M/S C.K. Infrastructures LTD. vs. The Union Of INDIA Through The Secretary

Held

The Court quashed and set aside the impugned letter of demand and email. It accepted the Revenue's statement for a remand to the Assessing Authority for a fresh decision on merits. The Court found that the impugned order was bad in law due to a violation of the principles of natural justice, specifically the lack of a fair opportunity of hearing and the ex parte nature of the order without sufficient reasoning. The Court directed the petitioner to deposit 10% of the total demand amount before the Assessing Officer within four weeks, in addition to the 10% already deposited, with these deposits being without prejudice to the parties' rights and subject to the Assessing Officer's final order. The Court also ordered the de-freezing of the petitioner's bank accounts. The Assessing Authority was directed to decide the case on merits after complying with the principles of natural justice, affording adequate opportunity to all parties, and passing a speaking order. The Court explicitly stated that it had not expressed any opinion on the merits of the case, and all issues, including the vires of Section 16(4), were left open for separate proceedings. The Assessing Authority was to decide the case expeditiously, preferably within two months from the petitioner's appearance.

Facts

The petitioner, M/s C.K. Infrastructures Ltd., challenged a demand letter dated February 29, 2020, and an email dated April 22, 2020, issued by the Superintendent, CGST and CX. These communications disallowed input tax credit (ITC) of Rs. 71,08,745/- for the financial year 2018-2019, citing a violation of Section 16(4) of the Central Goods and Services Tax Act, 2017. Consequently, the petitioner was directed to reverse the ITC, and potential interest and penalty under Sections 50 and 122(2) were proposed. The petitioner also sought a declaration that Section 16(4) of both the Central and Bihar GST Acts is ultra vires. The Revenue stated it had no objection to the matter being remanded to the Assessing Authority for a fresh decision on merits, with no coercive steps during the pendency.

Key Issues

1. Whether Section 16(4) of the Central Goods and Services Tax Act, 2017, and the Bihar Goods and Services Tax Act, 2017, are ultra vires Article 265 of the Constitution of India, and consequently, whether the entitlement to input tax credit should be subject only to Section 16(2) and not further riders under Section 16(4)? 2. Whether Section 16(4) of the said Acts violates the concept of indirect taxation and leads to direct taxation, departing from the spirit and object of the laws? 3. Whether Section 16(4) creates a situation of impermissible double taxation? 4. Whether the denial of ITC under Section 16(4) is ultra vires the combined reading of Sections 39, 47, and 49(2) in the absence of restrictions on filing returns? 5. Alternatively, whether Section 16(4) is directory and not mandatory, meaning non-compliance should not defeat ITC entitlement, as ITC is a substantial right that cannot be extinguished by procedural requirements? Petitioner's Arguments: The petitioner argued that Section 16(4) is ultra vires, violates the principles of indirect taxation, leads to double taxation, and is merely directory. They contended that ITC is a substantial right and cannot be denied due to procedural non-compliance. They also argued that the impugned order violated principles of natural justice by not providing sufficient opportunity for hearing and was passed ex parte without adequate reasoning. Revenue's Arguments: The Revenue agreed to a remand to the Assessing Authority for a fresh decision on merits and undertook not to take coercive steps against the petitioner during the pendency of the case.