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2025 (5) TMI 384 - HC - GSTRetrospective insertion of sub-Section (5) of Section 16 of the CGST/BGST Act 2017 - entitlement to claim Input Tax Credit (ITC) beyond the originally prescribed time limit under Section 16(4) of the CGST/BGST Act 2017 by virtue of the retrospective amendment introduced by Finance Act No. 2 of 2024 - time limit of three months time to prefer a second appeal under Section 112 of the CGST/BGST Act 2017 - HELD THAT - Once the appeal of the petitioner was dismissed by the Appellate Authority the petitioner had three months time to prefer a second appeal under Section 112 of the CGST/BGST Act 2017. It is an admitted position that the second appeal could not have been preferred by the petitioner because the Tribunal where the second appeal was to be presented had not been constituted. Till date it has not been constituted. In the case of Sita Pandey 2023 (9) TMI 272 - PATNA HIGH COURT the learned Coordinate Bench has taken note of it that for purpose of filing of second appeal 20% of the tax dues was to be deposited by the petitioner in the said case. On a bare reading of Section 79 of the CGST/BGST Act 2017 it would appear that it talks of taking a step towards the recovery of amount by the Proper Officer but only where any tax amount payable by a person to the Government is not paid within the stipulated period under Section 78. A conjoint reading of Sections 78 and 79 would show that while Section 78 prescribes a period of three months to a taxable person to pay the amount in pursuance of an order passed under this Act from the date of service of the order and then only a recovery proceeding is to be initiated Section 79 is in consonance with Section 78 but it provides other modes of recovery of the tax amount. It is in the nature of a garnishee proceeding where the tax dues may be recovered by adopting any one or more modes prescribed under sub-Section (1) of Section 79. In the case of Sita Pandey 2023 (9) TMI 272 - PATNA HIGH COURT the learned Coordinate Bench has taken note of it that for purpose of filing of second appeal 20% of the tax dues was to be deposited by the petitioner in the said case. This Court has no iota of doubt that the Recovery Officer had to wait for a period of three months from the date of service of the order for deposit of the payable amount by the petitioner. Only in case of the petitioner failing to deposit the amount within the prescribed period of three months one of the modes as prescribed under Section 79 of the CGST/BGST Act 2017 could have been invoked - the recovery of Rs.50, 75, 214/- effected from the bill of the petitioner through Respondent No. 4 was in haste and in violation of the statutory provision. The Respondent Authorities are directed to refund the recovered amount i.e. Rs.50, 75, 214/- within a period of two weeks from today failing which interest shall run at the rate of 12% per annum. Conclusion - The impugned orders rejecting ITC claims and directing payment of tax interest and penalty were set aside in light of the retrospective amendment under Section 16(5). Application allowed.
Issues Presented and Considered
1. Whether the impugned orders passed by the Assistant Commissioner of State Tax and the Additional Commissioner of State Tax (Appeals) directing the petitioner to pay CGST and SGST along with interest and penalty are liable to be quashed, particularly in light of the retrospective insertion of sub-Section (5) of Section 16 of the CGST/BGST Act, 2017. 2. Whether the petitioner was entitled to claim Input Tax Credit (ITC) beyond the originally prescribed time limit under Section 16(4) of the CGST/BGST Act, 2017, by virtue of the retrospective amendment introduced by Finance Act No. 2 of 2024. 3. Whether the recovery of tax amount from the petitioner's account by the tax authorities was lawful, considering the statutory provisions governing the initiation of recovery proceedings under Sections 78 and 79 of the CGST/BGST Act, 2017. 4. Whether the recovery effected directly from the petitioner's employer without prior notice to the petitioner and without adherence to the prescribed three-month period for payment was in violation of statutory provisions and principles of natural justice. 5. Whether the petitioner is entitled to refund of the amount recovered along with interest, and if so, the rate and period of interest payable. Issue-wise Detailed Analysis Issue 1 & 2: Legitimacy of the tax demand and entitlement to Input Tax Credit in light of retrospective amendment Legal Framework and Precedents: Section 16 of the CGST/BGST Act, 2017 governs the eligibility and conditions for taking Input Tax Credit (ITC). Sub-Section (4) originally prescribed the time limits within which ITC claims must be made. However, Finance Act No. 2 of 2024 inserted sub-Section (5) retrospectively effective from 01.07.2017, allowing registered persons to claim ITC for invoices/debit notes pertaining to financial years 2017-18 to 2020-21 in any return under Section 39 filed up to 30th November 2021. Court's Interpretation and Reasoning: The Court observed that the impugned orders were passed before the insertion of sub-Section (5) of Section 16 and hence did not consider this amendment. The retrospective insertion with a non-obstante clause effectively extended the time limit for claiming ITC for the specified financial years. Application of Law to Facts: The petitioner had filed the return for March 2020 belatedly and claimed ITC which was disallowed on the ground of delay under Section 16(4). However, the retrospective amendment under sub-Section (5) allowed the petitioner to claim ITC till 30th November 2021. Therefore, the rejection of ITC claim based on the earlier time limit was no longer sustainable. Conclusion: The Court set aside the impugned orders directing payment of tax and remanded the matter for fresh consideration in light of the retrospective amendment. Issue 3 & 4: Legality of recovery proceedings initiated by the tax authorities Legal Framework: Sections 78 and 79 of the CGST/BGST Act, 2017 regulate the initiation and modes of recovery of tax dues. Section 78 mandates that any amount payable pursuant to an order must be paid within three months from the date of service of the order, failing which recovery proceedings may be initiated. The proviso allows the proper officer to require payment within a shorter period for reasons to be recorded in writing. Section 79 prescribes various modes of recovery, including garnishee proceedings against third parties such as employers or banks. Court's Interpretation and Reasoning: The Court emphasized that recovery proceedings under Section 79 can only be initiated after the expiry of the three-month period prescribed under Section 78, unless the proper officer records reasons in writing for a shorter period. In the instant case, the recovery was effected within 28 days of the appellate order without any such reasons recorded. Key Evidence and Findings: The petitioner's appeal was dismissed on 30.11.2022, and recovery was effected on 02.01.2023 by directly issuing notice to the petitioner's employer without prior notice to the petitioner. The Court found this premature and violative of statutory safeguards. Treatment of Competing Arguments: The State initially defended the recovery but ultimately conceded that the recovery was premature and contrary to the statutory scheme. The Court also relied on a coordinate bench judgment which held that recovery within the appeal period or without adherence to statutory timelines is impermissible. Application of Law to Facts: Since the petitioner had three months from the service of the order to pay the dues or to file a second appeal (which was not possible as the appellate tribunal was not constituted), the recovery was premature and illegal. Conclusion: The recovery was held to be unlawful and in violation of statutory provisions and principles of natural justice. Issue 5: Entitlement to refund and interest on the amount recovered Legal Framework and Precedents: The Court referred to the coordinate bench judgment in Sita Pandey vs. State of Bihar, which laid down guidelines for recovery and refund of tax dues, emphasizing the need for fairness and adherence to statutory provisions. The judgment also referred to the Supreme Court decision in Mohinder Singh Gill vs. Chief Election Commissioner emphasizing the principle of audi alteram partem (right to be heard) and fair hearing. Court's Interpretation and Reasoning: The Court noted that the amount recovered had been retained by the authorities for over two years without lawful cause. It held that the State should not unjustly enrich itself by retaining the amount recovered in violation of law. Application of Law to Facts: The Court directed the refund of Rs. 50,75,214/- within two weeks with penal interest at 12% per annum if not refunded timely. Additionally, the Court ordered payment of simple interest at 6% per annum on the amount recovered from the date of recovery till refund, recognizing the delay and unlawful retention of funds. Conclusion: The petitioner is entitled to refund with interest, and the Court mandated prompt payment by the authorities. Significant Holdings "On a bare reading of the aforesaid provision, it appears that the legislature had extended the date for claiming ITC and they were made entitled to have credit in any return under Section 39 which is filed up to 30th Day of November, 2021." "A conjoint reading of Sections 78 and 79 would show that while Section 78 prescribes a period of three months to a taxable person to pay the amount in pursuance of an order passed under this Act from the date of service of the order and then only a recovery proceeding is to be initiated, Section 79 is in consonance with Section 78 but it provides other modes of recovery of the tax amount." "This Court has no iota of doubt that the Recovery Officer had to wait for a period of three months from the date of service of the order for deposit of the payable amount by the petitioner. Only in case of the petitioner failing to deposit the amount within the prescribed period of three months, one of the modes as prescribed under Section 79 of the CGST/BGST Act, 2017 could have been invoked." "The recovery of Rs.50,75,214/- effected from the bill of the petitioner through Respondent No. 4 was in haste and in violation of the statutory provision. We deprecate such approach on the part of the Taxing Authority." "The philosophy behind natural justice is, in one sense, participatory justice in the process of democratic rule of law." "There shall be no recovery of tax within the time limit for filing an appeal and when a stay application is filed in a properly instituted appeal, before the stay application is disposed of by the appellate authority." "The authorities under the tax enactment shall not act as a mere tax gatherer but act as a quasi-judicial authority vested with the public duty of protecting the interest of the Revenue while at the same time balancing the need to mitigate the hardship to the assessee." "Since we have held that the recovery has been made in violation of the statutory provision and the procedure established by law, the State cannot be allowed to unduly rich itself by indulging into such kind of the recoveries and retaining the money." Core Principles Established:
Final Determinations on Each Issue: (1) The impugned orders rejecting ITC claims and directing payment of tax, interest, and penalty were set aside in light of the retrospective amendment under Section 16(5). (2) The matter was remanded to the Appellate Authority for fresh consideration incorporating the amended legal position. (3) The recovery of tax dues effected prematurely and without statutory compliance was held illegal. (4) The petitioner was entitled to refund of the recovered amount along with penal interest at 12% per annum from the date of recovery if not refunded within two weeks, and simple interest at 6% per annum for the period of unlawful retention. (5) The Court accepted the apology tendered by the Assistant Commissioner and refrained from imposing costs.
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