Goods & Services Tax (GST) in IndiaConundrum of Extended Limitation Period in GST Regime

INTRODUCTION

The COVID-19 Pandemic has altered the lives of the global citizenry. The pandemic resulted in great distress to the macro environment and public health of India. The Supreme Court, faced with the mammoth task of responding to this crisis, ordered for the suo motu extension of limitation period in all proceedings before the Courts/Tribunals including the Supreme Court with effect from 15.03.2020.

That the aforesaid proactive step was taken by the Supreme Court to protect public health by reducing the hardships faced by litigants in initiating and appearing for proceedings falling due at the time when the entire country was under lockdown for preventing the spread of COVID-19.

Contrastingly, the Central Board of Indirect Taxes & Customs (‘CBIC’) – the nodal national agency which administers Goods and Service Tax (‘GST’) in India – issued a Clarification vide Circular No. 157/13/2021-GST dated 20.07.2021 (‘the Circular’), regarding the extension of limitation by the Supreme Court.

The Clarification was made to analyse the applicability of the Supreme Court’s Order dated 23.03.2020 and its subsequent reinstatement vide Miscellaneous Application (‘MA’) dated 27.04.2021 on the GST Regime. The Circular clarified the applicability of the aforesaid decision in the context of GST laws by stating the following:

1. Extension of limitation period would not apply to proceedings that need to be initiated or compliance(s) that need to be done by the taxpayers.
2. Extension of limitation period would not apply to Quasi-Judicial proceedings by tax authorities, such as disposal of application for refund, application for revocation of cancellation of registration, adjudication proceedings of demand notices, etc.
3. The extension of the limitation period would apply to appeals by taxpayers/ tax authorities against any Quasi- Judicial order.

OBJECT AND INTENT OF THE SUPREME COURT ORDERS

To critically analyse the aforementioned Clarification, a close perusal of the Supreme Court Orders is essential. The ethos of the order can be extracted from the following excerpt:

The first extension Order of the Supreme Court stated that:

“Situation arising out of the challenge faced by the country on account of Covid-19 Virus and resultant difficulties that may be faced by litigants across the country in filing their petitions/applications/suits/ appeals/all other proceedings within the period of limitation prescribed under the general law of limitation or under Special Laws.”

Through this, the Supreme Court makes apparent the intent and purport of the Order. The object is to provide relaxation by way of extended limitation in proceedings arising out of any law that prescribes a limitation period.

The third (reinstatement) Order stated that:

“That the period(s) of limitation, as prescribed under any general or special laws in respect of all judicial or quasi-judicial proceedings, whether condonable or not, shall stand extended till further orders.”

The Supreme Court, by way of the reinstatement Order further clarified the wide ambit of proceedings in which the extension of limitation will apply. The object behind manifestly including quasi-judicial proceedings was to provide relief to as many litigants as possible litigating in various kinds of proceedings.

As the severity of the pandemic has gradually decreased, the Supreme Court, vide Order dated 23.09.2021, has recalled the suspension of the limitation period in view of the restoration of normalcy in major parts of the country.

 CRITIQUE OF THE CBIC CLARIFICATION

The CBIC clarification is inconsistent with the aforementioned orders as well as existing jurisprudence owing to the following reasons:

1. Irregular Interpretation of ‘other Proceedings’

The term ‘proceedings’ has not been defined under the Central Goods and Services Tax Act, 2017 (‘CGST Act’). Hence, the principle of Noscitur-a-Sociis would apply i.e., the word should be read in the context it has been presented in.

It was settled in the case Girdhari Lal & Sons v. Balbir Nath Mathur & Ors, (1986) 2 SCC 237 that words that are not defined need to be read according to their plain meaning, unless such an interpretation would result in an anomaly, patent injustice or absurdity.

The Supreme Court in P. L. Kantha Rao v. State of AP, AIR 1995 SC 807 has defined the term ‘proceedings’ to mean a course of action for enforcing a legal right. It is to be understood as a comprehensive term.

As the term ‘proceedings’ has not been defined under the CGST Act, the clarification is firstly, vague in constructing the scope of the proceedings and secondly, overarching by excluding certain stages from other proceedings, such as issuance of show cause notice, scrutiny of returns, granting time for replies and passing orders, which culminate into quasi-judicial action under the CGST Act.

2. Irregular Interpretation of ‘Quasi-Judicial Proceedings’

The term ‘quasi-judicial proceedings’ is also to be understood in its general and widest use. The Supreme Court in the case State of HP v. Raja Pal, AIR 1999 SC 1786 decided that the term ‘quasi-judicial proceedings’ would include proceedings which relate to adjudicative actions.

Therefore, the Clarification is overarching in its exclusion of actions such as show cause notice, granting time for replies and passing orders, as stated in Clause 3 (vi) of the Circular. Further, the Clarification in this Clause contradicts itself by stating that:

“(vi) As regards issuance of show cause notice, granting time for replies and passing orders, the present Orders of the Hon’ble Supreme Court may not cover them even though they are quasi-judicial proceedings as the same has only been made applicable to matters relating to petitions/applications/suits, etc.”

Thus, the interpretation of ‘quasi-judicial proceedings’ is not only inconsistent with the prevailing law but is also discrepant within the scope of the Clarification issued.

3. The CGST Act falls in the Class of Laws subject to the Extension

The Clarification attempts to circumvent the Supreme Court’s Order by relying on arbitrary observations. The CGST Act falls well within the ambit of the class of laws which are ordered to be unequivocally subject to the extension by the Supreme Court. This class can be understood from the following excerpt of the third Supreme Court Order dated 27.04.2021 as reproduced hereunder:

“It is further clarified that the period from 14th March, 2021 till further orders shall also stand excluded in computing the periods prescribed under Sections 23 (4) and 29A of the Arbitration and Conciliation Act, 1996, …and any other laws, which prescribe period(s) of limitation for instituting proceedings, outer limits (within which the court or tribunal can condone delay) and termination of proceedings.”

The CGST Act is wholly covered under the class of law on which the extended period of limitation shall be applicable, as stipulated by the Supreme Court. This is owing to the fact that the CGST Act, prescribes, inter alia, time limit for initiation and conclusion of various proceedings.

For instance, Section 78 of the CGST Act prescribes a period of three months for the payment of due amount by the taxable person, failure to which will result in initiation of recovery proceedings. Additionally, Section 61 of the CGST Act prescribes the time limit for furnishing of explanation for scrutiny, failure to which may result in conduct of audit, special audit, inspection, etc.

The contradictory and arbitrary Clarification issued by the CBIC in this regard does not hold water when scrutinized against the very object of the Order, which was to extend limitation in all laws which initiate and terminate proceedings in a time bound manner.

CONSTITUTIONAL CRITIQUE OF THE CLARIFICATION

1. The Circular is contrary to Article 14 of the Constitution of India

Existence of unreasonable and unequal classification: Clause 3 (ii) of the Clarification indicates the absence of reasonable classification as there is an arbitrary distinction between “original jurisdiction” and “appeals, reviews, revisions, etc.”

The Supreme Court, in the case of Nikesh Tarachand Shah Vs. Union Of India &Anr., (2018) 11 SCC 1 while holding the twin bail conditions under the Prevention of Money Laundering Act, 2002 (‘PMLA’) unconstitutional vis-a-vis Article 14 and Article 21 reaffirmed that any unequal application of law needs to be grounded in relevant and substantive reasoning.

The CBIC clarification however, creates a class of litigants i.e. Appellants (who are filing appeals, reviews, revisions, etc.) on whom the extension is applicable. However, there is no reasoning which justifies the applicability of the extension on Appellants alone while denying the same relief to litigants who are seeking their rights under original jurisdiction.

Allowing the applicability of extended limitation to an appeal while simultaneously disallowing the same to original proceedings under the same law imposes an unequal benefit in law. This inequality is compounded by the absence of a nexus between the object of the Clarification i.e. applicability of the Supreme Court Orders in pursuance of public health; and the rationale behind the classification made by the Circular.

Therefore, the classification created by the impugned Circular is contrary to Article 14 of the Constitution of India.

2. The Circular is contrary to Article 21 of the Constitution of India

The Circular negates the purpose of the Supreme Court Orders by disallowing litigants relief from limitation. Such an arbitrary restriction is illegal and unfounded as it disproportionately denies benefit to a certain class of litigants under the CGST Act. This in turn corrupts the ethos of the order which is to ensure public health and social justice.

The Clarification resulted in a threat to the people’s health and safety, thereby violating their right to Life and Health during the Covid-19 pandemic. Therefore, the impugned Clarification is contrary to Article 21.

Hence, the Circular is merely clarificatory in nature and is not at par with the law laid down by the Supreme Court. The ambiguous construction and interpretation of the Supreme Court’s Orders vide a Circular issued by CBIC has further resulted in violation of Article 141 of the Constitution of India.

AMLEGALS REMARKS

 The COVID-19 pandemic propelled many businesses into a premature corporate death, many citizens into unforeseen unemployment, and even resulted in an unprecedented public health crisis. The Supreme Court’s extension of limitation Order was a much needed respite from the time constraints in litigation to the general public.

CBIC, attempting to interpret the Supreme Court Orders and their applicability in the GST regime, issued a Clarification which stated that the Supreme Court Orders would not be applicable on a few quasi-judicial proceedings and all original proceedings under the CGST Act.

The CBIC Circular reads as an ambiguous and ignorant attempt to refuse the respite to a huge class of litigants under the CGST Act by bypassing the Supreme Court Orders. Through the narrow interpretation accorded to the Orders by the Circular, certain class of litigants are deprived of the benefit granted by the Supreme Court. Also the interpretation of the terms ‘proceedings’ and ‘quasi-judicial proceedings’ by CBIC is not in consonance with the prevailing law and the precedent.

Hence, the Circular, being clarificatory in nature, cannot be imposed by CBIC on the taxpayers as it defies settled precedents and violates certain constitutional rights of the taxpayers.

– Team AMLEGALS, assisted by Ms. Kashish Gupta (Intern)