Facts of the Case

The petitioner, Gokul Enterprises, represented by its proprietor O.N. Prakash, is engaged in business at Pallikunnu, Kannur, and registered under the CGST/KSGST Act, 2017. The petitioner challenged an assessment order (Ext.P1) dated 30.08.2022 passed under the State GST Act for the year 2017-18 and a consequent recovery notice (Ext.P2) dated 14.09.2023, by which the petitioner's input tax credit claim was denied. Alongside the challenge to the specific orders, the petitioner also sought a declaration that Section 16(2)(c) of the CGST/KSGST Act, 2017 and Rule 36(4) of the CGST/KSGST Rules were unconstitutional, arbitrary, discriminatory and violative of Articles 14, 19(1)(g) and 300A, or alternatively sought reading down of Section 16(2)(c) as ultra vires Section 16(1).

Issues Involved

  1. Whether the assessment order (Ext.P1) and recovery notice (Ext.P2) denying input tax credit under Section 16(2)(c) read with Rule 36(4) were liable to be quashed.
  2. Whether Section 16(2)(c) of the CGST/KSGST Act, 2017 and Rule 36(4) of the CGST/KSGST Rules are unconstitutional or otherwise ultra vires Section 16(1).
  3. Whether the issue stood covered by the Kerala High Court's earlier decisions in WP(C) No.30949 of 2023 and WP(C) No.33214 of 2023.

Petitioner's Arguments

  • The issue raised in the writ petition was squarely covered by the Kerala High Court's judgment dated 03.10.2023 in WP(C) No.30949 of 2023, as well as its decision in WP(C) No.33214 of 2023.
  • The impugned assessment order and recovery notice, which denied input tax credit relying on Section 16(2)(c) and Rule 36(4), were accordingly liable to be set aside on the same basis as those earlier decisions.
  • The petitioner was ready and willing to appear before the assessing authority with all relevant documents to substantiate the bona fides of its input tax credit claim, if given the opportunity.

Respondent's Arguments

  • The learned Government Pleader appearing for the State did not dispute the petitioner's contention that the issue was covered by the Court's earlier rulings in WP(C) No.30949 of 2023 and WP(C) No.33214 of 2023.
  • No independent defence of the merits of the assessment order or recovery notice was pressed once the covered-matter submission was accepted.

Court Order/Findings

  • Since the issue was conceded to be covered by the Court's earlier decisions, the Court allowed the writ petition and set aside the impugned Ext.P1 assessment order and Ext.P2 recovery notice.
  • The petitioner was directed to appear before the assessing authority within ten days with all relevant documents, and the assessing authority was directed to examine the documents and, if satisfied that the petitioner's claim for input tax credit is bona fide, to pass a revised order.
  • The Court did not itself adjudicate the constitutional validity of Section 16(2)(c) or Rule 36(4) on merits, disposing of the matter instead on the covered-matter/remand basis.

Important Clarification

  • Denial of input tax credit solely on the basis of Section 16(2)(c) read with Rule 36(4) mismatches is not necessarily final; taxpayers can seek fresh examination of the bona fides of their claim by the assessing authority.
  • Where a batch of Kerala High Court decisions (WP(C) No.30949/2023, WP(C) No.33214/2023) has already dealt with similar Section 16(2)(c)/Rule 36(4) grievances, subsequent similarly placed taxpayers can obtain relief on a "covered matter" basis without a fresh, full-dress hearing.
  • The remedy granted was remand for fresh consideration on production of documents establishing genuineness of the ITC claim, not an unconditional restoration of credit — assessees must still substantiate their claim on merits before the assessing authority.

Sections Involved

  • Section 16(2)(c) of the CGST/KSGST Act, 2017 — conditions eligibility for input tax credit on actual payment of tax by the supplier to the Government.
  • Rule 36(4) of the CGST/KSGST Rules, 2017 — restricts input tax credit to invoices/debit notes reflected in the supplier's GSTR-1/auto-populated details.
  • Section 16(1) of the CGST Act, 2017 — the general entitlement provision for input tax credit, against which Section 16(2)(c) was sought to be tested.
  • Articles 14, 19(1)(g) and 300A of the Constitution of India — invoked in challenging the vires of Section 16(2)(c) and Rule 36(4).

Decision – In Favour of

Disposed of in favour of the Assessee — the writ petition was allowed and the assessment order and recovery notice were set aside, though the ultimate input tax credit entitlement remains subject to a fresh, document-based examination by the assessing authority on remand.

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.: WP(C) No.36029 of 2023
  • CNR: Not available on record
  • Coram: Hon'ble Mr. Justice Dinesh Kumar Singh
  • Decision Date: 01.11.2023
  • Disposal Nature: Allowed; assessment order and recovery notice set aside, matter remanded

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