Facts of the Case

This batch of writ applications, led by the representative case of Gobinda Construction, a partnership firm from Patna, challenged the constitutional validity of Section 16(4) of the Central Goods and Services Tax Act, 2017 ("CGST Act") and the corresponding Section 16(4) of the Bihar Goods and Services Tax Act, 2017 ("BGST Act"). Section 16(4) denies a registered person the benefit of Input Tax Credit (ITC) in respect of any invoice or debit note if the return claiming such credit is filed after the due date for furnishing the return for the month of September following the end of the relevant financial year, or the date of filing the annual return, whichever is earlier. In the lead case, Gobinda Construction had filed its GSTR-1 returns on time for FY 2018-19, but filed its GSTR-3B returns for February and March 2019 belatedly, on 23.10.2019 and 07.11.2019 respectively. The Assistant Commissioner of State Tax, Patna Central, issued a show cause notice on 20.02.2020 under Section 73 of the BGST Act, followed by a notice in Form GST DRC-01, proposing to disallow the ITC availed for those months on the ground of belated filing, computing tax, interest and penalty at Rs.1,34,12,983/-. After the petitioner's reply was rejected, an order under Section 73 was passed confirming the demand, and the appeal filed before the Additional Commissioner of State Tax (Appeals), Patna West Division, was also dismissed on 06.02.2021. Several other petitioners in similar fact situations, where ITC had been disallowed on account of delayed filing of GSTR-3B, joined the batch, all assailing the vires of Section 16(4) itself.

Issues Involved

  1. Whether Section 16(4) of the CGST/BGST Act is unconstitutional as being violative of Articles 14, 19(1)(g) and 300A of the Constitution of India.
  2. Whether the conditions prescribed in Section 16(4) are merely procedural/directory in nature and must yield to the substantive conditions for availing ITC under Sections 16(1) and 16(2), given the non obstante clause in Section 16(2).
  3. Whether Section 16(4) should be read down to restrict its embargo only to invoices/debit notes received after the cut-off date, and not to belated returns filed after that date in respect of earlier invoices.
  4. Whether GSTR-3B qualifies as a "return" under Section 39(1) of the CGST Act, and whether Rule 61(5) of the CGST Rules prescribing GSTR-3B as such a return is ultra vires Section 39(1).
  5. Whether denial of ITC for belated filing amounts to confiscation of a vested property right and results in impermissible double taxation.

Petitioner's Arguments

  • ITC is a vested right protected under Article 300A of the Constitution, and such a right cannot be taken away merely on the ground of belated filing of returns; denial of ITC under Section 16(4) is confiscatory in nature.
  • Section 16(4) should be read down so that its restriction applies only to invoices or debit notes received after the cut-off date, not to a belated return covering invoices pertaining to periods before the cut-off.
  • The conditions in Section 16(4) are merely procedural and cannot override the substantive eligibility conditions under Sections 16(1) and 16(2); the non obstante clause in Section 16(2) makes it prevail over sub-section (4).
  • Section 16(4) creates an arbitrary and unreasonable classification without rational basis for the cut-off date, violating Article 14, relying on Vinoy Viswam vs. Union of India (2017) 7 SCC 59 and Modern Dental College and Research Centre vs. State of Madhya Pradesh (2016) 7 SCC 353.
  • Denying ITC amounts to double taxation and offends the principle of value-added taxation, since it results in the Government retaining tax already paid by the purchaser as input tax, contrary to Article 265.
  • The provision imposes an unreasonable restriction on the fundamental right to carry on trade and business under Article 19(1)(g), and the right to avail ITC is an indefeasible right as held in K.T. Moopil Nair vs. State of Kerala and by the Punjab & Haryana High Court in Apfert Technologies Pvt. Ltd. vs. Union of India.
  • GSTR-3B does not satisfy the parameters of a "return" contemplated under Section 39(1) of the CGST Act, and Rule 61(5) prescribing it retrospectively as such a return is ultra vires the parent provision.

Respondent's Arguments

  • The Advocate General for Bihar submitted that ITC is merely a benefit/concession extended to a registered person under the statutory scheme, and such a concession can be availed only strictly in accordance with the conditions of the statute, relying on ALD Automotive Private Limited vs. Commercial Tax Officer (2019) 13 SCC 225.
  • The requirement under Section 16(4) is a mandatory condition precedent for availing ITC, uniformly applicable to all registered persons, and hence cannot be said to be arbitrary or violative of Article 19(1)(g).
  • Payment of input tax by a registered person remains merely in the electronic credit ledger and does not reach the Government treasury until the dealer files the return; Section 16(4) was enacted precisely to prevent indefinite delay in filing returns and consequent delay in the tax reaching the treasury.
  • Reliance was placed on Supreme Court decisions in Jayam and Company vs. Assistant Commissioner (2016) 15 SCC 125 and ALD Automotive (supra), upholding similar time-bound conditions for availing ITC under the Tamil Nadu VAT Act, to argue that such conditions attached to statutory concessions must be strictly complied with.

Court Order / Findings

  • The Court held that ITC is not an unconditional entitlement but a statutory concession granted under Section 16 of the CGST/BGST Act, available strictly in accordance with the conditions prescribed, including the time limit under Section 16(4).
  • Relying on the Supreme Court's rulings in Jayam and Company and ALD Automotive Private Limited concerning analogous time-limits under State VAT legislation, the Court held that whenever a concession is granted by statute, the conditions attached thereto must be strictly complied with, and it is not open to an assessee to claim the benefit dehors those conditions.
  • The Court rejected the submission that Section 16(4) is merely directory, holding that the plain and unambiguous language of the provision, which uses the words "shall not be entitled," makes the time limit a mandatory condition precedent for availing ITC.
  • The submission that Section 16(2)'s non obstante clause overrides Section 16(4) was rejected — Section 16(2) imposes additional restrictions on availment of credit and does not override the time limit prescribed under sub-section (4), both operating in their own fields.
  • The Court held that Section 16(4) does not violate Article 14, as it applies uniformly to all registered persons and has a rational nexus with the object of ensuring timely disclosure and reconciliation of ITC claims to protect revenue.
  • The Court concluded that Section 16(4) of the CGST/BGST Act is constitutionally valid and is not violative of Articles 19(1)(g) and 300-A of the Constitution of India, and is not inconsistent with any other provision of the CGST/BGST Act.
  • Accordingly, all the writ applications challenging the vires of Section 16(4) were dismissed, with no order as to costs.

Important Clarification

  • Input Tax Credit under the GST regime is a statutory concession, not an absolute or indefeasible vested right; its availment is conditional on strict compliance with the time limits and procedural requirements prescribed under Section 16.
  • The time limit under Section 16(4) — filing the return claiming ITC on or before the due date of the September return (now 30th November, post the 2022 amendment) of the following financial year, or the annual return date, whichever is earlier — is mandatory, not merely directory.
  • Denial of ITC for non-compliance with Section 16(4) does not amount to double taxation or confiscation of property, since availment of ITC is itself conditional and not a vested right accruing automatically upon payment of input tax.

Sections Involved

  • Section 16(4) of the Central Goods and Services Tax Act, 2017 — time limit for availing Input Tax Credit.
  • Section 16(4) of the Bihar Goods and Services Tax Act, 2017 — corresponding State provision.
  • Section 16(1) and Section 16(2) of the CGST Act, 2017 — eligibility conditions for ITC.
  • Section 39 of the CGST Act, 2017 — furnishing of returns.
  • Section 73 of the CGST/BGST Act, 2017 — demand and recovery proceedings.
  • Rule 61(5) of the Central Goods and Services Tax Rules, 2017 — prescription of Form GSTR-3B as a return.
  • Articles 14, 19(1)(g), 265 and 300A of the Constitution of India, 1950.

Decision – In Favour of

Department. The Patna High Court dismissed the entire batch of writ applications and upheld the constitutional validity of Section 16(4) of the CGST/BGST Act, holding it to be a valid, mandatory statutory condition governing the availment of Input Tax Credit.

Case Details

  • Court: High Court of Judicature at Patna
  • Case No.: Civil Writ Jurisdiction Case No. 9108 of 2021 (with connected CWJC Nos. 2854, 4694, 5636, 5747, 6627, 6630, 6638, 7478, 7666, 7745, 8569, 9066, 9566, 9603, 9733 of 2021 and others)
  • Coram: Hon'ble Mr. Justice Chakradhari Sharan Singh and Hon'ble Mr. Justice Madhuresh Prasad
  • Date of Order: 08.09.2023

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