The Madhya Pradesh High Court has held that the input tax credit (ITC) disallowance cannot be a punishment for late return filing.
The bench of Justice Sushrut Arvind Dharmadhikari and Justice Binod Kumar Dwivedi has observed that disallowing Input Tax Credit for late returns is arbitrary as late fees and interest serve as sufficient deterrents.
The bench stated that 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 taxpayer 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 petitioner/assessee is a Proprietorship Firm registered under the provisions of Central Goods and Services Tax Act, 2017. During the financial year 2018-19, petitioner has duly filed GST returns for the months April 2018 to March, 2019 in FORM GSTR-3B alongwith 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.
The department 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 filed reply, but the Assistant Commissioner of COST as per the then existing unamended Act of GST passed the original order under Section 74 of the GST Act.
The assessee contended 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. Section 16(4) puts arbitrary restriction/limitation on the right to avail input tax credit.
The assessee contended 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 Constitution 122nd Amendment Bill, 2014 which clearly sets out that it is intended to remove the cascading effect of taxes and to bring out a nationwide taxation system.
The court held that 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.
The court held that 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 jettisoning the condition of time limit, the batch of petitions deserves to be allowed without examining the constitutional validity of Section 16(4), 19.
The court quashed the Show cause notices and assessment orders passed by department and all the petitions are hereby set aside reserving liberty to the State to take appropriate action keeping in mind the amendment in GST law.
Read More: Jharkhand High Court Allows Input Tax Credit On Delayed Returns
Case Details
Case Title: M/S Anand Steel Versus Union Of India And Others
Case No.: Writ Petition No. 2164 Of 2024
Date: 22 .11.2024
Counsel For Petitioner: Sumit Nema
Counsel For Respondent: Sudeep Bhargava
