Constitutional Challenge to Section 16(2)(c) Dismissed; Assessee Directed to Seek Statutory Remedy for Mismatch

Constitutional Challenge to Section 16(2)(c) Dismissed; Assessee Directed to Seek Statutory Remedy for Mismatch

Issue

• Whether a constitutional challenge to the vires of Section 16(2)(c) of the CGST/TGST Act can be entertained in a writ petition when the underlying tax dispute fundamentally hinges on factual verification of Input Tax Credit (ITC) mismatches.

• Whether the petitioner should be relegated to the statutory appellate remedy to prove tax payment and receipt of goods when an ITC mismatch exists between GSTR-2A/3B and supplier declarations.

Facts

• The petitioner challenged an Order-in-Original and a summary order that imposed tax, interest, and penalties for the assessment period 2021-22.

• The demand was raised by the Revenue on the grounds that the petitioner had claimed excess ITC compared to the tax declarations made by their suppliers.

• Alongside the merits of the assessment, the petitioner assailed the constitutional validity (vires) of Section 16(2)(c) of the CGST/TGST Act, 2017, arguing that they should not be penalized with credit denial if a supplier fails to deposit the tax despite receiving full invoice payment.

• The Show Cause Notice (SCN) and the final Order-in-Original rested exclusively on the mathematical excess of the ITC claimed versus supplier-declared taxes, without containing an explicit, verified finding that the supplier had definitively failed to deposit the tax.

Decision

• The High Court observed that the core of the proceedings was a factual dispute concerning excess ITC claims over supplier declarations, rather than an established case of absolute non-deposit by the supplier.

• The Court held that determining whether the tax was actually paid against the invoices and whether the goods were duly received requires a detailed scrutiny of commercial documents and reconciliations.

• Such factual verification falls squarely within the statutory and appellate domain rather than the extraordinary writ jurisdiction of the High Court.

• Consequently, the Court declined to entertain the constitutional challenge to Section 16(2)(c) at this stage.

• The writ petition was decided in favor of the Revenue, and liberty was granted to the petitioner to file a statutory appeal before the appellate authority, subject to making the mandatory pre-deposit within the limitation period.

Key Takeaways

• Exhaustion of Alternative Remedies: Constitutional courts will generally decline to entertain writ petitions challenging the validity of a statutory provision if the dispute can be completely resolved through a factual inquiry before an appellate authority.

• Factual Domain of ITC Mismatches: Discrepancies between the ITC claimed by a recipient and the tax declared by a supplier are questions of fact. Assessees must utilize the statutory appellate route to produce books of accounts, invoices, and payment proofs to substantiate their claims under Section 155.

• Pre-deposit is Mandatory: Seeking to bypass the statutory appellate forum by filing a writ petition containing constitutional challenges will not absolve the assessee from the mandatory pre-deposit requirements if the core dispute is factual.