2025 (7) TMI 772 - HC - GST

Extension of Time Limit for issuance of SCN - Validity of N/Ns. 9/2023 and 56/2023 - non-compliance with conditions precedent were non-existent for their issuance and mandatory procedural conditions (Recommendation of GST Council) for exercise of power under Section 168A of Central Goods and Services Tax Act 2017 - conditional or delegated legislation - Section 168A is an exception to the legislative policy under the GST Act or not - delegated legislation can be challenged on the ground of failing to take into account relevant factors - mandatory recommendation by GST Council for issuance of notifications under Section 168A of CGST Act - ratification of recommendation by GIC by the GST Council post issuance of N/N. 56 of 2023 - suo muto orders of the Hon ble Supreme Court under Article 142 of the Constitution. Whether notifications issued by the Government in exercise of its power under Section 168A of CGST Act is a piece of conditional or delegated legislation? - HELD THAT - Section 168A of CGST Act read with the impugned notifications is in the nature of an exception to Section 73 of CGST Act which as observed supra reflects the legislature s will/policy as regards limitation under CGST Act. It is trite law that exception ought to be strictly construed. In this regard it may be relevant to refer to the judgment of the Hon ble Supreme Court in Project Officer IRDP and Others v. P.D. Chacko 2010 (5) TMI 872 - SUPREME COURT wherein it was held It is trite law that an exception clause has to be strictly interpreted and cannot be assumed but be proved. An exception clause is always subject to the rule of construction and in case of doubt it must befriend the general provision and disfavour the exception. It may therefore be necessary to construe Section 168A of CGST Act and impugned notification issued thereunder which purports to extend limitation fixed by Parliament/State legislature strictly. Whether a delegated legislation can be challenged on the ground of failing to take into account relevant factors and if so whether factors relevant for determining existence of circumstances warranting recommendation for exercise of power under Section 168A of CGST Act were left out by the Council thereby vitiating the recommendation and impugned notifications issued thereon such recommendation? - HELD THAT - It is beyond any doubt that occurrence of a force majeure event in terms of explanation to Section 168A of CGST Act is a sine qua non/condition precedent. Force majeure is defined to mean events mentioned in the Explanation to Section 168A of CGST Act which includes epidemic. It is not in dispute that Covid-19 would constitute a force majeure for the purposes of Section 168A of CGST Act. The expression due to would reveal that inability to complete or comply with actions to be taken under the Act within the time limit specified in a prescribed or notified must be closely/proximately connected to force majeure . In other words force majeure must be shown to be the most proximate cause for the inability to complete or comply with actions within the time limit prescribed or notified under the Act. A mere casual connection between force majeure and inability to complete or comply with actions within the limitation provided under the Act may not be adequate for exercise of power under Section 168A of CGST Act. Failure to take into account the relevant materials vitiates the recommendation. As a consequence the impugned notifications in the absence of a valid recommendation may also not comply with the mandate under Section 168A of CGST Act viz. notification must be issued on the recommendation of the GST Council. This Court is of the view that the impugned notifications suffers from the vice of not complying with the statutory mandate inasmuch as the recommendation itself is made without keeping in view relevant material. It is also found supra that a delegated legislation is open to challenge on the ground of failing to take into account relevant material. The impugned notification does not even contain a recital that actions under Section 73 of CGST Act viz. issuance of notice and passing of orders within the time limit provided under sub section (2) and (10) of Section 73 of CGST Act was only due to Covid (force majeure). In the circumstances this Court is of the view that the impugned notifications cannot be sustained. Whether recommendation by GST Council for issuance of notifications under Section 168A of CGST Act is mandatory and non compliance would render the legislative exercise by the delegate a nullity? - HELD THAT - The recommendation of GST Council under Article 279A of the Constitution cannot obviously be mandatory when it comes to legislative action in view of the fact that the power to legislate on Goods and Service Tax flows from Article 246A of Constitution of India any attempt to suggest that the above legislative power would be subject to recommendation of an executive body albeit constitutional body i.e. GST Council may well strike an imbalance rather offend the doctrine of separation of powers between the three organs viz. legislature judiciary and executive. It is important to remind ourselves that separation of powers is part of basic structure of Constitution and thus ought to be preserved any construction which offends/infracts the above rule ought to be eschewed. The recommendation of GST Council for issuance of notification under Section 168A of CGST Act is mandatory but not binding on the government for the purposes of issuance of notifications under Section 168A of CGST Act. Whether ratification of recommendation by GIC by the GST Council post issuance of Notification No. 56 of 2023 would constitute sufficient compliance with the mandate on recommendation contained in Section 168A of CGST Act or there was any abdication of authority by GST Council or arrogation/usurping of powers vested with the Council by GIC? - HELD THAT - The impugned Notification came to be issued without recommendation of the GST Council thus the mandate contained in Section 168A of CGST Act was not complied with. Recommendation by the GST Council was only by way of ratification of a decision of GIC and subsequent to the issuance of notification No.56 of 2023 this may not constitute compliance with the mandate of Section 168A of CGST Act. While in the demonetisation case relied by the Revenue the Central Board which is the appropriate body to recommend in fact made a recommendation prior to the exercise of power by the Central Government under sub section (2) of Section 26 of RBI Act 1934 though the Central Government may have possibly initiated the entire proposal. In the circumstance reliance on the judgment of the Supreme Court in the demonetization case appears to be wholly misplaced. This Court is of the view that the recommendation by GIC Council ratified by GST Council after issuance of impugned Notification No.56/2023 would not constitute compliance with the mandate contained on recommendation in Section 168A of CGST Act. Whether the suo muto orders of the Hon ble Supreme Court under Article 142 of the Constitution would continue to remain binding even after introduction of Section 168A of CGST Act and issuance of notifications by the Government in exercise of its power thereon? - HELD THAT - The period of limitation and computation of limitation are distinct aspects. While the orders under Article 142 of the Constitution dealt with exclusion of limitation and thus computation of limitation the notification under Section 168A of CGST Act provided for extension of time thus period of limitation . In other words the former dealt with computation of limitation while latter with period of limitation. They deal with different aspects thus question of supplanting or overlap may not arise. The submission of the petitioner that orders under Article 142 of the Constitution would cease to have effect with the introduction of Section 168A of the CGST Act fails to bear in mind the above distinction in law. Notification under Section 168A of CGST Act can be issued only to extend the time limit and not diminish limitation. It appears to me that the impugned notifications is made without taking into account the effect of the order of the Hon ble Supreme Court dated 10.01.2022 - The impugned notifications is based on an erroneous assumption of state of law relating to limitation applicable to Section 73(10) of the CGST Act and the impact of the orders of the Hon ble Supreme Court on the limitation under sub section (2) and (10) of Section 73 of CGST Act. It is trite that legislation based on mistaken or erroneous assumption has not the effect of making that the law which the legislature had erroneously assumed to be so. The impugned notification diminishes the limitation available to the authorities to issue notices/pass orders under sub section (2) to Section 73 of CGST Act by virtue of the order of the Supreme Court dated 10.01.2022 a consequence which is antithetical to the very purpose and object of Section 168A of CGST Act thus unsustainable. Conclusion - i) It may be necessary to construe Section 168A of CGST Act and impugned notification issued thereunder which purports to extend limitation fixed by Parliament/State legislature strictly. ii) The impugned notification does not contain a recital that actions under Section 73 of CGST Act viz. issuance of notice and passing of orders within the time limit provided under sub section (2) and (10) of Section 73 of CGST Act was only due to Covid (force majeure). In the circumstances this Court is of the view that the impugned notifications cannot be sustained. iii) The recommendation of GST Council for issuance of notification under Section 168A of CGST Act is mandatory but not binding on the government for the purposes of issuance of notifications under Section 168A of CGST Act. iv) This Court is of the view that the recommendation by GIC Council ratified by GST Council after issuance of impugned Notification No.56/2023 would not constitute compliance with the mandate contained on recommendation in Section 168A of CGST Act. v) The impugned notification diminishes the limitation available to the authorities to issue notices/pass orders under sub section (2) to Section 73 of CGST Act by virtue of the order of the Supreme Court dated 10.01.2022 a consequence which is antithetical to the very purpose and object of Section 168A of CGST Act thus unsustainable. This Court is inclined to remand all the matters back to the assessing authority for passing orders afresh - Petition disposed off by way of remand.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Court considered the following core legal questions:

(a) Whether notifications issued under Section 168A of the Central Goods and Services Tax Act, 2017 (CGST Act) constitute conditional legislation or delegated legislation;

(b) Whether Section 168A and the impugned notifications constitute an exception to the legislative policy under the GST Act with respect to limitation periods, and if so, whether such exceptions must be strictly construed;

(c) Whether delegated legislation under Section 168A can be challenged on grounds of failure to consider relevant factors, and whether the GST Council's recommendation underlying the impugned notifications was vitiated by omission of relevant materials;

(d) Whether the recommendation of the GST Council is mandatory for issuance of notifications under Section 168A, and whether non-compliance renders the notifications invalid;

(e) Whether ratification by the GST Council of recommendations made by the GST Implementation Committee (GIC) after issuance of Notification No. 56/2023 suffices to comply with the statutory mandate, or whether this constituted abdication or usurpation of authority;

(f) Whether the Supreme Court's suo motu orders under Article 142 of the Constitution, which excluded certain periods from limitation, continue to remain binding after the introduction of Section 168A and issuance of the impugned notifications.

2. ISSUE-WISE DETAILED ANALYSIS

A) Nature of Notifications under Section 168A: Conditional or Delegated Legislation

The Court distinguished between conditional legislation and delegated legislation proper, relying on authoritative precedents. Conditional legislation is complete in itself, with its operation dependent on fulfillment of certain conditions, whereas delegated legislation involves conferring some portion of legislative power to an outside authority to fill in details within prescribed limits.

Section 168A of the CGST Act empowers the Government, on recommendation of the GST Council, to extend specified time limits in special circumstances (force majeure). The Court held that this power is more akin to delegated legislation because it modifies the limitation period prescribed by the legislature, an essential legislative function. Thus, notifications under Section 168A are delegated legislation and subject to scrutiny on grounds applicable to such legislation.

B) Section 168A as an Exception to Legislative Policy on Limitation and Strict Construction

The Court examined Sections 73(2) and 73(10) of the CGST Act, which prescribe limitation periods for issuance of show cause notices and passing orders for recovery of tax. These provisions reflect a legislative policy promoting finality and certainty in tax proceedings, grounded in public policy to prevent stale claims and ensure prompt action.

Section 168A, which permits extension of such limitation periods due to force majeure, is an exception to this policy. The Court emphasized that exceptions to legislative policy must be strictly construed. Therefore, the power to extend limitation under Section 168A must be exercised only when strict jurisdictional facts-existence of force majeure causing inability to complete actions within prescribed time-are satisfied.

C) Challenge to Delegated Legislation for Failure to Consider Relevant Factors

The Court recognized that delegated legislation can be challenged if it fails to take into account relevant or vital facts required by statute or the Constitution. The condition precedent for exercise of power under Section 168A includes:

• Existence of a force majeure event as defined (e.g., war, epidemic, natural calamity);
• Actions for which time limits are prescribed cannot be completed or complied with;
• The inability to complete or comply is "due to" force majeure, implying proximate causation.

"Due to" was interpreted as requiring a proximate or direct causal connection, not merely a casual or incidental link. The term "cannot" was held to imply impossibility or impracticality, not mere difficulty or inconvenience.

The Court found that the GST Council failed to consider significant materials indicating that the inability to issue notices or pass orders within time was primarily due to systemic deficiencies and shortage of personnel rather than the Covid-19 pandemic (force majeure). These materials included:

• Government Office Memoranda indicating return to normalcy by February 2022;
• Home Secretary's letter advising discontinuation of Covid-related restrictions;
• Reports of the Comptroller and Auditor General (CAG) highlighting systemic problems and manpower shortages;
• GST Council meeting minutes acknowledging these difficulties.

The Court concluded that the GST Council's recommendation was vitiated by failure to consider these relevant factors, rendering the impugned notifications invalid.

D) Mandatory Nature of GST Council Recommendation

The Court examined the statutory mandate that notifications under Section 168A must be issued "on the recommendations of the Council." It rejected the Revenue's contention that recommendation is not mandatory, clarifying that while the GST Council's recommendations may not be binding on the Government, the existence of a recommendation is a sine qua non for valid exercise of power under Section 168A.

The Court relied on authoritative precedents and constitutional principles, emphasizing that when a statute requires an act to be done in a particular manner, it must be done accordingly. The GST Council is a constitutional body, and its recommendation cannot be dispensed with or replaced by other bodies.

E) Ratification of GIC Recommendations by GST Council Post Notification

The Court noted that Notification No. 56/2023 was issued prior to any recommendation by the GST Council and was based on recommendations of the GST Implementation Committee (GIC), a committee constituted by the GST Council but not the Council itself.

The Court held that the GIC cannot substitute for the GST Council, and post-facto ratification by the Council does not cure the defect of absence of prior recommendation. This violates the principle of "delegatus non potest delegare" (a delegate cannot delegate), and constitutes abdication or usurpation of authority by the GST Council, vitiating the notification.

The Court distinguished this from a cited Supreme Court decision on demonetization, noting the factual and statutory differences.

F) Impact of Supreme Court's Orders under Article 142 on Limitation and Notifications

The Court analyzed the interplay between the Supreme Court's suo motu orders under Article 142 excluding the period from 15.03.2020 to 28.02.2022 from limitation computation, and the notifications under Section 168A extending limitation periods.

It emphasized the legal distinction between "period of limitation" (the total time allowed) and "computation of limitation" (how the time is calculated). The Supreme Court's orders excluded certain periods from computation, effectively enlarging the limitation period, whereas Section 168A notifications extend the period itself.

The Court found that the impugned notifications diminished the limitation available to authorities when the Supreme Court's exclusion is taken into account, which is impermissible as Section 168A empowers only extension, not curtailment, of limitation.

The notifications were found to be based on a mistaken assumption of law regarding the effect of the Supreme Court's orders, rendering them arbitrary and invalid.

The Court further held that diminution of limitation extinguishes vested rights of authorities and violates Article 14 of the Constitution.

3. SIGNIFICANT HOLDINGS

(a) The Court held that notifications issued under Section 168A of the CGST Act are delegated legislation, not conditional legislation, and are subject to judicial scrutiny on grounds including failure to consider relevant factors.

(b) Section 168A and the impugned notifications constitute an exception to the legislative policy on limitation under the GST Act and must be strictly construed.

(c) The Court emphasized the jurisdictional facts for exercise of power under Section 168A:

"(i) There must be a force majeure event affecting implementation of the Act within the meaning of the Explanation to Section 168A;
(ii) Actions for which time limits are prescribed cannot be completed or complied with;
(iii) Such inability must be due to force majeure, implying proximate causation."

(d) The Court found that the GST Council failed to consider relevant materials indicating that inability to complete actions within time was primarily due to systemic deficiencies and manpower shortages, not force majeure, thereby vitiating the recommendation and notifications.

(e) The Court held that recommendation by the GST Council is mandatory for issuance of notifications under Section 168A, and absence of such prior recommendation renders the notifications invalid. Ratification of GIC recommendations post issuance does not cure this defect.

(f) The Court clarified that the Supreme Court's orders under Article 142 excluding certain periods from limitation computation continue to operate and cannot be superseded or nullified by Section 168A notifications that diminish limitation periods.

(g) The Court concluded:

"Notification Nos. 9 and 56 of 2023 stand vitiated and illegal for the following reasons:
a) They diminish or curtail limitation otherwise available in view of the Supreme Court's orders;
b) They proceed on erroneous assumptions of law and are arbitrary;
c) They extinguish vested rights of authorities to take action;
d) They are based on recommendations made without considering relevant materials;
e) Notification No.56/2023 was issued without prior GST Council recommendation and on GIC's recommendation, which is impermissible."

(h) The Court remanded all matters to the assessing authorities for fresh orders after affording opportunity of hearing, treating impugned orders as show cause notices where applicable.