GLS | Beyond Facts

The Andhra Pradesh High Court recently upheld the constitutional validity of Section 16(4) of the CGST Act, which imposes the time limit for claiming ITC. The HC has addressed three key questions in its ruling:

1.?Constitutional Validity: The court has clarified that Section 16(4) of the CGST Act does not violate Article 14 (equality before the law), Article 19(1)(g) (right to practice any profession), and Article 300-A (right to property) of the Constitution. The court further emphasized that ITC is a concession and not a statutory or constitutional right. Therefore, imposing conditions, including time limitation, for availing ITC does not violate the Constitution.

2. Precedence of Sections: The court clarified that Section 16(2) of the CGST Act does not override Section 16(4). Both sections operate independently and are not contradictory. Therefore, the time limit u/s. 16(4) remains significant even if the conditions of Section 16(2) are met. The interpretation of the non obstante clause in Section 16(2) was also discussed. The court explained that a non obstante clause gives overriding effect to certain provisions over others. However, when the non obstante clause is a restricting provision, it does not negate or restrict other restricting provisions. There is no contradiction between the restricting clause followed by non obstante and other restricting provisions. The non obstante clause in Section 16(2) is merely a restricting provision and does not nullify the significance of Section 16(4). Therefore, the court dismissed the challenge to the constitutional validity of Section 16(4) and emphasized that both sections will operate independently.

3.?Acceptance of Form GSTR-3B with Late Fee: The court opined that late acceptance of Form GSTR-3B returns with a fee does not justify claiming Input Tax Credit (ITC) beyond the time limit specified in Section 16(4) of the CGST Act. The statutory limitation for availing ITC remains in effect, and filing returns with a late fee does not exonerate taxpayers from adhering to the prescribed time frame.

Thirumalakonda Plywoods [W.P.No.24235 of 2022]

GLS Comments:

The recent judgment by the Andhra Pradesh High Court holds significant implications as it addresses the long-standing debate over the interpretation of Section 16(2) and Section 16(4) of the CGST Act. The Court's observation regarding the non-obstante clause in Section 16(2) is particularly noteworthy. The Court clarified that the non-obstante clause in Section 16(2) starts with a negative sentence, making it evident that ITC will not be eligible unless the conditions mentioned in Section 16(2) are fulfilled. This interpretation establishes that Section 16(2) acts as a restrictive provision, limiting the eligibility otherwise provided under Section 16(1) for claiming ITC. Taxpayers must be aware of this ruling and ensure timely compliance with the specified conditions to avail themselves of the benefit of ITC under the GST law. It shall be noted that the Apex Court in its landmark judgement in RE: TVS Motors Co. Limited vs. State of Tamil Nadu [2018 (18) GSTL 769 (SC)], has held that Credit is not a right, but a concession given to the taxpayers and therefore, the Government may restrict the same.

It is interesting to note that the judiciary has consistently taken the stand that the non-obstante clause gives overriding effect to a provision over conflicting ones, but it does not render all other provisions ineffective. Various High Court judgments have opined that the application of the non-obstante clause must be examined in the context of specific provisions and their relevant legislative intent.

In a similar vein, a provision of restricting credit existed in the erstwhile regime as well, wherein the CENVAT credit had to be taken within six months from the date of the tax invoice specified under Rule 9(1) of the CCR, 2004. This had raised questions about whether imposing such restrictions on the vested rights of the assessee was unreasonable and arbitrary. In this context, it is pertinent to mention that in RE: Indsur Global Limited [2014-TIOL-2115-HC-AHM-CX], the Gujarat HC held that the restriction imposed was unreasonable and arbitrary.

While the Andhra Pradesh HC affirms the constitutional validity of Section 16(4) and provides clarity on the precedence of provisions, its vires is limited to the state of Andhra Pradesh. As regards, the other states, the instant judgement will have persuasive impact. Moreover, since the validity of Section 16(4) has been challenged before various other HCs as well, it would be interesting to see their interpretations.

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