An Appeal Against the Invocation of Section 16(4) of the CGST Act, 2017

Hello everyone!

Today, we're diving into an important issue that affects many businesses dealing with the complexities of the Goods and Services Tax (GST) in India. Specifically, we'll be discussing an appeal against the invocation of Section 16(4) of the Central Goods and Services Tax (CGST) Act, 2017. This is crucial for understanding the challenges businesses face and the legal nuances involved.

The Problem:

Common Portal Restrictions and ITC Availment

One of the core issues is the restriction imposed by the GST common portal, which prevents taxpayers from filing returns without making the tax payment.

Let's break down the key points:

1. Section 16(4) Overview:

A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the [thirtieth day of November] following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier:

Provided that the registered person shall be entitled to take input tax credit after the due date of furnishing of the return under section 39 for the month of September, 2018 till the due date of furnishing of the return under the said section for the month of March, 2019 in respect of any invoice or invoice relating to such debit note for supply of goods or services or both made during the financial year 2017-18, the details of which have been uploaded by the supplier under sub-section (1) of section 37 till the due date for furnishing the details under sub-section (1) of said section for the month of March, 2019.

2. Section 41 and Return Filing:

Section 41 allows every registered person to take credit of eligible input tax as self-assessed in their return. However, the common portal’s restriction means returns cannot be filed without GST payment. This is contrary to Sections 39(1) and 39(7), which prescribe independent due dates for filing returns and tax payment.

3. Portal Restrictions:

The GST common portal does not allow the filing of returns without paying tax, preventing compliance with Section 41 and hindering the timely availing of ITC as per Section 16(4).

4. Impact on Taxpayers:

If the common portal had allowed the filing of returns without payment of tax, taxpayers could have filed returns within the time limits and claimed ITC accordingly. This restriction has effectively prevented them from complying with Section 16(4).

5. Lack of Infrastructure:

The government has not provided the necessary infrastructure to claim ITC within the prescribed time limit, making it impossible for taxpayers to comply.

Proviso to Section 16(4) and Its Implications

Further, let's discuss the specific proviso to Section 16(4) and its implications for different financial years:

1. Relaxation for 2017-2018:

The proviso to Section 16(4) allowed taxpayers to avail of the credit for the year 2017-2018 until the due date for furnishing the return for the month of March 2019.

2. Need for Continued Extension:

The issues which persisted in 2017-2018 continued into subsequent years as well. Therefore, the relaxation/extension provided for the year 2017-2018 should be extended until the systemic issues are fully resolved. This would ensure that taxpayers are not unfairly penalized due to ongoing infrastructure and operational challenges.

Late Fee Payment and Compliance

Lastly, let's discuss the implication of late fee payments on return filing:

1. Regularization of Returns:

Even with the belated filing of GSTR-3B, the payment of late fees signifies compliance with Section 39. The term "under Section 39" implies that the condition is satisfied upon late fee payment.

2. Legal Precedents:

Court rulings, such as those in Mr. Rashmikant Kundalia vs. Union of India and Howrah Taxpayers' Association vs. The Government of West Bengal, support this interpretation. Once late fees are paid, returns should be considered filed within the due date, validating the timely availing of ITC.

Conclusion:

These points highlight the significant challenges businesses face due to the restrictions and systemic issues with the GST common portal. The inability to file returns without tax payment and the operational challenges have led to genuine difficulties in complying with Section 16(4) of the CGST Act, 2017. Moreover, the need for continued extensions until the resolution of these systemic issues is crucial for fair treatment of taxpayers.

Thank you for joining us today. We hope this discussion provides clarity on the appeal against the invocation of Section 16(4) and the broader implications for ITC availment. If you have any questions or need further insights, please leave your comments below. Don't forget to like, share, and subscribe to our channel for more in-depth discussions on GST and other tax-related topics.

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CA Afnas M A