason of fraud), under which the show cause notice and order were issued.
  • Section 50, CGST/KGST Act, 2017 — provides for interest on delayed payment of tax.

Decision – In Favour of

Disposed of with directions and not decided on merits — the constitutional challenge was not pressed and left undecided, and the petitioner was relegated to the statutory appellate remedy with the benefit of exclusion of time; this is neither a clean win for the Assessee nor the Department, but a procedural disposal preserving the petitioner's substantive right of appeal.

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.104348 of 2023 (T-RES)
  • CNR: Not available on record
  • Coram: Hon'ble Mr. Justice Anant Ramanath Hegde
  • Decision Date: 17 November 2023
  • Disposal Nature: Disposed of; constitutional challenge not pressed, petitioner relegated to statutory appellate remedy

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