Input tax credit allowed under retrospectively amended Section 16(5) TNGST/CGST Act overrides earlier limitations for 2017-21

The HC quashed the rejection order dated 11.03.2025 and directed fresh consideration of petitioner's rectification application. The court held that petitioner was entitled to input tax credit under retrospectively amended Section 16(5) of TNGST/CGST Act, 2017, which overrides Section 16(4) limitations for financial years 2017-18 to 2020-21. Since petitioner's returns were filed within the extended timeline permitted by Section 16(5), the ITC disallowance was unjustified. The court found the summary rejection of rectification application without discussion violated natural justice principles. Petitioner was entitled to refund of Rs. 2,98,748 paid against the invalid demand, as the retrospective amendment nullified the basis for disallowance.

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Issues Presented and Considered

1. Whether the petitioner is entitled to claim input tax credit (ITC) under the amended provisions of Section 16(5) of the TNGST Act/CGST Act, 2017, notwithstanding the restrictions imposed by Section 16(4) of the Act for invoices or debit notes pertaining to financial years 2017-18 to 2020-21.

2. Whether the amount paid by the petitioner against the demand arising from disallowance of ITC under Section 16(4) is refundable in view of the retrospective amendment introduced by the Finance (No.2) Act, 2024.

3. Whether the petitioner's application for rectification under Section 161 of the TNGST Act, 2017, rejecting the refund claim, was properly disposed of, especially considering the summary dismissal without discussion.

4. Whether the petitioner is precluded from seeking relief through writ petitions due to the availability of statutory appellate remedies under Section 107 of the TNGST Act/CGST Act, 2017, and the limitation prescribed therein.

Issue-wise Detailed Analysis

Issue 1: Entitlement to Input Tax Credit under Amended Section 16(5)

The relevant legal framework involves Section 16 of the TNGST Act/CGST Act, 2017, which governs the entitlement to input tax credit. Section 16(4) originally restricted the claim of ITC to invoices or debit notes filed by the due date for furnishing the return for the month of September following the end of the financial year or the date of furnishing the annual return, whichever was earlier.

The Finance (No.2) Act, 2024, introduced Section 16(5) with retrospective effect from 01.07.2017, which overrides the limitation in Section 16(4) for invoices or debit notes pertaining to financial years 2017-18 to 2020-21. It allows a registered person to claim ITC in any return filed under Section 39 up to 30th November 2021.

The petitioner's returns for February and March 2020 were filed on 18.12.2020 and 21.12.2020 respectively, which fall within the extended timeline permitted by Section 16(5). Therefore, the petitioner contends that the disallowance of ITC under Section 16(4) is contrary to the amended law, and the demand raised is unjustified.

The Court interpreted the amendment as a clear legislative intention to relax the time limit retrospectively, thus allowing ITC claims beyond the original deadline prescribed under Section 16(4). This interpretation aligns with the principle that a later amendment, expressly overriding an earlier provision, must be given effect to unless expressly excluded.

The key finding was that the petitioner's returns were filed within the extended period prescribed by Section 16(5), entitling the petitioner to claim ITC despite the original limitation in Section 16(4).

Issue 2: Refundability of Amount Paid Against Demand

The petitioner paid Rs. 2,98,748/- relating to the disputed ITC demand. Since the amendment in Section 16(5) is retrospective, the petitioner claims that the amount paid under the disallowance should be refunded.

The Court examined whether the retrospective amendment creates a substantive right to claim refund of amounts paid under the earlier interpretation of the law. It held that since the amendment validates ITC claims beyond the original deadline, the demand itself is rendered unsustainable, thereby entitling the petitioner to refund.

The Court emphasized that the refund claim arises from the amendment's retrospective effect, which effectively nullifies the basis of the demand. The petitioner's payment was thus made under an invalid demand, warranting refund.

Issue 3: Validity of Rejection of Rectification Application

The petitioner filed an application under Section 161 of the TNGST Act, 2017, seeking rectification of the assessment order dated 15.08.2024, particularly regarding the ITC disallowance. This application was summarily rejected by the respondent vide order dated 11.03.2025, based solely on a Circular and without any discussion.

The Court scrutinized the propriety of the summary dismissal. It found that the rejection lacked any reasoned discussion or consideration of the petitioner's submissions, which is contrary to principles of natural justice and fair administrative procedure.

The Court held that such summary dismissal without examination of merits is impermissible and directed the respondent to reconsider the rectification application on merits, taking into account the retrospective amendment and the petitioner's contentions.

Issue 4: Availability and Effect of Statutory Appeal and Limitation

The respondent contended that the petitioner had forfeited the right to challenge the assessment order by not filing an appeal under Section 107 of the TNGST Act / CGST Act within the prescribed limitation period, relying on the Supreme Court's decision in a precedent that emphasizes strict adherence to limitation periods for statutory appeals.

In response, the petitioner argued that the limitation period under Section 14 of the Limitation Act, 1963, renders the appellate remedy ineffective at this stage, thereby justifying the invocation of writ jurisdiction.

The Court acknowledged the rigor of limitation provisions and the general principle that statutory appeals must be filed within the prescribed time. However, it recognized that the petitioner's rectification application was dismissed summarily without due consideration, which justifies judicial interference through writ jurisdiction to ensure justice.

The Court balanced the availability of alternate remedies against the procedural irregularity in disposal of the rectification application, concluding that the petitioner's recourse to writ jurisdiction was justified under the circumstances.

Significant Holdings

"Notwithstanding anything contained in sub-section (4) of Section 16 of the Act, in respect of any invoice or debit note for the supply of goods or services or both pertaining to the financial years 2017-18 to 2020-21, the registered person shall be entitled to avail input tax credit in any return under Section 39 of the Act filed up to 30th November 2021."

"The retrospective amendment introduced by the Finance (No.2) Act, 2024, effectively overrides the limitation imposed by Section 16(4), entitling the petitioner to claim input tax credit notwithstanding the original deadline."

"Summary rejection of the rectification application under Section 161 without any discussion or consideration of the petitioner's submissions is unsustainable and contrary to principles of natural justice."

"Where the statutory appeal remedy becomes ineffective due to limitation or procedural irregularities, the writ jurisdiction may be invoked to prevent miscarriage of justice."

The Court quashed the order dated 11.03.2025 rejecting the rectification application and directed the respondent to pass a fresh order after considering the petitioner's submissions on merits. The assessment order's disallowance of ITC under Section 16(4) was found to be contrary to the retrospective amendment under Section 16(5), entitling the petitioner to claim ITC and refund of amounts paid.

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