2025 (7) TMI 137 - HC - GST

Authorities wrongly rejected input tax credit refund claim by ignoring retrospective Section 16(5) amendment extending ITC timeline

DYS Impex Private Limited Versus Assistant Commissioner of Revenue, State Tax, Refund Unit & Ors.

The HC set aside orders by the proper officer and appellate authority that partially rejected petitioner's input tax credit refund claim for FY 2017-18 ... Rejection of partial refund - entitlemnet to the benefit of delayed filing of return on account of its claim for input tax credit for the period upto 2021, provided such return has been filed on or before 30th November, 2021, consequent upon insertion of Section 16(5) in the WBGST/CGST Act, 2017 - HELD THAT:- The scope of application of Section 16(4) of the said Act has since stood altered to a great extent especially having regard to Section 16(5) being inserted retrospectively with effect from 1st July, 2017. Consequent upon the insertion of Section 16(5) in the said Act, the time for filing of return under Section 39 of the said Act for the tax period 2017-18, 2018-19, 2019-20 and 2020-21 has been extended till 30th November, 2021. The orders issued both by the proper officer and appellate authority cannot be sustained and the matter is remanded back to the proper officer for re-adjudication of the issue having regard to the insertion of Section 16(5) of the said Act in the statute book with retrospective effect from 1st July, 2017. The orders passed by the appellate authority on 21st February, 2024 and the proper officer on 14th April, 2023 are set aside - Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether the proviso to Section 16(4) of the Act precludes entitlement to input tax credit (ITC) in respect of invoices/debit notes pertaining to financial year 2017-18 when the claim was made in a return for September 2019. 2. Whether insertion of Section 16(5) (with retrospective effect from 1 July 2017) alters the time-limit for taking ITC for invoices/debit notes pertaining to financial years 2017-18, 2018-19, 2019-20 and 2020-21, and if so, whether earlier adjudicatory orders relying on the proviso to Section 16(4) are sustainable. 3. Whether the adjudication and appellate orders that partially disallowed refund claims by applying the proviso to Section 16(4) must be set aside and the matter remanded for re-adjudication in the light of Section 16(5). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Application of proviso to Section 16(4) to claims for ITC made in returns filed after the financial year concerned Legal framework: Section 16(4) prescribes that a registered person shall not be entitled to take ITC after the thirtieth day of November following the end of the financial year to which the invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier. The proviso to Section 16(4) provides a specific transitional exception relating to returns timed around September 2018 to March 2019 for invoices made during 2017-18. Precedent Treatment: No prior decisions or specific precedents were cited or relied upon by the adjudicating authorities in the record; the authorities proceeded on the plain language of the proviso to Section 16(4). Interpretation and reasoning: The appellate authority and the proper officer applied the proviso to Section 16(4) to disallow refund claims where ITC had been claimed in September 2019 in respect of the financial year 2017-18. The Court examined the statutory text and recognized that the proviso had been the basis for the disallowance at the time of those orders. Ratio vs. Obiter: The Court treated the interpretation of Section 16(4) as contextually relevant but culminated its analysis by considering the later insertion of Section 16(5); the observations on Section 16(4) as applied by the authorities are primarily factual/legal findings that are not relied upon as a final ratio given the subsequent statutory change (see Issue 2). Conclusion: In isolation, the proviso to Section 16(4) can justify denial of ITC where its temporal conditions are not met; however, its continued application must be reassessed in view of Section 16(5)'s retrospective insertion (cross-reference to Issue 2). Issue 2 - Effect of insertion of Section 16(5) (retrospective to 1 July 2017) on time-limit for taking ITC for FY 2017-18 to 2020-21 Legal framework: Section 16(5) states that notwithstanding anything contained in sub-section (4), for invoices/debit notes pertaining to financial years 2017-18, 2018-19, 2019-20 and 2020-21, the registered person shall be entitled to take ITC in any return under Section 39 filed up to 30 November 2021. Precedent Treatment: The Court noted that the scope of Section 16(4) 'has since stood altered to a great extent' by the insertion of Section 16(5). No judicial precedents were cited overruling or following this provision; the Court relied on the statutory amendment itself. Interpretation and reasoning: The Court construed Section 16(5) as a statutory override to the limitation imposed by Section 16(4) for the specified financial years, extending the permissible period for taking ITC to returns filed up to 30 November 2021. Because Section 16(5) is inserted with retrospective effect from 1 July 2017, it applies to invoices/debit notes from the listed financial years irrespective of earlier interpretations or orders that had applied the proviso to Section 16(4). The Court reasoned that orders rejecting refund/ITC claims based solely on the proviso to Section 16(4) could not be sustained where the claim falls within the scope of Section 16(5) and a return was filed on or before 30 November 2021. Ratio vs. Obiter: The holding that Section 16(5) alters the time-limit and overrides the proviso to Section 16(4) for the specified financial years is a central ratio of the decision. Observations about the prior authorities' reliance on Section 16(4) are consequential and contextual, not obiter. Conclusion: Section 16(5), being a retrospective and explicit proviso-like enactment, extends the time for taking ITC to returns filed up to 30 November 2021 for invoices/debit notes pertaining to FY 2017-18 through 2020-21, thereby displacing the temporal constraint imposed by Section 16(4) for those years. Issue 3 - Legality of adjudicatory and appellate orders that disallowed refund/ITC claims by applying Section 16(4) proviso post-insertion of Section 16(5) Legal framework: Administrative orders must conform to statutory provisions in force; where a later-enacted provision operates retrospectively and affords rights, earlier administrative or quasi-judicial determinations inconsistent with that provision require reconsideration. Precedent Treatment: The Court did not identify or apply conflicting judicial precedent that would validate sustaining earlier orders despite the statutory amendment. Interpretation and reasoning: Because both the proper officer and the appellate authority disallowed the refund claim by relying on the proviso to Section 16(4), and because Section 16(5) was inserted retrospectively to permit ITC claims filed in returns up to 30 November 2021 for the relevant years, the earlier orders could not stand. The Court concluded that the matter must be remanded for re-adjudication by the proper officer in light of Section 16(5), ensuring the claim is reconsidered under the correct statutory regime. Ratio vs. Obiter: The direction to set aside the impugned orders and remit the matter for fresh adjudication under Section 16(5) is a dispositive ratio. Ancillary observations about the timing of hearings and a 12-week timeline for re-adjudication are administrative directions, not substantive ratio. Conclusion: The adjudicatory and appellate orders partly disallowing refund/ITC must be set aside and remanded for re-adjudication in accordance with Section 16(5); the proper officer is directed to conclude proceedings expeditiously (preferably within 12 weeks of communication of the order). Supplementary Observations and Directions 1. The retrospective insertion of Section 16(5) changes the statutory entitlement to ITC for invoices/debit notes of FY 2017-18 to FY 2020-21 where returns under Section 39 were filed up to 30 November 2021 (cross-reference to Issue 2). 2. Orders issued by adjudicating authorities which relied solely on the proviso to Section 16(4) to deny ITC/refund for claimed returns falling within the scope of Section 16(5) are not sustainable and must be re-adjudicated (cross-reference to Issue 3). 3. The Court set aside both the appellate and the proper officer orders and remitted the matter to the proper officer for reconsideration, with an expectation of expeditious disposal (administrative direction).