DISALLOWING ITC FOR LATE RETURNS IS ARBITRARY: LATE FEES & INTEREST ARE SUFFICIENT DETERRENTS

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DISALLOWING ITC FOR LATE RETURNS IS ARBITRARY: LATE FEES & INTEREST ARE SUFFICIENT DETERRENTS

13/12/2024

DISALLOWING ITC FOR LATE RETURNS IS ARBITRARY: LATE FEES & INTEREST ARE SUFFICIENT DETERRENTS

Facts Of the cases are

Brief facts giving rise to the present petition are that petitioner is a Proprietorship Firm registered under the provisions of Central Goods and Services Tax Act, 2017 having registration no. 23AGDPM2307D1Z4. During the financial year 2018-19, petitioner has duly filed GST returns for the months April 2018 to March, 2019 in FORM GSTR-3B along with the GST liability and late fee on outwards supplies and availed input tax rebate correctly as per their inward supplies for the relevant period in accordance with the provisions of Section 16 of the Act. Thereafter, respondent no.3 in FORM GST DRC-01 A notice was issued u/S 73 of the Act by the respondent no.3 on 27.07.2023 through which it is proposed to disallow the ITC for the tax period 2018-19 on the ground of late filing of return in FORM GSTR-3B. After receiving notice, petitioner has filed reply, but the Assistant Commissioner of COST as per the then existing un amended Act of GST passed the impugned original order dated 13.02.2024 under Section 74 of the GST Act.

Petitioners counsel representation

Learned counsel for the petitioner has put forth the following submissions :

(i) Firstly, it is submitted that imposition of time limit for claiming ITC under Section 16(4) of the CGST Act violates Article 14, 19(1)(g) and 300A of the Constitution of India and, therefore, liable to be declared as ultra vires. It is further submitted that Section 16(4) puts arbitrary restriction/limitation on the right to avail input tax credit. More so, the input tax credit accrues to the person as soon as he purchase some product or receive some service which he is using or is intending to use in course or furtherance of business as per provisions of Section 16(1) of the CGST Act, thus disallowing the same on procedural lapse as per Section 16(4) of the Act is arbitrary.

(ii) It is further submitted that Section 16(4) is causing loss to the registered tax payer by way of not allowing the eligible and legal input tax credit and, therefore, it is arbitrary, irrational and unreasonable to discriminate in terms of time-limit to allow the availment of the input tax credit with respect to purchase of Goods and service and, therefore, it is violative of Article 14 of the Constitution of India.

(iii) Learned counsel for the petitioner also submits that right to input tax credit for not being able to file the FORM GSTR 3B within the due due date of September following the financial year offends the policy of Government to remove the cascading effect of tax by allowing the input tax credit as mentioned in the objects and reasons of the Constitution122nd Amendment Bill, 2014 which clearly sets out that it is intended to remove the cascading effect of taxes and to bring out a nation wide taxation system.

(iv) Petitioner had already filed the returns, though with the late fees and interest applicable on it. Despite that credit of ITC is not allowed, thus petitioner is being penalized twice as he had paid the late fees along with tax and interest and is now again saddled with inadmissibility of input tax credit.

(v) Learned counsel drawing the attention of this Court to subsection (1) and (2) of Section 16 of the CGST Act submits that subsection (1) and (2) clearly stipulates that the input tax credit is allowed on fulfillment of certain conditions, which the petitioner had already complied with. Hence refusal to allow the claim under the garb of Section 16(4) of CGST Act is contrary to the aforesaid subsections.

(vi) Learned counsel raising the ground of legitimate exception submits that petitioner expects that the Government will notify the time limit for furnishing return in FORM GSTR-3B in due course of time and, therefore, the petitioner had reason to believe that once the time limit for filing of the return under Section 39(1) i.e. FORM GSTR-3 is notified, that date will be the date of availing of input tax credit as per the Section 16(4) of the CGST Act. The retrospective amendment to Rule61(5) making GSTR-3B as return under Section 39, has therefore created panic in the trade andindustry and has shocked the professional fraternity as well. The principle underlying is 'legitimate expectation', which is based on Article 14 and the Rule of fairness referred to in the judgment passed by Hon'ble Apex Court in the case of MRF Ltd. Vs. Assistant Commissioner (Assessment) Sales Tax reported in 2006(206) ELT (SC), wher in it was observed that person may have a legitimate expectation of being treated in a certain way by an administrative authority even though he has no legal right in private law to receive such treatment. The expectation may arise either from are presentation or promise made by the authority, including an implied representation or from consistent past practice.

On all these grounds, Section 16(4) of CGST Act is abitrary and unconstitutional being unjust and unfair on account of procedure available in the CGST Act in Section 16(4) of the Act, so as to enable the taxpayer/purchaser to apply for condonation of delay in case return u/s 39 for relevant year is filed after due date mentioned in Section 16(4) of CGST Act. Hence, it is prayed that appropriate writ/order/direction to the effect declaring the sub-section 4 of Section 16 of CGST/MPGST, being ultra vires and dehors the Act and violative of Article 14, 19(1)(g), 265 and 300A of the Constitution of India.

Respondent’s counsel representation

Learned Addnl. Advocate General appearing on behalf of respondent no.5/State submits that controversy involved in this batch of writ petitions stand resolved by way of amendment in Section 16 of GST Act with the aid of Section 118 of Finance Act, 2024 by incorporating sub-section 5 and 6 in Section 16 of the Act. Learned AAG has further drawn the attention of this Court to the judgment passed by Madurai Bench of Madras High Court in W.P. No. 20773/2023 wherein similar controversy has been dealt with considering the enactment of Finance Act, 2024 whereby sub-section (5) of Section 16 of the Act was introduced and after setting aside the impugned order, the matter was remanded back to the adjudicating authority to consider a fresh.

Held by the court

In the considered opinion of this Court, as per the existing regime, every assessee registered under the GST portal has to file return annually under Section 39 of the GST Act and redeem input tax credit.

As per Section 16(4) of the Act, the assessee or a registered person shall not be entitled to take ITC in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under Section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.

The provision of Section 16(4) of the CGST Act which restricts the claim of ITC only on the ground that a return is filed after the date prescribed is arbitrary as well as the tax payer who is claiming the ITC has already made the payment of tax to the supplier from whom the foods and services has been received. The payments include both cost of service or goods and the amount of Tax, thus the taxpayer cannot be deprived from his right to claim ITC.

The interpretation of Section 16 of CGST Act which covers eligibility and conditions for taking ITC that a right on ITC is created when a tax payer fulfills all the conditions specified in Section16(2) of the CGST Act which has been drafted as a non-obstante provision and to use the words of the Hon'ble Apex Court, this right can be earned by the beneficiary only as per scheme of that statute. However, imposition of a time limit through Section 16(4) would supersede or override this scheme of the statute operation of Section 16(4) makes the non-obstante section 16(2) meaningless; Section 16(2) has overriding effect on Section 16(4) and Section 16(2) has been drafted in a manner which shows clear legislative intent that it is not subject to Section 16(4).

The GST laws do not have any provision and scope for filing a revised return, taxpayers are extremely cautious to file the monthly return for March and may like to wait for a longer time to reconcile the entries and ensure that there is no unnecessary mismatch between the GST returns and the financial records. This exercise is generally taken when the financial audit goes on. They even pay huge late fees to delay the filing of such return and such late fees are paid on subsequent returns also as GST laws does not permit filing of monthly return in FORM 3B if return for earlier month has not been filed. Allowing a taxpayer to file returns with payment of late fees and then disallow him the ITC, because the return was filed belatedly, is punishing him twice for a single default so committed. Moreover, with the payment of late fee u/S 47 as well as payment of interest u/S 50, the treasury has been suitably compensated for the postponement of the tax. Payment of late fees and interest are already there as deterrent for the taxpayers forcing them to be disciplined. Under such circumstances, saddling with double payment of tax by way of Section 16(4) is arbitrary and capricious.

Since, the Central Government by way of the Act of 2024 has proposed to amend Section 16 of the GST Act by introducing Section 118 of the Act of 2024, thereby jettis oning the condition of time limit, this Court is of the considered opinion that this batch of petitions deserves to be allowed without examining the constitutional validity of Section 16(4).

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