It has become common now that department demands back the whole of ITC disclosed in any return filed after the due date mentioned in Section 16(4). While defending such demands, industry has been raising arguments that Section 16(2) of the CGST Act, 2017 is a non-obstante clause and as such overrides Section 16(4). Based on such rationale, argument is advanced that if conditions mentioned in Section 16(2) are fulfilled, Section 16(4) gets overridden, and the condition of time limit doesn’t apply at all. In this backdrop, this article tries to understand if at all such interpretation can be made by looking into the principles governing the interpretation of a non-obstante clause.
A provision of law which starts with “notwithstanding anything contained in” or “notwithstanding anything contrary contained in” are referred to non-obstante clauses. The general rule is that a non-obstante clause will override the provision mentioned in such clause. Say if the non-obstante clause reads “notwithstanding anything contained in Section 5”, the said clause will nullify the applicability of Section 5 for the cases covered by the said non-obstante clause.
Section 16(2) reads “(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,-". Since this Section 16(2) states “notwithstanding anything contained in this Section” an interpretation is being given that anything and everything in Section 16 gets overridden by Section 16(2). As such, if the conditions prescribed in Section 16(2) are satisfied, credit becomes eligible. Time limit under Section 16(4) is redundant as it gets overridden the moment conditions under Section 16(2) are satisfied.
However, these interpretations, in my view, are out of context. First of all, Section 16(2) is not a provision which allows credit. It restricts the credit, which is otherwise allowed, to only such cases where conditions prescribed are satisfied. Hence, it only overrides the provisions which enable the credit. It is evident from the way Section 16(2) is worded. The non-obstante in Section 16(2) is followed by a negative sentence – “no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless”. This negative sentence clearly states, ‘unless these conditions are satisfied, no credit will be eligible’. This makes it clear that Section 16(2) is not an enabling provision but a restricting one. What it restricts? – the eligibility otherwise given.
When a non-obstante is a restricting provision, an interpretation that ‘other restricting provisions will not have effect’ cannot be adopted for a simple reason that there is no contradiction between the restricting non-obstante and the other restricting provision. In order that a non-obstante becomes overriding, the two provisions being compared should have a clear contradiction. In the case RS. RAGHUNATH VERSUS STATE OF KARNATAKA AND ANR. [1991 (10) TMI 291 - SUPREME COURT] the Apex Court has held “The non-obstante clause is sometimes appended to a section or a rule in the beginning with a view to give the enacting part of that section or rule in case of conflict, an overriding effect over the provisions or Act mentioned in that clause. Such a clause is usually used in the provisions to indicate that the said provision should prevail despite anything to the contrary in the provision mentioned in such non-obstante clause. There should be a clear inconsistency between two enactments before giving an overriding effect to the non-obstante clause.”. Hence, unless such clear inconsistency is established, overriding effect cannot be given. In the present case, as mentioned above, both Section 16(2) and Section 16(4) restrict the credit. As such, there may not be a clear inconsistency between them. In the very same case of R.S. Raghunath (supra) the Supreme Court further holds “But the non-obstante clause need not necessarily and always be co-extensive with the operative part so as to have the effect of cutting down the clear terms of an enactment and if the words of an enactment are clear and are capable of a clear interpretation on a plain and grammatical construction of the words, the non-obstante clause cannot cut down the construction and restrict the scope of its operation. In such cases the non-obstante clause has to be read as clarifying the whole position and must be understood to have been incorporated in the enactment by the legislature by way of abundant caution and not by way of limiting the ambit and scope of the Special Rules. Further, the influence of a non-obstante clause has to be considered on the basis of the context also in which it is used”. With this, it is clear that any non-contradictory provision, which is capable of a clear interpretation will not be overridden by a non-obstante. Section 16(4) is clear enough to understand/interpret that there is a time restriction to avail credit. That being the case, interpretation of Section 16(2) overriding Section 16(4) may not be correct.
In the case of JIK INDUSTRIES LTD. VERSUS AMARLAL V. JUMANI [2012 (2) TMI 269 - SUPREME COURT] Supreme Court of India observed “Under the scheme of modern legislation, non obstante clause has a contextual and limited application. The impact of a “non obstante clause” on the Act concerned must be kept measured by the legislative policy and it has to be limited to the extent it is intended by the Parliament and not beyond that”. It further observed that when a non-obstante clause in used in a blanket fashion the court has to determine the scope of its use very strictly.
If we are to consider the context of Section 16 – Section 16(1) entitles ITC, Section 16(2) subjects such entitlement to certain condition. Section 16(3) and Section 16(4) further restrict the entitlement given in Section 16(1). Hence, the context is that the credit allowed by Section 16(1) gets restricted by three other sub-section of that Section. In such case, if one of the restricting provision is interpreted to have negated the other two restrictions, such interpretation will be out of context.
Such interpretation will also fail if we look at the legislative intent. If at all the legislature intended to have no time limit restriction, there was no necessity that a specific provision is inserted, and such insertion is overridden by a non-obstante. Hence, it is clear that legislature did not intend the non-obstante in Section 16(2) to override Section 16(4). It is more so when the restriction advocated to have been overridden occurs later than the non-obstante.
Based on the above discussion, it might be safe to state that a non-obstante clause doesn’t override anything and everything. There have even been judgements wherein it is held that such non-obstante clauses should be constructed harmoniously with other provisions - see Geeta v. State of U.P., (2010) 13 SCC 678. As such, the interpretation being advocated may be out of context.
Any critical comments or additional points are most welcome.
By: Shripada Hegde -
August 1, 2022
Discussions to this article
Very well drafted and informative
Thanks a lot for sharing
In simple words...
Non obstance clause simply explains that although all other conditions of Section 16 are satisfied by the taxpayer but he shall be eligible to claim the credit only after he satisfy the conditions specified in 16(2)..
The non-obstante clause should have been restricted to sub-seciton (1) only since it is the only one u/s 16 which generalizes the eligibility of ITC i.e. in the course of furtherance of business. All the other sub-sections i.e. (2), (3) and (4) have got restricting effect of this general eligibility granted by sub-section (1). So, to read it straight, even though goods/services are received for business purpose, ITC is eligible subject to fulfilment of the conditions u/s 16(2)