Facts of the Case

The appellants — Nahasshukoor, proprietor of M/s N.S. Metals, Alappuzha, and Ansil Ibrahim, proprietor of M/s Light House, Alappuzha — filed connected writ appeals before the Kerala High Court against a common judgment dated 25.09.2023 dismissing their writ petitions, WP(C) No.31184/2023 and WP(C) No.31165/2023. In assessment proceedings for the year 2017-18, the Assessing Authority had denied their claim for input tax credit under the CGST Act and the SGST Act, on account of a mismatch between GSTR-2A and GSTR-3B returns, and consequently levied interest, imposed penalty, and initiated recovery. The appellants had approached the writ court challenging both the assessment orders and the constitutional validity of Section 16(2)(c) of the CGST Act and Rule 36(4) of the CGST Rules; the Single Judge dismissed both petitions, giving rise to these appeals, heard together and disposed of on 03.11.2023.

Issues Involved

  1. Whether Section 16(2)(c) of the CGST Act and Rule 36(4) of the CGST Rules are unconstitutional as discriminatory or manifestly arbitrary under Article 14.
  2. Whether the appellants, having failed to produce supplier tax invoices and skipped the personal hearing on the Section 73(1) notice, were nonetheless entitled to the disputed input tax credit.
  3. Whether the writ appeals should be entertained in preference to the ordinary statutory appellate remedy.

Petitioner's Arguments

  • Section 16(2)(c) of the CGST Act and Rule 36(4) of the CGST Rules are discriminatory against purchasing dealers under Article 14, since they make the purchaser's ITC entitlement depend on the supplier's actual tax payment and invoice upload — matters entirely outside the purchaser's control.
  • The requirement that a purchasing dealer ensure the supplying dealer's statutory compliance is arbitrary and illegal, given the purchaser has no means of compelling or verifying such compliance.
  • Sought to have the assessment orders, and the underlying statutory provisions themselves, set aside, rather than being confined to the ordinary appellate channel.

Respondent's Arguments

  • Input tax credit is a statutory concession, not a vested right, and accrues only strictly as per the conditions of Section 16 of the CGST Act, relying on ALD Automotive Pvt Ltd v. Commercial Tax Officer [(2019) 13 SCC 225] and Godrej & Boyce Mfg Co v. Commissioner of Sales Tax [(1992) 3 SCC 624].
  • The appellants never produced supplier tax invoices despite opportunities, did not appear for the personal hearing following the Section 73(1) show cause notice, and under Section 155 of the CGST Act the burden of proving ITC eligibility lies on the claiming dealer — a burden never discharged.
  • Taxing statutes attract judicial restraint and cannot be struck down absent manifest, glaring unconstitutionality; the challenged provisions do not discriminate between purchasing and selling dealers, and the appellants bypassed the available statutory appellate remedy.

Court Order/Findings

  • Input tax credit is in the nature of a benefit or concession, not an absolute right, and accrues only in accordance with the conditions prescribed by the statute, reaffirming ALD Automotive and Godrej & Boyce.
  • Held Section 16(2)(c) and Rule 36(4) are not discriminatory: they prescribe uniform conditions for the concession, and linking the purchaser's credit to the supplier's tax compliance does not, alone, amount to Article 14 discrimination.
  • Applied the "manifest arbitrariness" test from Shayara Bano v. Union of India [(2017) 9 SCC 1] and found the provisions do not meet it; the constitutional challenge failed.
  • Since the appellants never produced invoices, skipped the personal hearing, and did not discharge the Section 155 burden, no case for interference was made out; the appeals were dismissed, affirming the Single Judge, without prejudice to challenging the assessment orders through the statutory route.

Important Clarification

  • Section 16(2)(c) of the CGST Act and Rule 36(4) of the CGST Rules — conditioning a purchaser's ITC on the supplier's actual tax payment/invoice upload — stand upheld against an Article 14 challenge; ITC remains a statutory concession, defeasible by non-compliance.
  • The burden of proving ITC eligibility, including production of the supplier's invoice, rests on the claiming dealer under Section 155; skipping invoices or the personal hearing on a Section 73(1) notice will ordinarily be fatal, on merits and in a writ.
  • Taxing statutes attract a higher threshold of judicial restraint than civil-liberties legislation — only "manifest arbitrariness" justifies striking down a taxing provision, not mere hardship.

Sections Involved

  • Section 16, CGST Act, 2017 — eligibility and conditions for taking input tax credit, including Section 16(2)(c), requiring actual payment of tax to Government.
  • Rule 36(4), CGST Rules, 2017 — caps provisional ITC where the supplier has not uploaded the corresponding invoice.
  • Section 73(1), CGST/SGST Act, 2017 — determination of tax not paid/short paid, with mandatory notice and hearing.
  • Section 155, CGST Act, 2017 — places the burden of proving ITC eligibility on the claimant.
  • Article 14, Constitution of India — equality clause, invoked and rejected as the ground of challenge.

Decision – In Favour of

Department — both writ appeals were dismissed, upholding the constitutional validity of Section 16(2)(c) of the CGST Act and Rule 36(4) of the CGST Rules and affirming denial of the appellants' input tax credit claim, though without prejudice to the appellants challenging the underlying assessment orders through the statutory appellate remedy.

Related Case Laws

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

Case Details

  • Court: High Court of Kerala at Ernakulam
  • Case No.: WA No.1853 of 2023 and WA No.1857 of 2023 (connected)
  • CNR: Not available on record
  • Coram: Hon'ble Dr. Justice A.K. Jayasankaran Nambiar and Hon'ble Dr. Justice Kauser Edappagath
  • Decision Date: 03-11-2023
  • Disposal Nature: Dismissed

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