In the case of Nahasshukoor v. Assistant Commissioner [WA NO. 1853 OF 2023 dated November 3, 2023], the Hon’ble Kerala High Court dismissed the writ petition and affirmed the constitutional validity of Section 16(2)(c) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”)and Rule 36(4) of the Central Goods and Service Tax Rules, 2017 (“the CGST Rules”). The court emphasized the need for judicial restraint in interfering with tax legislation unless it is convincingly demonstrated that the taxing statute is manifestly unconstitutional and arbitrary.

Background:

The Appellant, Nahasshukoor, conducting business as M/s. Light House, faced denial of Input Tax Credit (“ITC”) for the assessment year 2017-18. The Revenue Department issued an assessment order, rejecting the Appellant’s ITC claim due to variations between GSTR-2A and GSTR-3B. The Respondent imposed interest, penalties, and initiated recovery proceedings under the CGST Act and State GST Act.

Legal Proceedings:

Aggrieved by the Order, Nahasshukoor filed a writ petition challenging the constitutional validity of Section 16(2)(c) of the CGST Act and Rule 36(4) of the CGST Rules, alleging violation of Article 14. The Hon’ble Kerala High Court dismissed the writ petition through the Impugned Judgement dated September 25, 2023. Subsequently, Nahasshukoor filed a Writ Appeal against the Impugned Judgement.

Key Issue:

The primary issue addressed was the constitutional validity of Section 16(2)(c) of the CGST Act and Rule 36(4)(c) of the CGST Rules.

Court’s Decision:

The Hon’ble Kerala High Court, in the case of WA NO. 1853 OF 2023, made the following determinations:

1. Judicial Restraint Principle:
Acknowledged the principle of judicial restraint, emphasizing that the court should refrain from intervening in tax legislation unless it is manifestly unconstitutional. Striking down legislation is warranted only when it is manifestly arbitrary, unreasonable, capricious, or lacks an adequate determining principle.

2. Manifest Arbitrariness Test:
Opined that the contested provisions are not manifestly arbitrary. The court found no grounds to declare them constitutionally invalid.

3. Impugned Judgement Validity:
Concluded that the Impugned Judgement lacked any illegality or impropriety, leading to the dismissal of the Appeal.

This judgment provides clarity on the constitutional validity of the mentioned provisions and reinforces the importance of demonstrating manifest arbitrariness for a successful constitutional challenge.