Disallowing ITC for Late Returns Is Arbitrary as Late Fees and Interest Serve as Sufficient Deterrents | HC

Case Details: Anand Steel v. Union of India - [2024] 169 taxmann.com 105 (Madhya Pradesh)

Judiciary and Counsel Details

• S.A. Dharmadhikari & Binod Kumar Dwivedi, JJ.
• P.M. Choudhary, Sumit Nema, Sr. Advs., Arun Dwivedi, Anand Prabhawalkar & Piyush Parashar, Advs. for the Petitioner.
• Sudeep Bhargava & Ms Khushbu Verma, Advs.a for the Respondent.

Facts of the Case

During the financial year 2018-19, the petitioner filed GST returns from April 2018 to March 2019 in FORM GSTR-3B along with the GST liability and late fee on outward supplies. The petitioner availed input tax credit correctly as per their inward supplies for the relevant period. Subsequently, a notice was issued by the Assistant Commissioner of COST to the petitioner proposing to disallow the ITC for the tax period 2018-19. The disallowance was proposed on the ground of late filing of return in FORM GSTR-3B. Aggrieved by the order, the petitioner filed a writ petition to the Madhya Pradesh High Court and contended that Section 16(4) puts arbitrary restrictions/limitations on the right to avail input tax credit.

High Court Held

The Madhya Pradesh High Court held 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. The tax payer who is claiming the ITC has already made the payment of tax to the supplier from whom the foods and services have been received. The payments include both the cost of service or goods and the amount of Tax. Thus, the taxpayer cannot be deprived of his right to claim ITC. The imposition of a time limit through Section 16(4) would supersede or override the scheme of the statute.

The operation of Section 16(4) makes the non-obstante Section 16(2) meaningless since Section 16(2) has overriding effect on Section 16(4), and Section 16(2) has been drafted in a manner which shows clear legislative intent that it is not subject to Section 16(4). Moreover, the payment of late fees and interest are already there as deterrents 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.