M/S Shree Kishna Chemicals Through Its Proprietor Pankaj Chittlangia vs. Union Of INDIA Through Secretary

Held

The Court dismissed the petition. It found no ground to entertain the petition, noting that the petitioner was challenging the constitutional validity of Section 16(2)(c) of the CGST Act to avoid participation in the enquiry initiated by the show-cause notice. The Court observed that while the Delhi High Court had 'read down' a similar provision in the Delhi Value Added Tax Act, the High Courts of Patna and Kerala had upheld the validity of Section 16(2)(c) of the CGST Act. The Court referred to the reasoning in *M.Trade Links* (Kerala High Court) and *Gobinda Construction* (Patna High Court), which held that the concession/claim to ITC is not an absolute legal right and that Section 16(2)(c) is a valid restriction. The Court also noted that Circulars No.183/15/2022-GST and 193/05/2023-GST were issued to address bona fide claims and mistakes during the initial GST rollout, providing a mechanism for eligible dealers to approach authorities within thirty days to avail benefits if applicable. The Court concluded that the petitioner had not established any grounds for entertaining the petition.

Facts

The petitioner, M/s Shree Krishna Chemicals, challenged a show-cause notice dated 31.12.2024 issued by the Additional Commissioner, CGST & Central Excise. The petitioner also challenged the constitutional validity of Section 16(2)(c) of the CGST Act, 2017. The revenue had gathered intelligence that the petitioner and 11 others had availed fraudulent Input Tax Credit (ITC) on invoices from respondent No. 3 for Financial Years 2019-20 and 2020-21, amounting to Rs. 27,22,284/- for the petitioner. An inspection was carried out, and the petitioner submitted representations. The show-cause notice alleged that the petitioner's business dealt in industrial chemicals, while respondent No. 3 supplied FMCG goods, indicating a mismatch. The petitioner argued that Section 16(2)(c) imposes an impossible obligation on innocent purchasers.

Key Issues

1. Whether Section 16(2)(c) of the Central Goods and Services Tax Act, 2017, is unconstitutional and ultra vires Articles 14, 19(1)(g), and 20 of the Constitution of India, as it casts an unwarranted and impossible obligation on innocent purchasers to ensure the supplier has deposited tax with the public exchequer to avail Input Tax Credit (ITC)? Petitioner's Arguments: The petitioner contended that Section 16(2)(c) imposes an undue burden on innocent purchasers, making it impossible for them to verify the supplier's tax deposit. They relied on the Delhi High Court's decision in *On Quest Merchandising India Pvt. Ltd. vs. Government of NCT Delhi & Ors.*, arguing that a similar provision under the Delhi Value Added Tax Act, 2004, was read down. The petitioner urged that Section 16(2)(c) should be read down so that non-compliance by the supplier does not penalize an innocent purchaser who has made all reasonable efforts. Revenue's Arguments: The respondents argued that the constitutional validity of Section 16 has been upheld by various High Courts, citing *Gobinda Construction and others v. Union of India & Ors.* (Patna High Court) and *M.Trade Links vs. Union of India & Ors.* (Kerala High Court). They further submitted that the petitioner challenged Section 16(2)(c) to avoid participating in the joint enquiry initiated under Section 74(1) of the CGST Act and Rule 142(1) of the CGST Rules.