The Allahabad High Court has invalidated a demand of Rs. 235.52 Crores imposed on Vivo Mobile India Private Limited by GST Authorities through an order under Section 74(9) of the Goods and Service Tax Act 2017.
In a ruling issued by the bench consisting of Justices Saumitra Dayal Singh and Vinod Diwakar, Vivo Mobile was granted relief. The court affirmed that Input Tax Credit is an inherent right conferred upon taxpayers under Section 16 of the GST Act. Additionally, it was emphasized that a circular, even when in effect, cannot be enforced in contradiction to the statutory provisions.
The court further clarified that the legislature, by including the term “cumulatively” in the proviso to Rule 36(4) of the Goods and Service Tax Rules, 2017, established a legal fiction, allowing for an extension of the one-month reconciliation period to eight months. This legislative intent aimed to assist both taxpayers and revenue collection during the COVID-19 pandemic.
Background Information
Vivo Mobile, the petitioner, had computed Input Tax Credit cumulatively for the months from February 2020 to August 2020 when filing their GSTR-3B returns for September 2020. However, the GST Authorities raised a claim alleging an excessive Input Tax Credit of Rs. 110 Crores. They relied on Circular No. 113 dated 11.11.2019, issued by the Central Board of Indirect Taxes and Customs, asserting that cumulative adjustments were only permissible up to the date of their suppliers’ GSTR-1 declaration. Consequently, a tax demand, along with penalties and interest, amounting to Rs. 235.52 Crores was raised under Section 74(9) of the GST Act.
When filing the writ petition before the High Court, Vivo Mobile deposited around Rs. 11 Crores. Nevertheless, as no stay order was granted to the petitioner during the writ petition’s pendency, the GST Authorities proceeded to recover Rs. 220.15 Crores from Vivo Mobile’s bank accounts.
During the final hearing, the petitioner’s counsel argued that the revenue’s monthly computation was a result of a misinterpretation of the Circular dated 11.11.2019 issued by the Central Board of Indirect Taxes and Customs. The petitioner challenged the Circular, particularly Clause 3(3), because it violated Rule 36(4) (Documentary Requirements and Conditions for Claiming Input Tax Credit) of the CGST Rules, 2017, in conjunction with its first provision. It was contended that the Rule prescribed a cumulative period for computation from February 2020 to August 2020, whereas the Circular mandated monthly computation. Furthermore, it was argued that the Circular, being issued before the Rule, could not be enforced after the Rule came into effect.
One argument asserted was that Input Tax Credit (ITC) constitutes a statutory right, as stipulated in Section 16 (Eligibility and Conditions for Taking Input Tax Credit) of the GST Act, and cannot be nullified by a mere circular. Furthermore, it was contended that within the GST framework, Form GSTR-2A does not establish any substantive rights. GSTR-1 and GSTR-2A serve only to assist the assessee in making an informed decision for self-assessment. The right to claim ITC is exclusively governed by Section 16. Consequently, the Circular and the subsequent recovery were deemed legally invalid, as per this argument.
In contrast, the respondent’s counsel insisted that the obligation to file GSTR-3B by March 20, 2020, remained unchanged and unrelaxed. Hence, the petitioner had access to ITC for each month, including the period from February 2020 to August 2020, based on the information provided by suppliers in the GSTR-1 return. Claiming cumulative ITC for the disputed period in September 2020 was argued to be inconsistent with the GST Act’s framework and the Circular dated 11.11.2019.
Additionally, reliance was placed on Circular No. 136 dated 03.04.2020, which aimed to clarify various measures introduced by the government to support taxpayers during the COVID-19 pandemic. This reference was used to assert that, in the absence of any challenge to that Circular, the petitioner’s claim lacked a valid foundation.
Court’s Ruling
The Court noted that the legislative intent to establish the claim of Input Tax Credit as a fundamental right is unmistakable when one examines Sections 16, 41, 49(2), and 2(46) of the GST Act collectively.
Although the return is required to be submitted before the 20th day of the subsequent month, the Court emphasized that “it cannot be ignored by the judiciary that the second proviso to Section 16(2) of the Act inherently creates a provisional entitlement for the recipient to avail ITC, even beyond the initial time frame, extending up to the broader 180-day period. In cases of non-payment within this 180-day window, mechanisms exist for the reversal of previously granted or availed ITC. At the same time, neither the Act nor the Rules contain any explicit prohibition that ITC claims may only arise once the tax is initially paid by the recipient or deposited by the supplier with the State Government.”
The Court further clarified that prior payment and tax deposit are not absolute prerequisites for the provisional granting or utilization of ITC by the recipient, even though authorities retain the discretion to retract provisional benefits upon non-compliance and impose penalties. Consequently, the Court established that, by common business practice and the agreement of transacting parties, a six-month credit may be extended to the recipient.
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The Court opined that “the scheme of the Act is to let ITC arise and be availed provisionally, in a continuously moving value addition chain, subject to other conditions including actual payment of tax being eventually proven and remaining undoubted. That provisional allowance would become absolute upon tax being paid not later than 180 days. There can be no list as to the wisdom of the Parliament in incorporating that period of 180 days. If the law were to be read otherwise, i.e., that the ITC claim may never arise unless the tax is first paid then, the second provision to section 16(2) itself would be rendered otiose.”
Furthermore, drawing from the precedent set in Union of India v. Bharti Airtel Ltd. and Others, where the Supreme Court clarified that GSTR-2A serves as a mere facilitator, and considering the ruling of the Calcutta High Court in Suncraft Energy Private Limited and Anr. v. The Assistant Commissioner, State Tax, the Court established that GSTR-1 also functions in a facilitative capacity.
Noting that the impugned order contained no adverse comments regarding the petitioner’s tax invoices, the Court narrowed the dispute to the interpretation of the first provision to Rule 36(4) of the Rules.
The Court observed that the proviso, as introduced in Rule 36(4) by Notification No. 30 of 2020, must be interpreted in harmony with sub-Rule 4, which initially provided additional benefits to taxpayers beyond what was already available. Initially, a purchaser had a provisional entitlement to 20% ITC, which was reduced to 10% for the disputed period.
Upon examining the definition of the term ‘cumulative’ as it appears in Rule 36(4), the Court noted that the condition specified in sub-rule 4 of Rule 36, indicating that eligible ITC should not surpass 10% of the eligible credit as per the Tax Invoice under GST or Debit Note, etc., filed in GSTR-1, should be assessed cumulatively. In other words, all the additions made over the period from February 2020 to August 2020, as stipulated by the proviso, should be considered collectively.
The Court, the proviso so submitted, forms a deeming fiction to process the whole duration from February 2020 to August 2020 since one. “The only purpose for which the proviso to the Rule appears to have been incorporated is to grant benefit of ITC late accrued, to transactions completed in the past, by treating the entire period during which transactions may have been completed to be one i.e., beginning 01.02.2020 and ending 31.08.2020 against which all ITC that may have stood accumulated as on the date of filing of return for the period September 2020.”
The Court determined that the first provision to Rule 36(4) of the CGST Rules was introduced during the COVID-19 pandemic to treat the specific period from February 2020 to August 2020 as one where Input Tax Credit (ITC) could be cumulatively adjusted.
Consequently, for the tax period in September 2020, the petitioner and all registered individuals were allowed to file their monthly return using Form GSTR-3B, with a cumulative adjustment of ITC for the disputed period from February 2020 to August 2020. This adjustment preserved the benefit outlined in Rule 36(4), calculated based on the increased figure of eligible ITC at the time of filing the return for September 2020, on a cumulative basis.
Given that a circular is essentially an administrative directive designed to implement statutory law, it cannot supersede an existing statutory law, whether enacted by the primary legislature or its delegate. Therefore, the Court ruled that although the Circular dated 11.11.2019 was valid and had been issued before the proviso was added, it could not be enforced in contradiction to the said proviso. As the proviso applied for a limited period from February 2020 to August 2020, the Circular lost its effectiveness and relevance during that specific time.
“For the period covered by this proviso, the administrative instruction dated 11.11.2019 must remain in complete abeyance. Otherwise, it may become irrelevant in light of the superior statutory law.”
Accordingly, the Court concluded that the legislature itself had relaxed the conditions of Rule 36(4) for the disputed period. The revenue authorities erred in relying on the GST Circular dated 11.11.2019 during this period to interpret the condition regarding “as on the date of filing the return in GSTR-I, all the suppliers for the said tax period.”
As a result, the Court granted the writ petition, instructing the respondents to return the entire excessive amount to the petitioner. Additionally, the Court directed that the petitioner was entitled to 6% interest on the excess recovery amount of Rs. 11,00,69,010/-, from the date of the excess recovery to the date of the actual refund.
| Case Title | M/S Vivo Mobile India Private Ltd. vs. Union Of India And 4 Others |
| Citation | WRIT TAX No. – 433 of 2021 |
| Date | 05.09.2023 |
| Counsel for Petitioner | Nishant Mishra, Alok Yadav |
| Counsel for Respondent | A.S.G.I., Ashok Singh, C.S.C., Manu Ghildyal |
| Allahabad High Court | Read Order |