Patna High Court Upholds Constitutional Validity Of Section 16(4) Of CGST Act, 2017

The Patna High Court upheld the constitutional validity of Section 16(4) of the CGST/BGST Act, 2017 and did not find Section 16(4) to be violative or inconsistent with the fundamental rights guaranteed under the constitution.

The bench of Justice Chakradhari Sharan Singh and Justice Madhuresh Prasad observed that concession of ITC under sub-section (1) of Section 16 of the CGST/BGST Act is dependent upon the fulfilment of requisite conditions laid down under various provisions, including Section 16(4).

The batch of writ petitions were filed challenging the constitutional validity of Section 16(4) of the Central Goods and Services Tax Act and Section 16(4) of the Bihar Goods and Services Tax Act, 2017.

Section 16(4) denies the entitlement to ITC in respect of any invoice or debit note for supply of goods or services after the due date of furnishing returns for the month of September following the end of the financial year to which the invoice or invoice relating to such a debit note pertains or the furnishing of the relevant annual return, whichever is earlier.

The petitioner stated that Section 16(4) is a violation of Articles 14 and 300A of the Constitution of India.

The petitioners sought a declaration that the conditions as prescribed in Section 16(4) of the CGST/BGST Act are merely procedural in nature and cannot override the substantive conditions for availing of ITC prescribed under Sections 16(1) and 16(2).

The petitioner contended that because of the non obstante clause in Section 16(2) of the CGST/BGST Act, it shall prevail over Section 16(4).

The petitioners argued that by reading down the provisions under Section 16(4) of the CGST/BGST Act, the Court should declare that the embargo in the provision would apply only to restrict claims of ITC in respect of invoices or debit notes received after the end of the financial year beyond September of the preceding financial year.

The petitioners submitted that refusal to allow ITC under Section 16(4) beyond the date contemplated is confiscatory in nature. ITC is a vested right under Article 300A of the Constitution of India, and a protected and vested right cannot be taken away lightly on the ground of belated filing of a return.

The department contended that the ITC is a unique concept under the GST regime that acquires special status in the entire tax administration through GST because of its complexity. Because of this, a separate chapter has been provided by way of Chapter-V, which contains Sections 16 to 21 of the CGST/BGST Act. All the provisions under Section 16 are substantive in nature and do not in any manner conflict with any provision under Sections 39, 47, or 49(2) of the CGST Act.

The court noted that the provision under sub-section (4) of Section 16 is one of the conditions that makes a registered person entitled to take ITC, and by no means can sub-section (4) be said to be violative of Article 300-A of the Constitution of India.

The court stated that there is always a presumption of constitutional validity of a piece of legislation, with the burden of showing the contrary falling heavily upon someone who challenges its validity.

"Fiscal legislation having uniform application to all registered persons, in our considered opinion, cannot be said to be violative of Article 19(1)(g) of the Constitution, and the question of such a statutory provision being violative of Article 302 of the Constitution and in the teeth of Article 13 of the Constitution of India does not arise at all," the court said.

Case Title: Gobinda Construction Versus UOI

Citation: 2023 LiveLaw (Pat) 109

Case No.: Civil Writ Jurisdiction Case No. 9108 of 2021

Date: 08-09-2023

Counsel For Petitioner: D.V.Pathy

Counsel For Respondent: Dr. K.N. Singh

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