Exploring GST Section 16(4) with Court Rulings on ITC

Section 16(4) of the Goods and Services Tax (GST) is the attractive provision permitting assessees to avail the ITC lessening the cascading effect that is in the VAT regime which came with the influential catches and setbacks levied in the form of the conditions to be fulfilled transferring the vested ITC nature to a conditional right.

Latest Update

• As well as interim relief, the Supreme Court admitted the SLPs and issued notices to the respondents in the case of Shanti Motors v. Union of India & Ors. Read More

The 2017 Goods and Services Tax (GST) Act represents a crucial law set to transform the Indian economy. Praised for streamlining the tax system and fostering economic unity, it has faced challenges necessitating focused attention for the success of the GST framework.

Section 16(4) of the CGST Act, 2017 has posed a significant challenge for businesses, leading to substantial burdens. The lack of compliance with this provision, often due to various reasons, has resulted in the issuance of significant demand notices under Section 16(4) in conjunction with Section 73 of the Goods and Services Tax Act, 2017.

The ability to avail input tax credit (ITC) stands as a pivotal aspect of the Goods and Services Tax (GST) system. However, the process of claiming this benefit isn’t straightforward, as specific conditions and limitations govern its eligibility.

This piece delves into the intricate relationship between Section 16 of the CGST Act and Article 300A of the Indian Constitution, examining whether ITC becomes an assured right at different stages of compliance.

Fill Form for GST Cloud Software

The Problem: Pre- or Post-GST Compliance Vesting

Section 16(1) empowers registered taxpayers to claim ITC for eligible purchases utilized in their businesses. However, Section 16(2) imposes mandatory conditions; failure to comply renders the credit ineligible. This prompts the question: does ITC become an assured right only after fulfilling Section 16(2), or does it arise earlier upon complying with Section 16(1), thus making it a conditional rather than an assured right?

GST Section 16(2) Overrides Section 16(4) Compliance Deadlines

Supporters of this argument highlight the “non-obstante” clause in Section 16(2), which supersedes other provisions within the section. They contend that Section 16(4), which specifies a timeframe for ITC claims, becomes redundant in light of the precedence set by Section 16(2).

While Section 16(2) undoubtedly holds significance, considering other provisions remains crucial. For example, Section 16(3) limits ITC claims on assets for which depreciation has been claimed under the Income Tax Act. This further constrains the scope of enablement provided by Section 16(1).

Can a GST ITC be Vested or Conditional?

Showing the ITC a vested right only after section 16(2) compliance ignores the provisions restricted such as section 16(3). A deeper comprehension acknowledges that the validity and eventual realization of ITC rely on diverse conditions present at different stages.

Download GST ITC Software

CGST Act, Section 16(4)- Compilation of Notable Court Decisions

Below are some notable court decisions related to GST section 16(4) including constitutional validity, ITC avail-ament, time limit, cash payments, etc.

Constitutional Validity of Section 16(4) of the Central Goods and Services Tax Act:

GST Section 16(4) is Constitutionally Accurate

The Chhattisgarh High Court has confirmed the constitutionality of Section 16(4) of the Central Goods and Services Tax (CGST) Act, 2017. This provision imposes limits on Input Tax Credit (ITC) claims, emphasizing that Articles 19(1)(g) and 300A of the Indian Constitution are upheld, ensuring the preservation of fundamental rights and legal consistency.

Case Title	Jain Brothers vs Union of India
Citation	(W.P.(T)No.191/2022)
Date	11.12.2023
For Petitioner:	Mr. Palash Soni, Advocate
For Respondent No.1 / Union of India	Mr Ramakant Mishra, Deputy Solicitor General of India and Ms Anmol Sharma, Advocate.
For Respondent No.2 / State: –	Mr. Amrito Das, Additional Advocate General
For Respondents No.3 to 5: –	Mr. Ashutosh Singh Kachhawaha and Ms. Shrut Pramar, Advocates.
Chhattisgarh High Court	Read Order

Patna High Court Maintains the Constitutionality of GST Section 16(4) Limiting ITC Claim

The Patna High Court upheld the constitutional validity of Section 16(4) in the Central Goods and Services Tax (CGST) Act, 2017, which sets constraints on Input Tax Credit (ITC) claims.

Additionally, it was underscored that these limitations weren’t arbitrary or in breach of a dealer’s entitlements as per Article 19(1)(g) of the Indian Constitution.

Conclusively, the Patna High Court affirmed that Section 16(4) of the CGST Act aligns with the Constitution, without infringing upon Articles 19(1)(g) and Article 300A. The bench stressed its consistency with all fundamental rights enshrined in the Indian Constitution.

The court explained that ITC is a concession granted by the CGST Act, not a right, and its conditions should be strictly fulfilled.

Case Title	Gobinda Construction vs Union of India
Civil Writ Jurisdiction Case No	9108 of 2021
Date	14.09.2023
Patna High Court	Read Order

ITC Claims and Belated GST Returns

Andhra Pradesh HC: Acceptance of Late Returns with Late Fee Not a Reason to Clear Taxpayer from Time Limit for ITC Claim u/s 16(4)

The Andhra Pradesh High Court ruled that even if the tax department accepts late returns and associated late fees from the taxpayer, it doesn’t validate a claim for Input Tax Credit (ITC) beyond the stipulated time limit mentioned in Section 16(4) of the Andhra Pradesh Goods and Services Tax (APGST) Act and Central Goods and Services Tax (CGST) Act, 2017.

The judges stressed that tardy return acceptance doesn’t excuse the petitioner from complying with Section 16(4) requirements, which fall well within the set legislative boundaries for ITC claims. Consequently, the court upheld the validity of the assessment order issued by the authorities. Interest in belated ITC

Case Title	Tirumala Konda Plywoods vs The Assistant Commissioner
Case No.	W.P.No.24235 of 2022
Date	18.07.2023
Counsel for petitioner:	Sri Rama Krishna Kumar Potturi
Counsel for Respondents:	Learned Advocate General for Respondent Nos.1 and 2 and The Deputy Solicitor General
Andhra Pradesh HC	Read Order

Interest on Belated GST Input Tax Credit

Madras HC: The Interest Must be Imposed on the Late GST Cash Payments Except ITC

The Madras High Court, while granting the Writ Petition, has determined that the GST Department can impose interest solely on the cash portion of belatedly paid taxes and not on the available Input Tax Credit (ITC).

This decision came from the bench led by Dr Justice Anita Sumanth in the case of M/s. Refex Industries Limited Vs. The Assistant Commissioner of CGST & Central Excise.

The Court highlighted that Section 50(1) of the CGST Act specifies that interest applies solely to the cash component of the tax payment, a provision introduced from 01.08.2019.

This amendment aimed to rectify an inconsistency in the pre-existing provision and should be interpreted as a clarifying measure with retrospective effect.

Case Title	M/s. Refex Industries Limited Vs The Assistant Commissioner
Citation	Writ Petition Nos.23360 and 23361 of 2019 & WMP Nos.23106 and 23108 of 2019
Date	06.01.2020
Counsel For Appellant	Mr.R.Anish Kumar
Counsel For Respondent	Mr.Thirumalaisamy
Madras High Court	Read Order

GST Return Compliance Overridden by ITC Claims

Overriding Effect of Provision of ITC over Time Limit of Filing Returns: Calcutta HC Maintains Constitutional Validity of GST Section 16(4)

The Calcutta High Court upheld the constitutional validity of Section 16(4) of the Central Goods and Services Tax Act, 2017, emphasizing the precedence of time limit conditions for filing Goods and Services Tax Returns over the legal entitlement to claim Input Tax Credit (ITC).

It followed by the Calcutta High Court Division Bench that, “Very recently, the Hon” ble Division Bench of the High Court of Andhra Pradesh had considered an identical case as that of the case on hand, wherein a pari materia provision under the Andhra Pradesh General Sales Tax, 2017 namely Section 16(4) of the Act was considered in a challenge to its validity on the ground that it violates Article 14, 19(1)(g), and 300A of the Constitution of India; whether the non-obstante clause in Section 16(2) of the APGST, CGST Act, 2017 would prevail Section 16(4) of the APGST/CGST Act, 2017.

It was documented that, “the argument advanced before us by the learned Advocate for the appellant were identical to that of the arguments which were placed by the petitioners/assessee in the said case and the same was rejected, in our view rightly on the ground that Section 16(2) prescribes, the eligibility criteria which is mandatory and in the absence of fulfilment of the eligibility criteria the dealer will not be entitled to claim ITC.”

The Calcutta High Court for the aforementioned reasons discovered no reason to allow the relief sought by the applicant in the writ petition.

Case Title	M/s. BBA Infrastructure Limited Vs Senior Joint Commissioner
Citation	MAT NO. 1099 OF 2023, (I.A. NO. CAN 1 OF 2023)
Date	13.12.2023
Counsel For Appellant	Mr. Vinay Shraff, Advocate, Ms. Priya Sarah Paul, Advocate.
For the State	Mr. T.M. Siddiqui, Ld. Additional Government Pleader, Mr. T. Chakraborty, Advocate, Mr. S. Sanyal, Advocate.
Calcutta High Court	Read Order

Gen GST e-Filing Software

ITC Rejection and Belated e-filing of GSTR-3B Form

Late Filing of GSTR-3B Due to Cash Crunch: Madras HC Remands GST ITC Claim for Fresh Review

A Single Bench of the Madras High Court has sent back the Assessee’s Input Tax Credit (ITC) claim due to financial constraints that caused the Assessee to submit GSTR-3B and GSTR-2 forms belatedly and in offline modes, resulting in the rejection of the claim for late filing.

The crucial observations highlighted that if the GSTN (Goods and Services Tax Network) allowed filing without tax payment or incomplete GSTR-3B submissions, dealers could rightfully claim the input tax credit. However, as this option wasn’t available in the GSTN network, dealers were unable to claim ITC based on delayed GSTR-3B filings.

The court acknowledged the genuine practical difficulty faced by the petitioner and urged the authorities, while recognizing the GST Council as the suitable body, to take corrective measures. Pending the resolution, the bench ruled in favour of the assessee, instructing authorities to permit dealers to file returns manually.

Case Title	Tvl.Kavin HP Gas Gramin Vitrak vs The Commissioner of Commercial Taxes
Citation	W.P.(MD).Nos.7173 and 7174 of 2023 and W.M.P.(MD)Nos.6764 and 6765 of 2023
Date	24.11.2023
For Petitioner	Mr.Raja Karthikeyan
For Respondents	Mr. A.K.Manikkam Special Government Pleader
Madras HC	Read Order