Input Tax Credit under GST is a conditional right, contingent on actual tax payment by suppliers, and Sections 16(2)(c) and 16(4) are constitutionally valid restricting eligibility based on compliance.

JUDGMENT :

In the present batch of writ petitions, challenge has been made to Sections 16 (2)(c) and 16(4) of the Central GOODS AND SERVICES TAX ACT and State Goods and Services Act, 2017.

Background:

2. It took 13 long years, i.e., 2004-2017, for Goods and Services Tax to finally arrive in India, and a new tax regime could see the light of the day with effect from 01.07.2017. The Kelkar Committee used the word ‘GST’ for the first time in a formal document, i.e., the Executive Summary of the Kelkar Committee report. The Kelkar Committee proposed that the Union and the States should concurrently tax the consumption of almost all goods and services in the economy, and it should be based on the principles of Value Added Tax (for short ‘the VAT’). All existing legislation taxing goods and services with cascading effects should be withdrawn. The GST would subsume existing indirect taxes including central excise and service tax.

2.1 ‘A White Paper on State-Level Value Added Tax’ (‘the white paper’) was published by the Empowered Committee of the State Finance Ministers on 17.01.2005. The ‘White Paper’ discussed features such as Input Tax Credit (‘the ITC’ for short), multiplicity of rates and taxes, etc., and provides uniform taxes and rates. In the budget speech for the Financial Year 2006-2007, the then Finance Minister announced a large consensus on a national goods and services tax. An empowered committee was constituted to prepare a road map for a National GST. In the budget speech of the Union Finance Minister 2009-2010, GST was considered as a dual tax structure consisting of central GST and State GST, legislated and administrated by the Central and States, respectively.

3. The 13th Finance Commission also made recommendations on Central and State GST. The Commission on Central – State Relations 2010, headed by former Chief Justice of India, Madan Mohan Punchi J, broadly agreed with the suggestions and the recommendations of the 13th Finance Commission. The Central-State relation Commission recommended the concurrent levy of dual GST by the Central and the States on a common tax base.

4. The Constitution (115th Amendment) Bill 2011 was introduced in the Lok Sabha to provide the legal and constitutional structure for rolling out GST and empower the Central and States to levy dual GST on a common tax base. However, before the Standing Committee report could be considered, the 15th Lok Sabha was dissolved, and the Bill lapsed.

5. The second attempt was made by introducing the 122nd Amendment Bill in 2014, the said Bill was passed on 08.08.2016, received the Presidential assent and became the Constitution (101st Amendment) Act 2016.

6. Article 246-A was inserted, providing the establishment of the Goods and Services Tax Council, which came into force on 12.09.2016 to provide a constitutional mandate for legislation of the GST Act. The remaining Sections of the Constitution (101st Amendment) Act 2016 came into force with effect from 16.09.2016.

7. The President of India Constituted the Goods and Services Tax Council (GST Council) on 15.09.2016. The GST Council was to make recommendations to the Union and the States inter-aliaon model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied on supplies in the course of inter-state trade and commerce and principles that govern the place of supply. The GST Council prepared the model GST law, model IGST law, and GST compensation law. With some modifications, those model GST laws prepared by the GST Council became the draft for the Central Goods and Services Tax Bill, the Integrated Goods and Services Tax Bill, the Union Territory Goods and Services