Input tax credit relief under GST: assessment denial under Section 16(4) modified, with reconsideration and interim protection ordered.

The Kerala HC interfered with an assessment order that denied input tax credit under Section 16(4) of the CGST/SGST regime, to the extent necessary to extend the benefit of the directions in M. Trade Links. The Court noted that the constitutional challenge to Section 16(4) had already been rejected, but the assessee could still seek relief under the directions granting further time for filing Form GSTR-3B. It also directed the competent authority to reconsider the claim in light of M. Trade Links and Section 16(5), after hearing the assessee, while keeping coercive proceedings in abeyance for the disputed input tax credit until fresh decision.

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Issues: (i) Whether the denial of input tax credit under Section 16(4) of the CGST/SGST regime in the assessment order could be interfered with and the assessee granted the benefit of the directions issued in M. Trade Links; (ii) whether the matter required reconsideration by the competent authority with reference to Section 16(5) and whether coercive proceedings to the extent of the disputed input tax credit were liable to remain suspended pending such reconsideration.

Issue (i): Whether the denial of input tax credit under Section 16(4) of the CGST/SGST regime in the assessment order could be interfered with and the assessee granted the benefit of the directions issued in M. Trade Links.

Analysis: The assessment order denied input tax credit on the basis of Section 16(4). The Court noted that the constitutional challenge to that provision had already been decided against taxpayers, but that further time had been granted in M. Trade Links for filing Form GSTR-3B to individual taxpayers. In that background, the assessment order was liable to be interfered with only to the extent of the denial based on Section 16(4), so that the petitioner could obtain the benefit of the directions issued in M. Trade Links.

Conclusion: The denial of input tax credit under Section 16(4) was set aside to that extent and the benefit of the directions in M. Trade Links was extended to the assessee.

Issue (ii): Whether the matter required reconsideration by the competent authority with reference to Section 16(5) and whether coercive proceedings to the extent of the disputed input tax credit were liable to remain suspended pending such reconsideration.

Analysis: The Court directed the competent authority to reconsider the claim in the light of the directions in M. Trade Links and the effect of Section 16(5), after hearing the petitioner and within a stipulated time. It also directed protection against coercive steps only to the extent of the input tax credit denied under Section 16(4), until a fresh decision was taken.

Conclusion: The competent authority was required to reconsider the claim under Section 16(5), and coercive proceedings relating to the disputed input tax credit stood suspended pending that decision.

Final Conclusion: The writ petition succeeded to the limited extent of setting aside the denial of input tax credit founded on Section 16(4), with consequential reconsideration and interim protection ordered in favour of the assessee.

Ratio Decidendi: Where denial of input tax credit under Section 16(4) is involved and the court has already granted remedial directions in connected litigation, the assessment order may be modified to extend those directions and require fresh consideration under the relevant saving provision, with interim protection against coercive recovery pending reconsideration.

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