Kerala HC Upholds Constitutional Validity of GST Section 16(2)(c) and CGST Rule 36(4)

The High Court of Kerala at Ernakulam has dismissed two writ appeals challenging the constitutional validity of specific provisions under the Central Goods and Services Tax (Central GST) Act and Rules. The pleas were filed by two businessmen, Nahasshukoor, proprietor of M/s N. S. Metals, and Ansil Ibrahim, proprietor of M/s Light House, both located in Alappuzha, Kerala.

The appellants argued the ITC denial under the CGST Act and State Goods & Service Tax (SGST) Act via the Assistant Commissioner, Second Circle, State Goods & Service Tax Department, Alappuzha. Their claims were dismissed by the Assessing Authority, citing discrepancies between GSTR 2A and GSTR 3B returns. This led to the imposition of penalties and the initiation of recovery proceedings.

The central issue involved the entitlement of purchasing dealers to claim input tax credits under section 16 of the CGST Act. The appellants contested the constitutionality of Section 16(2)(c) of the CGST Act and Rule 36(4) of the CGST Rules, asserting that these provisions were discriminatory and violated Article 14 of the Constitution.

On November 3, 2023, the High Court, comprising Dr. Justice A.K. Jayasankaran Nambiar and Dr. Justice Kauser Edappagath, disposed of both writ appeals together, delivering a common judgment.

The court underscored that input tax credit (ITC) is a concession provided under the statute and not an absolute right. It highlighted that the onus is on the dealer to prove eligibility for such benefits. In this instance, the appellants failed to produce necessary tax invoices despite multiple opportunities and did not exhaust the alternative appellate remedy before approaching the court.

The court dismissed the constitutional challenges, affirming that the provisions were not discriminatory and did not infringe upon Article 14. It stressed the importance of judicial restraint in intervening with tax legislation unless manifest injustice or unconstitutionality is demonstrated.

Read Also: Meaning of SGST, IGST, CGST with Input Tax Credit Adjustment

As a result, the High Court bench, comprising Dr. Justice A.K. Jayasankaran Nambiar and Dr. Justice Kauser Edappagath, dismissed both appeals without prejudice to the appellants’ right to challenge the assessment orders under the law.