Facts of the Case

The petitioner, M/S. Rahul Automobiles, represented by its proprietor Raju Dattoba Jadhav and registered under GSTIN 29AKLPJ4051H1Z1, filed WP No.102508 of 2023 (T-RES) before the Dharwad Bench of the High Court of Karnataka, challenging the constitutional validity of Section 16(4) of the CGST/SGST Act, 2017 read with Rule 61(5) of the KGST Rules, 2017. The petitioner also sought to quash a summary of show-cause notice bearing No. CTO/LGSTO430/JKD/DRC01/2022-23/B-331 dated 21st November 2022 and a final audit observation dated 16th February 2023 issued by the Assistant Commissioner (Audit). The matter, raising an identical constitutional challenge as the connected case of Smt. Vijayalakshmi, was heard on 11th December 2023 by the same Single Judge.

Issues Involved

  1. Whether Section 16(4) of the CGST/SGST Act, 2017, prescribing a time limit for availing input tax credit, is unconstitutional under Articles 14, 19 and 300A.
  2. Whether the time limit could be read down as directory rather than mandatory.
  3. Whether the impugned DRC-01 show-cause notice and the final audit observation were liable to be quashed.

Petitioner's Arguments

  • Section 16(4) of the CGST/SGST Act and Rule 61(5) of the KGST Rules were illegal, arbitrary and discriminatory, violative of Articles 14, 19 and 300A, and liable to be struck down, or in the alternative read down as procedural.
  • The summary show-cause notice dated 21.11.2022 and the final audit observation dated 16.02.2023 were unreasonable, arbitrary, oppressive, excessive and premeditated and deserved to be quashed.

Respondent's Arguments

  • The constitutional validity of Section 16(4) read with Rule 61(5) stood upheld by the Andhra Pradesh High Court in Thirumalakonda Plywoods v. The Assistant Commissioner and the Patna High Court in Gobinda Construction v. Union of India.
  • The Supreme Court's rulings in Jayam and Company v. Assistant Commissioner (2016) 15 SCC 125 and ALD Automotive Pvt. Ltd. v. Commercial Tax Officer (2019) 13 SCC 225, upholding analogous time-limit provisions under the Tamil Nadu VAT Act, supported rejection of the challenge.

Court Order/Findings

  • On being confronted with the coordinate High Court precedents upholding Section 16(4), the petitioner's counsel did not press the constitutional challenge or the alternative read-down prayer, and this was recorded.
  • The Court held that once the constitutional challenge was not pressed, it need not examine the validity of Section 16(4), and the petitioner would have to pursue the statutory appellate remedy against the impugned notice and audit observation.
  • The writ petition was disposed of without expressing any view on the merits of the impugned show-cause notice or audit observation.
  • Liberty was reserved to the petitioner to avail the statutory remedy under the CGST/KGST Act, excluding the time spent in the writ petition from limitation.

Important Clarification

A taxpayer's decision not to press a Section 16(4) constitutional challenge, once faced with binding coordinate High Court authority upholding the provision, leaves the underlying show-cause notice and audit findings entirely open to be contested through the ordinary statutory appellate channel, with litigation time excluded from limitation. This pattern — filing a writ solely to test the vires of Section 16(4), then withdrawing the constitutional plea once confronted with adverse precedent from other High Courts — has become common in GST litigation following the Andhra Pradesh and Patna High Court rulings upholding the provision, and courts have consistently declined to independently re-examine the vires question once it is not pressed.

Sections Involved

  • Section 16(4) of the Central Goods and Services Tax Act, 2017 and the Karnataka Goods and Services Tax Act, 2017.
  • Rule 61(5) of the Karnataka Goods and Services Tax Rules, 2017.
  • Articles 14, 19 and 300A of the Constitution of India.

Decision – In Favour of

As with the connected matter, this is not a clean win for either side. The petitioner abandoned its constitutional challenge in the face of adverse precedent, a setback for the Assessee's principal ground, while the Court left the substantive audit and show-cause dispute entirely undecided, to be pursued before the statutory appellate authority.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: High Court of Karnataka, Dharwad Bench
  • Case No.: WP No. 102508 of 2023 (T-RES)
  • CNR: 2023:KHC-D:14496
  • Coram: Justice Anant Ramanath Hegde
  • Decision Date: 11-12-2023
  • Disposal Nature: Disposed of; constitutional challenge not pressed, liberty to pursue statutory remedy

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