S.168A GST Act | 'Recommendation' Of GST Council To Extend Limitation Period Can't Be Substituted By Subsequent 'Ratification': Telangana HC

A division bench of Justice Sujoy Paul and Dr. Justice G. Radha Rani also upheld a notification issued in 2022 for similar purpose. In doing so, it observed,

“In the manner statute i.e., Section 168A is worded, there is no cavil of doubt that the Law makers intended to give it a broader umbrella to bring within its shadow, such actions which could not be completed or complied with, due to force majeure…The COVID-19 Pandemic created extraordinary difficulties which could not have been anticipated, measured and solved with mathematical precision. Thus, hair-splitting in many aspects must be eschewed…While dealing with such an extraordinary crisis, Government's action must be viewed in a broad perspective.”

The notifications were issued under Section 168A of the GST Act which provides that extension notification can be issued on the recommendation of the GST Council.

The High Court however quashed another 2023 notification that was issued without 'recommendation' of the GST Council.

Arguments

Petitioners contended that the pandemic admittedly came to an end before impugned notifications were issued and no force majeure conditions were in existence on the date; whereas Section 168A of the GST Act can be invoked only on availability of 'special circumstances'.

It was alleged that the Department was using the COVID-19 pandemic as an excuse to undo their failure of not completing assessments and raising demands under Section 73 within stipulated time.

Petitioners also contended that the impugned notification was issued on the basis of a decision taken by the GST Implementation Committee/Law Committee, ratified by the GST Council after six months.

It was submitted that 'recommendation' is always prior in time which forms the basis for taking a decision, whereas, 'ratification' is a subsequent exercise for a decision which has already been taken. It was contended that in view of statutory mandate ingrained in Section 168A of the GST Act, subsequent 'ratification' cannot satisfy the requirement of statute i.e., 'on the recommendation of the GST Council'.

Petitioners cited a judgment of the Gauhati High Court in M/s. Barkataki Print and Media Services, Dhrubajyoti Barkotoku v. Union of India where it was held that recommendation of GST Council is sine qua non for exercising power under Section 168A of the Act.

They also cited Article 279A (4) of the Constitution which envisages that the GST Council 'shall' make recommendations. It was contended that the language used in the provision is mandatory and thus, existence of recommendation of GST Council was a condition precedent for exercising the power.

The GST Department on the other hand submitted that it is the subjective satisfaction of the Law makers to decide the period of limitation and the Court is under no obligation to examine the period of extension of limitation on any mathematical scale.

On merits, it contended that the impugned notifications were issued in 'modification' of previous notifications and extending limitations and thus, force majeure reasons given in the previous notifications must be read into the impugned notifications.

The Department further submitted that time was also extended Section 54 of the GST Act for taxpayers to claim refunds. After exemption, the limitation period of two years became four years. Thus, it was contended that the petitioners were not correct in contending that a step-motherly treatment was given to the taxpayers and limitation was extended in various installments only in favour of Revenue.

The Standing Counsel further submitted that four High Courts have previously considered the impugned notifications.

The Kerala High Court in Faizal Traders Private Limited v. Deputy Commissioner dismissed the petition against Notification Nos.9/2023 and 13/2022.

A Division Bench of the Allahabad High Court in M/s.Graziano Trasmissions v. Goods and Services Tax (2024) did not interfere with Notification Nos.9/2023 and 13/2022.

The Karnataka High Court in M/s. Sahaj Construction v. Union of India (2024) declined interference with Notification No.9/2023.

The Patna High Court in M/s. Barhonia Engicon Private Limited v. State of Bihar (2024) refused to interfere in the Notifications Nos.9/2023, 56/2023 and 13/2022.

Significant to note that the Gauhati High Court in M/s. Barkataki Print and Media Services, Dhrubajyoti Barkotoku v. Union of India (2024) interfered with Notification No.56/2023. However, the Department submitted that the Patna High Court in M/s. Barhonia Engicon (supra) did not agree with this decision.

On the point of ratification, the Standing Counsel relied on the Supreme Court's decision in National Institute of Technology v. Pannalal Choudhury (2015) to submit that the ratification is permissible and could be retrospective in nature.

It was contended that the word 'may' is used in Section 168A before the expression 'on the recommendation' of the Council whereas, in many places under the statute, this expression is used with the word 'shall'.

In those provisions only where 'shall' is used, it can be said to be mandatory in nature, otherwise, it will not be in consonance with Cooperative Federalism Doctrine, the Department argued.

Petitioners however countered this submission by contending that the word 'may' used in Section 168A of the GST Act is for the Government and not for the GST Council.

The Department also relied on Article 279A 10(c) of the Constitution to highlight that any procedural flaw or irregularity is immaterial and will not cause any dent on the decision of the GST Council.

The Central government submitted that since “special circumstances” were existing to invoke Section 168A of the Act, no fault can be found in the impugned notifications.

It submitted that a plain reading of language of Section 168A shows that there was no condition put for 'prior' recommendation of the GST Council.

“COVID-19 created a rarest condition and in that peculiar situation, the limitations were required to be extended. No pre-existing vested right of petitioners have been infringed. The constitutionality of enabling provision i.e., Section 168A is not under challenge. Only consequential notifications are called in question. Since impugned notifications are in conformity with Section 168A of the Act, no interference is warranted,” it was submitted.

Findings

The High Court observed that the language of Section 168A, particularly the words 'in respect of actions' are very wide and bring within its ambit the previous actions of COVID-19 period, which could not be completed or complied with, due to force majeure.

“Thus, we are unable to persuade ourselves with the line of argument of learned counsel for the petitioners that the time limit could have been extended only in relation to the period during which COVID-19 was subsisting,” it held.

Regarding the non-availability of data to show the number of cases and nature of handicap faced by Revenue administration, the Court held,

“The existence of force majeure conditions is one of the condition precedents. The magnitude of the difficulty based on quantifiable data cannot be subject matter of adjudication. This Court is under no obligation to examine the said data as an appellate Court to give a finding whether such a decision was warranted or not. No such exercise with mathematical accuracy and precession can be undertaken in exercise of jurisdiction under Article 226 of the Constitution of India.”

So far as the expression on the “recommendation” of Council is concerned, the High Court disagreed with the Department's contention that 'ratification' can be a substitute of 'recommendation'. It said, “when the statute gives power to a particular statutory body to act in a particular way, the said decision cannot be taken by any other body.”

On the arguments regarding usage of 'may' instead of 'shall' before the words 'on the recommendation' of the Council, the Court said,

“It is trite that as a rule of thumb, it cannot be said that the use of word 'may' makes the provision directory and conversely, use of word 'shall' makes it imperative or mandatory. The interpretation depends on 'text' and context both…The purpose behind using the phrase 'on the recommendation of Council' is to equip the Government with the expert opinion of an expert constitutional body i.e., GST Council. This enables the Government to take an informed decision based on such opinion of Council. Since all the States have participation in the Council, the recommendation of Council will certainly be in consonance with doctrine of cooperative federalism. The decision of Government on such recommendation in the shape of notification will certainly has serious impact on taxpayers. ”

In the case at hand, the Court was of the opinion that the word 'may' does not make Section 168A as directory. It thus found Notification 56/2023 invalid for not having GST Council recommendation.

The High Court then observed that Section 168A allows extension of time limits in three scenarios: limits "specified," "prescribed," or "notified" under the Act. It interpreted the phrase "under the Act" as broad enough to include time limits extended by earlier notifications.

The High Court also found force in Supreme Court's suo motu directions extending limitations and held that those orders bind the entire nation and it cannot be said that the same are inapplicable in the present proceedings.

In this view it said that the question of validity of remaining two notifications pale into insignificance.

“Since the period between 15.03.2020 to 28.02.2022 stood excluded for the purpose of counting limitation by an order which became law of the land, the remaining argument relating to validity of notifications became academic in nature,” it held and disposed of the petitions.

Appearance: Counsel for the Petitioners: Sri S.Ravi, learned Senior Counsel, assisted by Sri P.Venkata Prasad Sri V.Bhaskar Reddy, learned Senior Counsel, assisted by Sri V.Siddarth Reddy; Sri V.Sridharan, learned Senior Counsel, assisted by Sri Narendra Dave; Sri Singam Srinivasa Rao; Sri A.V.A. Siva Karthikeya; Sri Nishant Mishra, learned counsel assisted by Sri Omer Farooq; Sri SRR Viswanath, learned counsel assisted by Ms. S.N. Sreedevi; Sri P. Govind Reddy; Sri M. Ramachandra Murthy; Sri Karthik Ramana Puttamreddy; Dr. Avinash Poddar; Counsel for Respondents: Sri B.Narasimha Sharma, learned Additional Solicitor General of India, assisted by Sri Gadi Praveen Kumar, learned Deputy Solicitor General of India; Sri Dominic Fernandes, learned Senior Standing Counsel for CBIC, assisted by Ms.Pravalika Goud Sri R.Sushanth Reddy, learned Standing Counsel for CBIC

Spl GP Swaroop Oorilla for the respondent State.

Case title: M/s.Brunda Infra Pvt. Limited and Others. vs. The Additional Commissioner of Central Tax

Case no.: WRIT PETITION Nos.1154 OF 2024

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