ITC should be processed if return for the month of September is filed on or before 30th November

Case Title: M. Trade Links v. Union of India

Court: High Court of Kerala

Petition Nos.: WP(C) Nos. 31559 of 2019 and others

Date of Judgment: 4 June 2024

Relevant Sections: Section 16(2)(c), Section 16(4), CGST Act, 2017 and corresponding SGST provisions

Category of Dispute: Input Tax Credit (ITC)

Takeaway: “When Supplier Defaults, Can Recipient Be Penalized?”

Facts of the Case [Paras 1–40]

1. The petitioners challenged the constitutional validity of Sections 16(2)(c) and 16(4) of the CGST/SGST Acts, alleging they violate Articles 14, 19(1)(g), and 300A of the Constitution. [Paras 1–2]
2. Petitioners were bona fide purchasers possessing valid tax invoices, proof of payment to suppliers (including GST), and had received goods/services, but were denied ITC due to non-reflection in GSTR-2A or default by suppliers. [Paras 18–20]
3. Petitioners argued that law does not compel impossibilities (lex non cogit ad impossibilia), and recipients should not suffer for the supplier’s defaults. [Paras 22–23]
4. The provisions were claimed to arbitrarily equate honest taxpayers with fraudulent ones, violating constitutional rights. [Paras 24–26]
5. It was submitted that procedural defaults, especially in initial GST years, should not lead to denial of substantial rights such as ITC. [Paras 30–35]

Questions in Consideration [Para 60]

1. What are the grounds on which a taxing statute can be held unconstitutional?
2. What is the nature of the claim to Input Tax Credit under the GST framework?
3. Do Sections 16(2)(c) and 16(4) infringe constitutional provisions?

Observation of the Court [Paras 61–100]

1. The Court reaffirmed that ITC is not a fundamental or vested right, but a concession/statutory entitlement subject to conditions. [Para 71]
2. ITC is contingent upon tax actually being paid to the government. Without payment by the supplier, credit cannot be passed to the recipient. [Para 81]
3. Section 16(2)(c), though strict, was held necessary to maintain the tax chain integrity, particularly in inter-state supplies, where tax collection needs to be reconciled across states. [Paras 82–84]
4. Section 16(4)’s time limit is procedural and not arbitrary. Retrospective application of the extended due date (30th November instead of 20th October) from FY 2017–18 to FY 2022–23 was allowed considering initial transitional difficulties. [Paras 100–101]
5. Circulars No. 183/15/2022 and 193/05/2023 allow ITC claims in bona fide scenarios. Petitioners were permitted to approach authorities within 30 days to avail these benefits. [Paras 99–101]

Judgment of the Court [Para 101]

1. The constitutional validity of Sections 16(2)(c) and 16(4) of the CGST Act is upheld.
2. Petitioners who missed claiming ITC due to technical or procedural reasons may still apply for relief under Circulars 183/15/2022 and 193/05/2023 within 30 days.
3. The extended deadline of 30th November for September returns is to be applied retrospectively from 1-7-2017.

Between Fine Lines

• ITC is not an unconditional right but a statutory benefit governed by strict conditions.
• The recipient’s claim to ITC fails if the supplier defaults in remitting GST, even if payment is made.
• Procedural compliance (like timely filing of GSTR-3B) is crucial; however, initial year hardships were recognized.
• Circulars offer a window to claim ITC for genuine cases even if technical defaults occurred.
• Section 16(4)’s deadline was retrospectively relaxed from 20th October to 30th November in relevant years.

Summary of Referred Cases

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