GST Demand Quashed: Extension of Limitation Period Under Section 168A Without GST Council Recommendation is Ultra Vires
Issue:
Whether Notification No. 56/2023-Central Tax, dated December 28, 2023, which extended the time limit for issuing orders under Section 73 of the Central Goods and Services Tax Act, 2017 (CGST Act), is legally valid if it was issued without the recommendation of the GST Council and without sufficiently establishing “force majeure” conditions.
Facts:
For the period 2019-20, the petitioner challenged the legality and validity of Notification No. 56/2023-Central Tax, dated December 28, 2023. This notification extended the time limit for the issuance of orders under Section 73 of the CGST Act. The petitioner contended that this extension was invalid because it was done without the recommendation of the GST Council and without due consideration of “force majeure” conditions.
Section 168A of the CGST Act deals with the power of the Government to extend time limits in special circumstances, stating that the Government may, on the recommendations of the GST Council, by notification, extend time limits for actions that cannot be completed or complied with on account of force majeure. Notification No. 56/2023-Central Tax extended the limitation provided under Section 73(10) of the CGST Act for Financial Year 2018-19 up to April 30, 2024, and for Financial Year 2019-20 up to August 31, 2024. Pursuant to this extended time limit, proceedings were instituted against the petitioner’s firm, leading to an Order-in-Original dated August 29, 2024, confirming a demand of ₹1,20,01,973 against the petitioner.
Crucially, a similar challenge to Notification No. 56/2023-Central Tax was previously presented before a Co-ordinate Bench of the same High Court in Barkataki Print and Media Services v. Union of India [2024] GST 348/90 GSTL 162 (Gauhati). That Co-ordinate Bench had held the said notification to be ultra vires (beyond the powers of) the Central Act and not sustainable, specifically because the notification was issued without the recommendation of the GST Council. Consequently, orders-in-original passed beyond the time limit prescribed under Section 73(10) were set aside.
Decision:
The court ruled in favor of the assessee. Following the precedent set by the Co-ordinate Bench in Barkataki Print and Media Services, the court held that Notification No. 56/2023-Central Tax, dated December 28, 2023, was ultra vires and not sustainable as it was issued without the recommendation of the GST Council. Consequently, the Demand-cum-Show Cause Notice and the Order-in-Original dated August 29, 2024, in the instant case also stood set aside and quashed.
Key Takeaways:
- Mandatory GST Council Recommendation: Section 168A explicitly states that the Government’s power to extend time limits is contingent upon the “recommendations of the GST Council.” This is a mandatory condition.
- Ultra Vires Notification: A notification issued by the government without fulfilling a mandatory statutory condition (like the GST Council’s recommendation) is ultra vires the Act, meaning it is beyond the legal authority granted to the government and therefore invalid.
- Consequence of Invalid Extension: If the extension notification itself is invalid, then any demand order issued relying on such an invalid extension (i.e., beyond the original statutory limitation period of Section 73(10)) becomes time-barred and is liable to be set aside.
- Precedent is Binding: The court’s reliance on its own Co-ordinate Bench decision in Barkataki Print and Media Services demonstrates the principle of judicial discipline and the binding nature of precedents within the same High Court.
- Importance of “Force Majeure”: While Section 168A also references “force majeure,” the primary invalidating factor here was the absence of the GST Council’s recommendation, regardless of the existence of force majeure.
- Favor of Assessee: This is a significant victory for the assessee, as the entire demand of over ₹1.2 crore is quashed solely on a procedural ground related to the validity of the extension notification. This decision has widespread implications for other similar demands issued relying on this specific notification.
“A specific piece of advice about what to do, esp. when given officially.
A suggestion that someone should choose a particular thing or person that one thinks particularly good or meritorious.”
“7. Learned counsel appearing for the appellant urged that the application submitted by the 5th respondent having not been processed in conformity with Rule 5 of the Rules and, therefore, the said application could not have been entertained by the State Government. It was also argued that in the absence of any recommendation by GCDA and the Chief Town Planner, the State Government could not have granted exemptions from operation of the Rules for construction of an eight-storeyed building by the 5th respondent. Whereas, learned counsel for the 5th respondent contended that the meaning of the word “recommendation” does not necessarily mean “a no-objection certificate” by GCDA and the Chief Town Planner, but it contemplates only their viewpoint. He further argued that even if GCDA and the Chief Town Planner had objected to grant of the application, the State Government, in exercise of its overriding power can permit dispensation of the Rules for construction of a high-rise building. In order to appreciate the argument of the parties, it is necessary to quote the relevant portion of Rule 5, which runs thus:
“5. Power of Government to exempt buildings. The Government may in consultation with the Chief Town Planner exempt any building from the operation of all or any of the provisions of these Rules, subject to conditions if any, to be stipulated in the order, granting such exemptions:
Provided that such exemption shall be considered on individual application forwarded to the Government through the authority and the Chief Town Planner with their specific recommendations:
Provided further that such exemption shall be considered only if the individual application for exemption from Building Rules is forwarded to Government along with a challan receipt remitting the application fee in the Government Treasury as detailed below.”
A perusal of Rule 5 shows that an application for exemption from the provisions of the Rules is required to be processed through GCDA and the Chief Town Planner. The Rule further requires that the application is to be forwarded to the State Government along with the specific recommendations of GCDA and the Chief Town Planner. The question, therefore, that arises for consideration is whether in the absence of any recommendation by GCDA and the Chief Town Planner the State Government was competent to grant exemption from the operation of the Rules for construction of a high-rise building. The dictionary meaning of the word “recommend” is “to advise”, “to praise or commend”. In P. Ramanatha Aiyar’s Law Lexicon, the meaning of the word “recommendation” is “a statement expressing commendation or a message of this nature” or suggests fit. It is true that the word “recommendation” is not defined in the Rules. If we do not go by the meaning of the word “recommendation”, as suggested by learned counsel for the 5th respondent, and found that there is no conclusive meaning of the word “recommendation” we are of the view that in such a situation the meaning of the word has to be understood in the context of the provisions of the Rules and the object behind such Rules. The Rules with which we are concerned here provide for regulation and construction of a building in an urban area. The object behind the Rules is maintenance of public safety and convenience. The Municipal Corporation, GCDA, and the Chief Town Planner are entrusted with the functions and duties for carrying out development and regulation of building in the urban area. These are the authorities on the spot who have special and technical knowledge to advise the Government whether public safety and convenience requires dispensing with the provisions of the Rules while permitting construction of an eight-storeyed building. Thus, the meaning of the word “recommend”, when read in the context of the Rules shows that it means “giving of a favourable report opposed to an unfavourable one”. We, therefore, find that recommendations by GCDA and the Chief Town Planner are sine qua non for granting exemption from operation of the Rules by the State Government. In the absence of such recommendations, the State Government was not legally justified in granting exemption from operation of the Rules for construction of a high-rise building. However, the position would be different where GCDA and the Chief Town Planner give an unfavourable report on irrelevant or extraneous ground and in that case, the Government can call for a fresh report for meeting the viewpoint of GCDA and the Chief Town Planner. Here, what we find is that there were neither recommendations by GCDA and the Chief Town Planner, nor the State Government obtained any fresh report to contradict the viewpoint of GCDA and the Chief Town Planner while granting exemption from operation of the Rules for constructing a high-rise building. We are, therefore, of the view that the impugned orders suffer from serious legal infirmity.”
“50. Article 246-A vests Parliament and the State Legislatures with a unique, simultaneous law-making power on GST. It is in this context that the role of the GST Council gains significance. The recommendations of the GST Council are not based on a unanimous decision but on a threefourth majority of the members present and voting, where the Union’s vole counts as one-third, while the States’ votes have a weightage of two-thirds of the total votes cast. There are two significant attributions of the voting system in the GST Council. First, the GST Council has an unequal voting structure, where the States collectively have a two-third voting share and the Union has a one-third voting share and second, since India has a multi-party system, it is possible that the party in power at the Centre may or may not be in power in various States. Therefore, the GST Council is not only an avenue for the exercise of cooperative federalism but also for political contestation across party lines. Thus, the discussions in the GST Council impact both federalism and democracy. The constitutional design of the Constitution Amendment Act, 2016 is sui generis since it introduces unique features of federalism. Article 246-A treats the Centre and States as equal units by conferring a simultaneous power of enacting law on GST. Article 279-A in constituting the GST Council envisions that neither the Centre nor the States can act independent of the other.”
“55. Such form of contestation or as the authors term it, “uncooperative federalism” is valuable since “it is desirable to have some level of friction, some amount of State contestation, some deliberation-generating froth in our democratic system.” [Jessica Bulman-Pozen and Heather K. Gerken, “Uncooperative Federalism”, Yale Law Journal, Vol. 118. No. 7 (May, 2009). p. 1284.] Therefore, the States can use various forms of contestation if they disagree with the decision of the Centre. Such forms of contestation are also within the framework of Indian federalism. The GST Council is not merely a constitutional body restricted to the indirect tax system in India but is also an important focal point to foster federalism and democracy.
56. One of the important features of Indian federalism is “fiscal federalism”. A reading of the Statement of Objects and Reasons of the 2014 Amendment Bill, the Parliamentary reports and speeches indicate that Articles 246-A and 279-A were introduced with the objective of enhancing cooperative federalism and harmony between the States and the Centre. However, the Centre has a one-third vote share in the GST Council. This coupled with the absence of the repugnancy provision in Article 246-A indicates that recommendations of the GST Council cannot be binding. Such an interpretation would be contrary to the objective of introducing the GST regime and would also dislodge the fine balance on which Indian federalism rests. Therefore, the argument that if the recommendations of the GST Council are not binding, then the entire structure of GST would crumble does not hold water. Such a reading of the provisions of the Constitution diminishes the role of the GST Council as a constitutional body formed to arrive at decisions by collaboration and contestation of ideas.”
| A) | (i) There is a fundamental difference between no recommendation made and the effectiveness of the recommendations. A perusal of Section 168A stipulates that the power may be exercised on the recommendation of the GST Council meaning thereby taking into account the analysis made in the previous paragraphs that there is a favourable report by the GST Council for the Government to exercise the power under Section 168A. The existence of the recommendation is a sine qua non for exercising the power under Section 168A to extend the timelines and without the recommendations, the exercise of the power would be legally not sustainable. On the other hand, the effectiveness of the recommendation has to be judged on the principles of whether such recommendation is binding on the Union or the State. For example, the GST Council may have made a recommendation to carry out a particular exercise by the Government under the Central Act or the State Act. The said recommendation may be binding upon the Government or may not be depending upon the purpose of the enactment. But the fact that it is not binding cannot be construed to mean that the Government can act without a recommendation of the GST Council if the Central Act or the State Act stipulates that the Government can exercise on the recommendation of the GST Council. |
| (ii) | At this stage, this Court finds it pertinent to further deal with the judgment of the Supreme Court in the case of Mohit Minerals Pvt. Ltd. (supra) and under such circumstances, the said judgment was rendered. A perusal of the facts of the said judgment would show that two Notifications bearing No.8/2017 and 10/2017 were the subject matter of challenge. These notifications were issued on the recommendation of the GST Council. The Gujarat High Court set aside both the Notifications No.8/2017 and 10/2017 being unconstitutional for exceeding the powers conferred by the IGST Act and the Central Act. In the Appeal before the Supreme Court, the learned Attorney General amongst other contentions submitted that taking into account the constitutional scheme and that the Union and the States have agreed to go by the recommendations of the GST Council in every aspect of GST law wherever required, the recommendations so made by the GST Council were binding and must be respected in the spirit of collaborative federalism. |
| (iii) | The Supreme Court in the said judgment and more particularly at Paragraph No. 57 and its sub-paragraphs analyzed the five categories into which the phrase “recommendation” had been deployed in the Constitution i.e. |
| (a) | Recommendations by the President under Articles 3, 109, 111, 113, 117, 203, 207, 255 and 274 prior to laying before the Parliament for voting. |
| (b) | Recommendations followed by consultation; |
| (c) | Recommendations with accountability; |
| (d) | Non-Qualifying recommendations; |
| (e) | Recommendations which are obligatory in nature. |
| (iv) | The observations of the Supreme Court in paragraph Nos. 58 and 59 are relevant and the same are quoted herein below: |
“58. A survey of the above provisions indicates that the nature and meaning of the term “recommendation” differs contextually. All the provisions qualify the nature of recommendation. For instance, in category one, the recommendation of the President is for the initiation of the discussion; in category two, a decision on the recommendation is arrived upon “consultation”; in category three, the decision-making authority has to submit an explanatory note on the action or inaction taken on the recommendations; in category four, the recommendations are not qualified. Article 263 only states that the inter-State Council has a duty to recommend. There is no further explanation on whether the recommendation ought to be mandatorily accepted, or deliberated upon; in category five, the recommendations of the authority are expressly stated to be “binding” on the decision-making authority.
59. The GST Council which is a constitutional body is entrusted with the duty to make recommendations on a wide range of areas concerning GST, The GST Council has plenary powers under Article 279-A(4)(h) where it could make recommendations on “any other matter” related to GST as the Council may decide. The GST Council has to arrive at its recommendations through harmonised deliberation between the federal units as provided in clause (6) of Article 279-A. Unlike the other provisions of the Constitution which provide that recommendations shall be made to the President or the Governor, Article 279-A states that the recommendations shall be made to the “Union and the States”. The recommendation of the GST Council made under Article 279-A is nonqualified. That is, there is no explanation on the value of such a recommendation. Yet the notion that the recommendations of the GST Council transform into legislation in and of themselves under Article 246-A would be far-fetched. If the GST Council was intended to be a decisionmaking authority whose recommendations transform to legislation, such a qualification would have been included in Articles 246-A or 279-A. Neither does Article 279-A begin with a non-obstante clause nor does Article 246-A provide that the legislative power is “subject to” Article 279-A.”
| (v) | The above observations only go to show that the recommendations made by the GST council on its own would not result in a legislation. |
| (vi) | In the said judgment, the Supreme Court further dealt with the interpretation of the recommendation vis-a-vis the Central Act and IGST Act, 2017 and observed at paragraph No. 65 and 66 as follows: |
“65. The contention of the Union is that the recommendations the GST Council are binding since Parliament and the State Legislatures have agreed to align themselves with the recommendations as is evident from the provisions of the IGST Act and the CGST Act. Certain provisions of the IGST Act, the CGST Act and the SGST Acts expressly provide that the rule-making power delegated to the Government shall be exercised on the recommendations of the GST Council. For instance, Section 5 of the IGST Act provides that the taxable event, taxable rate and taxable value shall be notified by the Government on the “recommendations of the Council”. Similarly, the power of the Central Government to exempt goods or services or both from levy of tax shall be exercised on the recommendations of the GST Council under Section 6 of the IGST Act. Section 22 provides that the Government may exercise its rule-making power on the recommendations of the GST Council. The CGST Act also provides for similar provisions in Sections 9, 11 and 164.
66. The provisions of the IGST Act and the CGST Act which provide that the Union Government is to act on the recommendations of the GST Council must be interpreted with reference to the purpose of the enactment, which is to create a uniform taxation system. The GST was introduced since different States could earlier provide different tax slabs and different exemptions. The recommendations of the GST Council are made binding on the Government when it exercises its power to notify secondary legislation to give effect to the uniform taxation system. The Council under Article 279-A has wide recommendatory powers on matters related to GST where it has the power to make recommendations on subject-matters that fall outside the purview of the rule-making power under the provisions of the IGST and the CGST Act. Merely because a few of the recommendations of the GST Council are binding on the Government under the provisions of the CGST Act and the IGST Act, it cannot be argued that all of the GST Council’s recommendations are binding. As a matter of first principle, the provisions of the Constitution, which is the grundnorm of the nation, cannot be interpreted based on the provisions of a primary legislation. It is only the provisions of a primary legislation that can be interpreted with reference to the Constitution. The legislature amends the Constitution by exercising its constituent power and legislates by exercising its legislative power. The constituent power of the legislature is of a higher constitutional order as compared to its legislative power. Even if it is Parliament that has enacted laws making the recommendations of the GST Council binding on the Central Government for the purpose of notifying secondary legislations, it would not mean that all the recommendations of the Council made by virtue of its power under Article 279-A have a binding force on the legislature.’
| (vii) | The above analysis by the Supreme Court would show when a recommendation would be binding and when not. The ratio which emerges from the above paragraphs only show that merely because of a few recommendation of GST Council are binding on the Government, it cannot be argued that all recommendations are binding. The ratio is based on the principle as stated that a Constitutional provision cannot be interpreted on the basis of a primary legislation rather a primary legislation is to be interpreted on the basis of the Constitution. However, the said judgment does not lay down the proposition that as some of the recommendations are not binding, there is no requirement of recommendation by the GST Council to exercise the power. |
| (B) | The power to be exercised under Section 168A by the Government is a delegated power to issue a Notification which can be termed as a delegated legislation or a secondary legislation. The primary legislation is the Central Act or the State Act. In the judgment of the Mohit Minerals Pvt. Ltd. (supra), the Supreme Court at paragraph No.66 as quoted above had clearly observed that when the Government is exercising power to notify secondary legislations to give effect to the uniform taxation system, the recommendations are binding. Be that as it may, irrespective of the fact whether the recommendations are binding or not can it be said that without recommendations, the power under Section 168A could be exercised. The answer has to be in the negative. |
| (C) | It is also very important to note that the power conferred on the Government under Section 168A to extend the timelines is power conferred under both the Central Act and the State Act. This power is conferred on the basis of the exercise of the legislative powers of the Parliament and the State Legislature as the case may be. Under such circumstances, when such power is conferred on the Government to make delegated legislation, the said power has to confirm to the stipulations contained in the parent Act and in the instant case, the Notification No.56/2023-CT had to confirm to the stipulations prescribed in Section 168A of the Central Act which would include the requirement of the recommendations of the GST Council. |
| (D) | The Central Government knew that there was no recommendation from the GST Council and this aspect is clearly admitted. However, in the Notification No.56/2023-CT, the Central Government for reasons best known mentioned that “on the recommendations of the Council” which on the face of it shows that the exercise of power by the Central Government insofar as the Notification No.56/2023-CT is concerned is a colourable exercise of power for which the said Notification No.56/2023-CT is a colourable legislation. |