Unveiling The Nexus - GST Revenue Loss; Causes And Consequences And Corruption
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Category: Taxation
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UNVEILING THE NEXUS: GST REVENUE LOSS; CAUSES
AND CONSEQUENCES AND CORRUPTION
Parth Johri, B.A. LL.B., Amity Law School, Noida
ABSTRACT
This paper represents a comprehensive effort to explore one of the most pressing challenges in India’s tax administration — the evasion of Goods and Services Tax (GST) — and to propose feasible and forward-looking strategies to mitigate it. The idea for this paper stemmed from an interest in understanding how modern legal and technological frameworks can enhance tax governance in a rapidly digitizing economy. Since its inception in 2017, GST has aimed to unify India’s indirect tax structure. However, the system continues to face challenges from non-compliance, fraudulent invoicing, input tax credit misuse, and enforcement inefficiencies. These challenges formed the foundation of this research, which also includes a detailed review of the legal foundations and statutory structure that governs GST in India.
Spanning seventeen weeks of continuous analysis, the paper is built upon a structured series of weekly progress reports. Through these, I explored various dimensions of GST evasion — from sector-specific patterns to the role of administrative loopholes, and from legal enforcement barriers to the promise of emerging technologies such as Artificial Intelligence (AI) in monitoring and compliance. A key part of this project involved evaluating real-world case studies and drawing lessons from international models in countries like South Korea, Brazil, and Estonia. The research methodology combines doctrinal and analytical approaches, supported by data from government reports, judicial pronouncements, expert opinions, and scholarly literature.
Notably, the dissertation includes a dedicated chapter on the integration of AI into the GST framework — a forward-looking exploration of how technology can transform tax enforcement through real-time surveillance, predictive analytics, and fraud detection.
Revenue Loss; Causes and Consequences and Corruption:
1.1 Input Tax Credit Fraud: Mechanisms and Implications:
One significant contributor to revenue loss in the GST framework is the perpetration of Input Tax Credit (ITC) fraud. This section delves into the intricate mechanisms employed to manipulate ITC, exploring how businesses exploit this legitimate provision for fraudulent purposes. By claiming credits for non-existent or fictitious transactions, entities artificially reduce their tax liability, resulting in substantial revenue leakage. The implications of ITC fraud extend beyond immediate financial losses, impacting the overall credibility of the GST system and necessitating countermeasures to safeguard the integrity of the credit mechanism. 1 Within the complex tapestry of the Goods and Services Tax (GST) framework, Input Tax Credit (ITC) fraud stands out as a significant contributor to revenue loss.
This fraudulent practice involves businesses manipulating the legitimate ITC mechanism to falsely claim tax credits for transactions that either did not occur or were misrepresented. The mechanisms employed in ITC fraud are often intricate, involving the creation of fictitious transactions, the use of fake invoices, and collusion between businesses in the supply chain. These deceptive tactics lead to a distortion of the tax credit system, resulting in artificial reductions in tax liabilities and, consequently, substantial revenue losses for the government. The implications of ITC fraud extend beyond the immediate financial impact. Firstly, it erodes the credibility of the GST system, as fraudulent practices undermine the trust and transparency integral to its functioning.
Secondly, the cascading effect of ITC fraud can distort market competition, providing an unfair advantage to businesses engaged in fraudulent practices. This not only harms compliant businesses but also disrupts the level playing field within the marketplace. Addressing ITC fraud requires a multifaceted approach, including enhanced monitoring, stringent penalties, and collaborative efforts between tax authorities and businesses to foster a culture of 1Bhattacharya, S. , & Dey, P. (2019). GST Evasion and Its Impact on Revenue Loss: A Study in Indian Context. Journal of Commerce and Accounting Research, 7(2), 78-89.
compliance. 2 One common mechanism of ITC fraud involves businesses in the supply chain colluding to generate fake invoices, inflating input costs and thereby increasing the claimable tax credits. Additionally, ghost entities may be created solely for the purpose of facilitating fraudulent transactions. The complexity of these schemes often makes detection challenging, requiring tax authorities to leverage advanced data analytics, machine learning, and artificial intelligence for effective risk assessment and early intervention. Educational initiatives are crucial in combating ITC fraud, as raising awareness among businesses about the consequences of fraudulent practices creates a more compliant ecosystem.
Moreover, collaboration between tax authorities and industry associations can facilitate the exchange of best practices and insights, enhancing the collective ability to identify and mitigate ITC fraud. Legislation plays a pivotal role in deterring ITC fraud. Strengthening penalties, imposing stricter consequences for those engaged in fraudulent practices, and streamlining legal processes for investigation and prosecution can act as deterrents. Moreover, regular audits and inspections, coupled with a proactive approach to identify high-risk sectors and entities, contribute to the prevention and early detection of ITC fraud. In conclusion, ITC fraud represents a formidable challenge within the GST framework, necessitating a concerted effort to strengthen monitoring mechanisms, enhance collaboration, and fortify legislative frameworks.
By addressing the intricate mechanisms and implications of ITC fraud, this section aims to provide insights that can inform comprehensive strategies to mitigate revenue loss and sustain the integrity of the GST system.
1.2 Complexity of GST Tax Structure and Revenue Shortfalls:
The inherent complexity of the GST tax structure stands as a critical factor contributing 2Yadav, S., & Singh, S. (2019). Impact of GST on Black Money and Corruption: An Analytical Study. International Journal of Finance and Banking Studies, 7(4), 45-56.
to revenue shortfalls. This section dissects the intricate web of tax slabs, exemptions, and classifications that characterize the GST system. The complexity poses challenges for both businesses and tax authorities, leading to inadvertent errors, misinterpretations, and delayed compliance. These complexities result in revenue shortfalls as businesses struggle to navigate the intricate framework, necessitating a critical examination of the tax structure and potential simplification measures to enhance compliance and mitigate revenue losses. 3 The complexity embedded in the Goods and Services Tax (GST) tax structure is a fundamental factor contributing to revenue shortfalls. This section unravels the intricacies of the GST tax structure, encompassing multiple tax slabs, exemptions, and classifications, which collectively pose challenges for both businesses and tax authorities.
The multi-tiered tax slab system, comprising rates such as 5%, 12%, 18%, and 28%, creates a diverse landscape of taxation. While this differentiation aims to categorize goods and services based on their nature and utility, it introduces a level of complexity that businesses must navigate. The need to correctly classify products and services into the appropriate tax slabs can lead to inadvertent errors, causing revenue leakage due to misinterpretations and misapplications of the tax rates. Exemptions further add to the intricacy of the GST framework. Certain goods and services, deemed essential or of societal importance, are granted exemption from GST. However, defining these exemptions and ensuring accurate identification of qualifying goods and services demands precision.
Ambiguities or misinterpretations in exemption criteria can result in unintended revenue shortfalls as businesses may incorrectly claim exemptions or fail to do so when eligible. 4 The intricate nature of the GST framework poses significant challenges for small and medium-sized enterprises (SMEs), which often lack the necessary resources and specialized knowledge to effectively navigate the complex tax structure. As a result, 3Choudhury, D. , & Mukherjee, A. (2020). Goods and Services Tax (GST) Evasion: Causes and Remedies. International Journal of Taxation and Economic Development, 8(3), 56-68. 4 Agarwal, A. (2018). Goods and Services Tax (GST) Evasion: A Case Study of Indian Context. Journal of Taxation and Financial Management, 6(1), 34-45. 1p hi
compliance becomes an arduous and time-consuming process for these businesses, increasing the likelihood of inadvertent errors. Such unintentional lapses can lead to revenue shortfalls and disrupt the smooth operation of SME businesses within the broader economic landscape. he challenge of navigating GST’s complexities extends beyond businesses to include tax authorities, who must ensure effective enforcement of the law. The multifaceted nature of the GST structure necessitates a dynamic and well-equipped enforcement infrastructure capable of robust monitoring and verification of compliance. In responding to these complexities, tax authorities must strike a careful balance between maintaining rigorous enforcement standards and acknowledging the operational difficulties businesses face in meeting the nuanced requirements of the GST regime.
The evolution of the GST framework over time introduces an additional layer of complexity, as policy changes and amendments to the tax structure can create uncertainties for businesses. Frequent revisions to tax rates, classifications, and exemptions may lead to confusion, necessitating businesses to constantly update their understanding and compliance mechanisms. This dynamic nature of the GST framework contributes to revenue shortfalls as businesses grapple with adapting to evolving tax regulations. Addressing revenue shortfalls caused by the intricate GST structure calls for a multipronged strategy. Firstly, simplifying the tax framework—by rationalizing tax rates and reducing the number of exemptions—can help make compliance more straightforward and accessible.
Secondly, educational and awareness initiatives, particularly tailored for SMEs, can improve understanding of compliance obligations, thereby minimizing inadvertent errors and potential revenue losses. Lastly, fostering continuous engagement and dialogue between tax authorities and industry participants can promote mutual understanding and yield practical solutions that ensure tax compliance while accommodating the operational constraints faced by businesses. In conclusion, understanding the intricacies of the GST tax structure is essential for addressing revenue shortfalls. By dissecting the complexities and their implications, this section aims to contribute insights that can inform policy decisions and reforms aimed at optimizing GST revenue while ensuring a business-friendly and transparent
tax environment.
1.3 Comparative Analysis of GST Revenue Trends:
A comparative analysis of GST revenue trends provides a nuanced understanding of the
factors influencing revenue variations over time. This section scrutinizes the impact of economic fluctuations, policy changes, and external factors on GST revenue. By comparing revenue trends across different periods, regions, or sectors, insights can be gleaned into the dynamic nature of GST collections. This comparative lens facilitates the identification of trends, anomalies, and areas of vulnerability, guiding policymakers in crafting targeted interventions to stabilize and optimize GST revenue. Examining the causes and consequences of revenue loss in the GST framework offers a comprehensive view of the challenges faced by tax authorities and policymakers.
By dissecting specific issues such as ITC fraud, tax structure complexity, and revenue trends, this chapter aims to contribute valuable insights toward developing effective strategies for mitigating revenue losses and fortifying the financial sustainability of the GST system. A comparative analysis of Goods and Services Tax (GST) revenue trends offers a
nuanced perspective on the dynamics influencing revenue variations over time. This section delves into the intricacies of GST revenue trends, exploring factors such as economic fluctuations, policy changes, and external influences that contribute to variations in revenue collection. Economic Fluctuations: GST revenue is intricately linked to the overall economic health of a nation. Economic fluctuations, characterized by periods of growth, stagnation, or recession, directly impact consumer spending, business activities, and, consequently, GST collections. During economic downturns, reduced consumer spending and business transactions often lead to lower GST revenues, while periods of economic growth typically see an uptick in tax collections.
Policy Changes and Reforms: The implementation of policy changes and reforms can significantly influence GST revenue trends. Alterations in tax rates, modifications to exemption criteria, or the introduction of new policies can have immediate and lasting effects on revenue collection. For instance, a reduction in tax rates may stimulate consumption, potentially increasing revenue in certain sectors, while policy changes aimed at curbing evasion may lead to enhanced collections over time. 5 Sectoral Dynamics: Different sectors of the economy may exhibit diverse trends in GST revenue. Understanding sectoral dynamics is crucial for comprehending overall revenue trends. Some sectors may experience consistent growth, contributing positively to revenue, while others may face challenges, resulting in fluctuations.
A comparative analysis of sector-wise GST collections provides insights into the varying impacts of economic factors on different industries. Global Economic Influences: Global economic factors, such as international trade dynamics, geopolitical events, or global economic crises, can reverberate and impact GST revenue. Changes in global demand and supply patterns, trade tensions, or disruptions in international markets can have cascading effects on domestic businesses, influencing their transactions and, subsequently, GST contributions. Government Initiatives and Stimulus Measures: Government initiatives, especially fiscal stimulus measures, play a pivotal role in shaping GST revenue trends. During periods of economic challenges, governments may introduce stimulus packages to boost spending and revive economic activity.
The effectiveness of such measures can be gauged through their impact on GST collections, reflecting the success of policy interventions in stimulating economic growth. 530. Dasgupta, S. , & Sarkar, A. (2018). Impact of GST on Black Money and Corruption in India: An Empirical Analysis. Journal of Taxation and Financial Management, 7(1), 90-104.
Compliance Trends: The compliance behaviour of businesses and taxpayers also significantly influences GST revenue trends. Periods of heightened compliance, driven by awareness campaigns, streamlined processes, or stricter enforcement, may lead to increased collections. Conversely, lax compliance or instances of evasion can result in revenue shortfalls, necessitating proactive measures to enhance adherence to GST regulations. Impact of Digital Transformation: The ongoing digital transformation within the economy, coupled with the digitization of GST processes, has the potential to influence revenue trends. Increased adoption of digital transactions, improved data analytics, and enhanced monitoring capabilities contribute to more accurate and timely GST collections. Understanding the impact of digitalization on revenue trends is crucial for adapting tax administration strategies.
Comparative Regional Analysis: Analysing GST revenue trends regionally provides valuable insights into geographic variations. Different regions may experience distinct economic conditions, policy environments, and industrial compositions, contributing to variations in GST collections. A regional perspective allows policymakers to tailor interventions based on the unique characteristics of each area. Periodic Reviews and Adjustments: Periodic reviews of GST revenue trends enable policymakers to assess the effectiveness of existing policies and make adjustments as needed. Identifying trends, anomalies, or emerging patterns allows for timely interventions to optimize revenue collection. Continuous monitoring and agility in policymaking contribute to a dynamic and responsive GST framework.
In conclusion, a comprehensive understanding of GST revenue trends involves a holistic examination of economic, policy, and compliance factors. By dissecting the nuances of revenue fluctuations, this section aims to provide insights that can inform adaptive strategies, ensuring the resilience and sustainability of GST revenue
collections in a dynamic economic landscape. 1. 4 Corruption in India: GST evasion is a sum total of different patterns adopted by the businesses these days which results in corrupt practices both at trade level as well as the Government level. Due to high burden and complex tax structure, businesses try to avoid paying taxes and frequently develop strategies to do away or avoid pay GST or simply resulting to GST evasion. These techniques ranging from underreporting of sales to claiming excessive Input Tax Credit forms the sole basis for GST evasion and also are a base for corrupt practices like paying for fake bills, bribing the Government officials for settlement of liability of tax etc.
Corruption here does not explicitly means the corruption of bribing of money but also includes corrupt practices adopted by the businesses such as manipulation of the data, manipulating the audit reports, lack of transparency in showing the kind of business to save from paying higher tax slab etc. There has been instances where the news articles and Ministry of Finance has reported about the GST department officials being involved in the bribery and corrupt practices for settling the due liability of a business to pay tax at a certain amount. Apart from this corruption due to GST evasion can be clearly witnessed when the businesses pay the inspectors for reporting or avoiding the audits or manipulating the same according to their choice and will.
Recently, a news article in Hindustan Times reported an instance of corruption through Govt officials in case of GST evasion wherein it was mentioned that a case was registered against sales tax officer who refunded INR 175. 93 crores of 16 businessman, “The Anti-Corruption Bureau (ACB) has registered a case against a Sales Tax Officer (STO) accused of fraudulently approving 39 proposals and refunding ₹175. 93 crore for
16 businessmen. An internal inquiry by the Goods and Service Tax (GST) department,
Government of Maharashtra, in which the irregularities came to the fore, leading to the registration of the case.”6 https://www.hindustantimes.com/cities/mumbai-news/sales-tax-officer-accused-of-fraudulently-clearing-gstreturns-worth-175-93-crore-101709318058816.html
Case Laws: I.
Summary of Show Cause Notice in Form DRC-01 cannot replace a proper Show Cause Notice under Section 74, rules High Court – The Court emphasized that merely issuing a summary does not fulfil the legal requirement of a detailed SCN as mandated by Section 74. ; Sidhi Vinayak Enterprises v. State of Jharkhand [2023] 148 taxmann. com 416 (Jharkhand)7 In the present case, a search was conducted by the department at the petitioner’s premises on the grounds of alleged irregular availment of Input Tax Credit (ITC). Following this search, the department issued two summary show cause notices in Form DRC-01. Although the petitioner responded to these notices, the department rejected the reply and subsequently issued a summary order imposing tax and penalty.
The petitioner challenged both the notice and the order through a writ petition, arguing that as per law, both a detailed show cause notice and its summary must be issued. In defence, the department asserted that since the petitioner had participated in the proceedings by submitting a response in Form GST DRC-06, there was no violation of the principles of natural justice. However, the Honourable High Court held that the submission of a reply could not legitimize the absence of a proper show cause notice, as the summary in Form GST DRC-
01 does not satisfy the legal requirement of a show cause notice under Section 74(1).
Consequently, the Court found the proceedings flawed due to material irregularities and held that the summary notices and subsequent impugned orders were unsustainable and should be quashed. II.
Form DRC-07 by itself does not create a valid tax, interest, or penalty liability, holds High Court – The Court clarified that without a proper adjudication order, DRC-07 cannot be treated as sufficient for recovery actions.; 7https://www.taxmann.com/research/search?searchData=%5B2023%5D 148 taxmann.com 416 (Jharkhand) - :~:text=Sidhi Vinayak Enterprises-,vs.,-State of Jharkhand
Shree Ram Agrotech v. State of Jharkhand [2023] 152 taxmann. com 82 (Jharkhand)8 The petitioner, engaged in the trade of ferrous waste, scrap, and metal articles like iron and steel ingots, was served with a recovery notice based on a summary order issued in Form DRC-07. However, the petitioner was never issued a detailed show cause notice or adjudication order in accordance with Section 73 of the GST Act. Despite filing an appeal, the appellate authority dismissed it. Subsequently, the petitioner approached the High Court, contending that no proper adjudication order had been issued under Section 73(9) of the Act. The Honourable High Court observed that no such adjudication order was present on record with the GST department. It ruled that in the absence of a detailed order as required by law, no liability for tax, interest, or penalty could arise solely based on Form DRC- 07.
The Court emphasized that Form DRC-07, on its own, does not create a tax liability and noted that the appellate authority had failed to consider this critical aspect. Hence, it quashed the summary order and recovery notice. III.
Interest liability does not arise if Input Tax Credit is reversed before utilization, says High Court – The Court observed that interest under Section 50(3) is applicable only when wrongly availed credit is also utilized, not when it is merely claimed and reversed; Grundfos Pumps India (P.) Ltd. v. Joint Commissioner of GST & Central Excise [2023] 150 taxmann.com 176 (Madras)9 In this case, the petitioner had been a registered assessee under the previous Central Excise regime and had transitioned to the GST regime, carrying forward unutilized credit as transitional credit. 8https://www.taxmann.com/research/search?searchData=%5B2023%5D%20152%20taxmann.com%2082%20(J harkhand)#:~:text=Ram%20Agrotech%20vs.-,State,-of%20Jharkhand 9https://www.taxmann.com/research/search?searchData=%5B2023%5D%20150%20taxmann.com%20176%20( Madras)
However, this credit was not reflected in the Electronic Credit Ledger (ECL) and was instead reported as available ITC in the GSTR-3B return. During a departmental audit, the audit wing raised a demand for interest on the ITC claimed in the GSTR-3B. The petitioner argued that the credit, which was never utilized and eventually reversed without offsetting output tax liability, was never used improperly. The department nonetheless passed an order demanding interest, prompting the petitioner to file a writ petition challenging it. The Honourable High Court held that interest liability arises only upon actual utilization of ITC. It referenced the 2022 amendment to Section 50(3), which was made effective retrospectively from 2017, clarifying that interest is payable only when ITC is both wrongly availed and utilized.
Since in this case the error in reflecting ITC was due to a departmental lapse and the petitioner had neither used nor benefited from the credit, the Court concluded that there was no liability to pay interest, and accordingly set aside the order imposing such interest. IV.
Validity of proceedings under Section 74 remains unaffected by non-issuance of notice under Section 61, rules High Court –The Court held that scrutiny under Section
61 and proceedings under Section 74 are independent; lack of notice under the former
doesn’t invalidate action under the latter; Nagarjuna Agro Chemicals (P.) Ltd. v. State of U.P. [2023] 150 taxmann.com 419 (Allahabad)10 In this instance, the petitioner had filed GST returns for the financial year 2019–20. Although no notice was issued under Section 61 of the CGST Act, 2017, the department initiated proceedings under Section 74, citing issues with classification and underpayment of tax on certain goods. Upon conclusion of the inquiry, the department issued an order demanding payment of the shortfall in tax, along with interest and penalty. The petitioner challenged the order via a writ petition, arguing that the department should have first notified deficiencies in the return under Section 61 and provided an opportunity for rectification before invoking 10https://www.taxmann.com/research/search?searchData=%5B2023%5D%20150%20taxmann.com%20419%20 (Allahabad)
Section 74. The Honourable High Court ruled that proceedings under Sections 61 and 74 serve different purposes and are not interdependent. It held that issuing a notice under Section
61 is not a prerequisite for initiating proceedings under Section 74. Therefore, the
department’s action was within its jurisdiction, and the writ petition was dismissed, while the petitioner was given liberty to file an appeal against the order. V.
High Court stays demand-cum-show cause notice issued without complying with procedural requirement of Form GST ASMT-10 – The Court found prima facie merit in the contention that issuance of notice under Section 73(1) without Form ASMT-10 violates mandatory procedure. ; PepsiCo India Holdings (P. ) Ltd. v. Union of India [2023] 157 taxmann. com 428 (Gauhati)11 In this matter, the petitioner company was issued a demand-cum-show cause notice under Section 73(1), alleging discrepancies in the ITC reflected in GSTR-9C for the financial year 2017–18. It was claimed that the petitioner had wrongly availed and utilized ITC and was therefore liable to reverse the same along with interest and penalty. Challenging this through a writ petition, the petitioner argued that the preconditions for invoking Section 73(1) were not fulfilled, particularly the issuance of Form GST ASMT- 10.
The Honourable High Court observed that Form ASMT-10, which is necessary under Section 61 read with Rule 99 for pointing out return deficiencies, had not been issued in this case. As a result, the issuance of the demand-cum-show cause notice appeared to be premature and procedurally flawed. On these grounds, the Court stayed the operation of the impugned notice and scheduled the matter for further hearing. VI.
Provisions of Section 13(8)(b) and Section 8(2) of the IGST Act are held to be valid and constitutional by High Court – After a split verdict, the third judge concluded that 11https://www.taxmann.com/research/search?searchData=%5B2023%5D%20157%20taxmann.com%20428%20 (Gauhati)#:~:text=taxmann.com%20428%20(Gauhati)[-,13%2D12%2D2023
these provisions are confined to the IGST Act and constitutionally valid.; Dharmendra M. Jani v. Union of India [2023] 151 taxmann.com 91 (Bombay)12 The petitioner, engaged in providing marketing and promotional services exclusively to clients located outside India, received payment in convertible foreign currency. It was the petitioner’s contention that these services qualified as ‘export of services’ and should not be subject to GST, as they contributed valuable foreign exchange to the country. However, due to the deeming provision under Section 13(8)(b) of the IGST Act, the place of supply was treated as the location of the supplier (India), thereby attracting CGST and SGST. The petitioner filed a writ petition challenging the constitutional validity of Section 13(8)(b). A Division Bench of the Bombay High Court delivered split opinions—one Judge held
that the provision violated constitutional Articles 245, 246A, 269A, and 286(1)(b), deeming it unconstitutional, while the other Judge upheld its validity. Owing to this divergence, the matter was referred to the Chief Justice for further action, who in turn placed it before a third Judge. The third Judge concluded that Sections 13(8)(b) and 8(2) of the IGST Act are constitutionally valid and operate strictly within the confines of the IGST framework, and cannot be extended to CGST and SGST Acts. Accordingly, the Hon’ble Chief Justice upheld the validity of these provisions. VII.
High Court orders return of currency seized by GST officers due to absence of seizure memo, terming action illegal and without legal authority – The seizure of cash without proper documentation was held to be unlawful and officers were directed to return the amount with interest.; Arvind Goyal CA v. Union of India [2023] 151 taxmann.com 228 (Delhi)13 In this case, a search was conducted by GST officers at the petitioner’s residence under 12https://www.taxmann.com/research/search?searchData=%5B2023%5D%20151%20taxmann.com%2091%20( Bombay) 13https://www.taxmann.com/research/search?searchData=%5B2023%5D%20151%20taxmann.com%20228%20 (Delhi)#:~:text=taxmann.com%20228%20(Delhi)[-,19%2D01%2D2023
Section 67(2) of the GST Act. During the search, officers seized cash amounting to ₹1,22,87,000, but no seizure memo was issued in respect of the currency taken. The petitioner challenged this action through a writ petition, arguing that the seizure was illegal in the absence of a valid seizure memo. The Honourable High Court ruled that under Section 67(2), the power to seize goods is conditional upon their liability to confiscation, and documents or things may only be seized if they are relevant to proceedings under the Act. Since the officers failed to issue a seizure memo and forcibly took possession of the cash, their action was deemed unauthorized and without legal backing. Consequently, the Court ordered the return of the cash along with accrued interest and directed the immediate release of the bank guarantee provided by the petitioner for recovery of the amount. VIII.
Andhra Pradesh High Court upholds the constitutionality of time limits for availing ITC under Section 16(4) of CGST/APGST Act – The Court ruled that Input Tax Credit is a concession subject to statutory conditions, and time limitations do not violate constitutional rights.; Thirumalakonda Plywoods v. Assistant Commissioner – State Tax, Circle-1 [2023]
152 taxmann.com 640 (Andhra Pradesh)14
In the current petition, the petitioner questioned the validity of Section 16(4) of the CGST Act, 2017, which sets a time limit for claiming Input Tax Credit (ITC). The petitioner argued that once a return is accepted with late fees, ITC should not be denied on grounds of delay. Additionally, the provision was claimed to violate Article 14, Article 19(1)(g), and Section 300-A of the Constitution, contending that ITC is a statutory right unjustly curtailed by the imposition of a time limit. However, the Honourable High Court clarified that ITC is not an inherent statutory or constitutional right but a benefit or concession extended under the GST law. It held that 14https://www.taxmann.com/research/search?searchData=%5B2023%5D%20152%20taxmann.com%20640%20 (Andhra%20Pradesh)#:~:text=640%20(Andhra%20Pradesh)[-,18%2D07%2D2023
imposing conditions, such as time limits, for availing ITC does not amount to a constitutional violation. The Court further observed that the collection of late fees only enables the verification of returns and does not legitimize ITC claims filed beyond statutory deadlines. Thus, the Court upheld the constitutionality of the time limit under Section 16(4) and rejected the petitioner’s plea.