SEPTEMBER 25, 2024

By Vijay Kumar

IT is now trite, as they say, that the recommendations of the GST Council are not binding on the Union and States, but can the Union or the States issue notifications without the recommendations of the GST Council, when specifically required to do so?

The Guwahati High Court last week ruled that they cannot. 2024-TIOL-1596-HC-GUW-GST.

Here is the story.

On account of the outbreak of COVID-19 pandemic and the difficulties faced by assessees as well as the GST Authorities, the Taxation and other laws (Relaxation and Amendment of Certain Provisions) Act, 2020 was enacted on 29.09.2020 by which, Section 168A was inserted to the CGST Act.

Section 168A.

(1) Notwithstanding anything contained in this Act, the Government may, on the recommendations of the Council, by notification, extend the time limit specified in, or prescribed or notified under, this Act in respect of actions which cannot be completed or complied with due to force majeure.

(2) The power to issue notification under sub-section (1) shall include the power to give retrospective effect to such notification from a date not earlier than the date of commencement of this Act.

Explanation. - For the purposes of this section, the expression "force majeure" means a case of war, epidemic, flood, drought, fire, cyclone, earthquake or any other calamity caused by nature or otherwise affecting the implementation of any of the provisions of this Act.

So, the Government can extend the time limit specified or prescribed or notified in the Act-

1. On the recommendation made by the GST Council;

2. By issuance of a notification;

3. In respect of actions which cannot be completed or complied with; and

4. Due to force majeure.

Section 44 of the CGST Act stipulates the requirement of filing of the Annual Return for every financial year on or before the 31st day of December following the end of such financial year. For the financial year 2017-18 the annual return was required to be filed on or before 31st of December 2018. By Notifications, the Central Government extended the period for filing the annual returns for the various Financial Years.

Now these notifications extending the period for filing the Annual Return have also a corresponding effect on the period prescribed for passing orders. Section 73(10) of the CGST Act stipulates that the proper Officer shall issue the order under Section 73(9) within three years from the due date for furnishing the Annual Return for the Financial Year. Section 73(2) stipulates that the proper Officer shall issue the notice in terms with Section 73(1) at least three months prior to the time limit specified in Section 73(10) for issuance of order.

Notification No.9/2023-CT was issued on 31st of March 2023 whereby the period for passing the order in terms of Section 73 was extended

1. for the Financial Year 2017-18 up to 31st of December 2023;

2. for the Financial Year 2018-19 up to 31st March 2024 and

3. for the Financial Year 2019-20 up to the 30th of June 2024.

Though the period was extended vide the Notification No.9/2023-CT but as the time limit for issuance of notice in terms of Section 73(2) of the Central Act for the financial year 2018-19 was expiring on 31.12.2023 and there was no meeting of the GST Council scheduled to be held, the Central Government issued the Notification No.56/2023-CT, dated 28th December 2023 thereby extending the time limit for passing of the order under Section 73(9) for the financial year 2018-19 up to 30th April, 2024 and for the financial year 2019-20 up to 31st August, 2024.

This Notification No. 56/2023 inter alia was challenged in the Guwahati High Court in several writ petitions. The High Court noted;

It is pertinent to mention here that in spite of the fact that there was no recommendation from the GST Council but in the Notification No. 56/2023-CT, the Central Government had used the phrase "on the recommendation of the Council". And in circular No.FNO.CBIC-20/10/07/2021-GST/516 dated 14.05.2024 issued by the CBIC at Clause 2.8.1, it was categorically mentioned that there was no recommendation taken prior to issuance of the Notification No.56/2023-CT dated 28.03.2023 and the request for recommendation shall be placed before the GST Council for ratification in the next meeting.

The question is:

whether the Notification No.56/2023-CT dated 28.12.2023, is ultra vires the provisions of Section 168A of the Central GST Act?

The challenge to the Notification No.56/2023-CT is on account of

1. absence of recommendation by the GST Council and

2. existence of force majeure as defined in the Explanation to Section 168A of the Central Act.

The High Court observed,

1. There is no denial to the fact that the Notification No.56/2023-CT was issued without the recommendation of the GST Council. The use of the phrase "on the recommendation of the Council" in Section 168A prima facie suggests that the power to be exercised under Section 168A by the Government is when a recommendation is made by the GST Council.

2. The question therefore arises as to whether the recommendation of the GST Council is sine qua non for exercise of the power under Section 168A by the Government.

3. The recommendations to be made by the GST Council if required as per the provisions of the Central Act or the State Act has to be construed to be a sine qua non for exercise of power by the Union or the State Government. In other words, wherever the provisions of the Central Act or the State Act stipulates that an act is required to be done on the recommendation of the GST Council, the act can be done only when there is a recommendation.

The counsel for the CGST submitted that all recommendations of the GST Council are not binding and as such even without the recommendation, the Government could exercise the powers under Section 168A of the Central Act. The High Court found the submission is misconceived and observed:

There is a fundamental difference between no recommendation made and the effectiveness of the recommendations. 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.

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.

The Court further observed,

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.

Another ground of challenge to the Notification No.56/2023-CT is that as there was no element of force majeure, the question of exercising the power under Section 168A did not arise. The High Court observed,

The Explanation to Section 168A deals with various types of natural calamities, war, epidemic to come within the ambit of force majeure. It is pertinent to mention that the recommendations to be made by the GST Council have also to be based upon the existence of force majeure conditions.

The Notification No.56/2023-CT was issued without the recommendation and that natural corollary thereof is that the GST Council had no occasion to consider existence of force majeure inasmuch as the same was never placed before the GST Council before issuance of the same.

Therefore, the Notification No.56/2023-CT if construed from that angle also would be a notification issued without the force majeure condition being not considered in accordance with law.

The Court held that the Notification No.56/2023-CT is ultra vires the Central GST Act and the same is not legally sustainable in law. Accordingly, the same is set aside and quashed.

Before closing, the counsel for CGST and the SGST submitted that both the Union Government as well as the State Government has the power in terms of Section 168 A (2) to issue retrospective notifications and the judgment should not prejudice their rights.

The Court clarified that this decision shall not prejudice both the Central Government and the State Government to take such steps in the manner provided under law.

In a letter to the field officers dated 24th July 2024, the CBIC stated:

It is hereby informed that the said notification No. 56/2023-CT dated 28.12.2023 has been ratified in the 53rd meeting of the GST council held on 22.06.2024.

Further, the Board suggested that the following favourable High Court judgements may also be referred while defending the department's case in respect of writ petitions pending in High Courts.

1. Kerala High Court order dated 07.02.2024 - FAIZAL TRADERS PVT LTD - 2024-TIOL-736-HC-KERALA-GST

2. Allahabad High Court order dated 31.05.2024 -GRAZIANO TRASMISSIONI - 2024-TIOL-935-HC-ALL-GST

But those cases were dealing with force majeure and not recommendation of the GST Council.

But why did the Government mention on the recommendation of the Council, when the Council had made no such recommendation? Perhaps it is only a copy and paste mistake from a previous notification. Jest an error.

Now, what happens? Retrospective notifications? Or more writ petitions?

If you're still scratching your head about this, please read our Guest article Time extensions - The Bitter truth!

Until next week