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of <h1>Denial of input tax credit under Section 16(4) held within Section 16(5) period; department restrained, bank accounts unfrozen</h1> <h3>Power Builders Versus Superintendent Of Gst And Central Excise Range- I, Mylapore Division and Union Of India</h3> HC quashed the impugned order insofar as it denied the petitioners' claim for input tax credit (ITC) as barred by limitation under Section 16(4) of the ... Claim for ITC barred by time limitation or not - direction to take immediate steps towards de-freezure of the concerned petitioner's bank accounts - HELD THAT:- The order impugned in the present writ petition is quashed insofar as it relates to the claim made by the petitioners for ITC which is barred by limitation in terms of Section 16 (4) of the CGST Act, 2017 but, within the period prescribed in terms of Section 16 (5) of the said Act. The respondent-Department is restrained from initiating any proceedings against the petitioner by virtue of the impugned order based on the issue of limitation - Petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether claims for input tax credit (ITC) barred by Section 16(4) of the Central Goods and Services Tax Act, 2017 can be revived by virtue of the amendment inserting Section 16(5) and (6), with retrospective effect from 01.07.2017, thereby permitting availing of ITC for FYs 2017-18 to 2020-21 up to 30.11.2021. 2. Whether administrative orders and consequential enforcement measures (including assessment orders, bank-account freezes and recovery proceedings) premised solely on limitation under Section 16(4) can be quashed or restrained where Section 16(5) renders the claim timely. 3. Whether the Departments' power to proceed on other substantive allegations (discrepancies, wrong/excess/fake ITC claims) is affected by the quashing of orders solely on the ground of limitation under Section 16(4). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Effect of insertion of Section 16(5) (and (6)) on time-barred ITC claims Legal framework: Section 16(4) prescribed a temporal bar on taking ITC after the 30th November following the end of the financial year to which the invoice pertains or furnishing the relevant annual return, whichever is earlier. An amendment (inserting Section 16(5) and (6)) provided that, notwithstanding subsection (4), registered persons may take ITC pertaining to FYs 2017-18 to 2020-21 in any return under Section 39 filed up to 30.11.2021. The amendment was given retrospective effect from 01.07.2017 and was incorporated into the Finance Act (No.2) of 2024, followed by CBIC notification and circular clarifying implementation. Precedent treatment: The Court applied and followed its own common order in a batch of writ petitions which interpreted and applied Section 16(5) to quash orders which had disallowed ITC solely on the ground of limitation under Section 16(4). That common order was expressly relied upon and treated as binding for the present petition. Interpretation and reasoning: The Court reasoned that Section 16(5) operates as a non-obstante provision overruling the temporal bar in Section 16(4) for the specified financial years and extends the date by which ITC may be availed (deemed deadline 30.11.2021). Given the retrospective operation from 01.07.2017, claims that were rejected solely because they were not availed before the Section 16(4) deadline fall within the protective scope of Section 16(5), and subsequent executive clarification (notification and CBIC circular) reinforced the legislative intent and practical implementation. Ratio vs. Obiter: Ratio - Section 16(5) revives or validates ITC claims for FYs 2017-18 to 2020-21 filed by 30.11.2021 notwithstanding the limitation in Section 16(4); consequently, assessment orders disallowing such ITC solely on the basis of Section 16(4) are unsustainable. Obiter - ancillary references to factual causes of delay (e.g., COVID-19 lock-down, fire, illness) illustrate contextual fairness but are not essential to the legal conclusion once Section 16(5) is operative. Conclusion: The Court concluded that ITC claims for the specified years which are within the ambit of Section 16(5) cannot be denied on the ground of limitation under Section 16(4); impugned orders disallowing ITC on that sole ground are liable to be quashed. Issue 2 - Reliefs against enforcement actions premised on limitation-based disallowance Legal framework: Judicial review of administrative orders where statutory amendments render previous assessments unsustainable; equitable reliefs (quashing of orders, injunctions against proceedings, directions to de-freeze bank accounts, refund/adjustment of amounts held or collected) flow from the Court's power to grant effective relief where legal right is established. Precedent treatment: The Court followed its prior batch decision in granting reliefs tailored to undo consequences of orders unsustainable after the statutory amendment and related administrative clarifications. Interpretation and reasoning: Because the amendment (Section 16(5)) and subsequent executive clarification removed the legal basis for denying ITC on limitation grounds, continuing enforcement (recovery, bank freezes, adjustments) would be contrary to law. Accordingly, to give effect to the legal right recreated by Section 16(5), the Court ordered: quashing of impugned orders insofar as they relate to limitation; restraint on initiation of proceedings based on limitation; direction to de-freeze bank accounts; direction to drop any recovery during the interregnum upon production of the order copy; and refund or permission to utilize amounts in cash/credit ledgers toward future tax liability. Ratio vs. Obiter: Ratio - Where orders are quashed because a statutory amendment validates previously time-barred claims, equitable reliefs to reverse enforcement consequences are appropriate and necessary to give effect to the statutory right. Obiter - Procedural directions regarding the manner of intimation to bankers and practical aspects of refund/utilization serve implementation purposes and are supplementary to the principal legal holding. Conclusion: The Court concluded that reliefs including quashing, injunction against proceedings based solely on limitation, de-freezing of bank accounts, and refund/adjustment of amounts collected are warranted to restore rights under Section 16(5). Issue 3 - Scope of departmental action on non-limitation grounds (fraud, excess/wrong/fake ITC) Legal framework: Distinction between procedural/time-bar defenses and substantive allegations of wrongdoing; statutory and administrative machinery retains power to investigate and act on substantive irregularities notwithstanding a successful challenge to limitation-based disallowance. Precedent treatment: The Court preserved departmental rights in its prior batch order and again recognized that the amendment does not immunize assessees from actions taken on grounds other than limitation. Interpretation and reasoning: The Court explicitly limited its relief to questions of limitation. It observed that challenges or findings in the impugned orders concerning discrepancies, wrong/excess/fake ITC, or similar substantive issues remain open for departmental action in accordance with law. Thus, while limitation-based disallowances are quashed, the Department is granted liberty to proceed on other legally permissible grounds. Ratio vs. Obiter: Ratio - The statutory extension of the limitation period does not preclude the Department from pursuing bona fide proceedings against claimants where there are separate substantive allegations of fraud or wrongful claim of ITC. Obiter - The Court's observations clarifying procedural consequences should not be construed as pre-judging merits of any such substantive proceedings. Conclusion: The Court permitted the Department to continue or initiate proceedings on substantive grounds not related to limitation, preserving departmental powers while confining relief to limitation-based issues. Cross-References and Implementation 1. The Court applied the reasoning of its common order in the batch (paras 9-12) to the present petition; that prior order interpreted Section 16(5) and directed quashing and reliefs as above. 2. The legislative amendment (Finance Act (No.2) of 2024) and subsequent CBIC notification and circular were treated as determinative evidence of legislative and executive intent to validate ITC claims up to 30.11.2021 for the fiscal years specified, and to govern administrative implementation.
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