2026 (1) TMI 501 - HC - GST

Input tax credit claims for FY 2017-21 GSTR-3B filings: time-limit denial u/s16(4) set aside after s.16(5) extension.

Denial and reversal of input tax credit (ITC) solely on the ground of limitation under s.16(4) CGST Act was in issue. Relying on its earlier decision and ... Reversal of claim of ITC - denial only on the ground of time limitation - petitioner is directed to pay tax/penalty/interest - HELD THAT:- The issue involved in the present Writ Petitions, has been squarely covered by the common order of this Court in SRI GANAPATHI PANDI INDUSTRIES, REP. BY ITS PROPRIETOR VERSUS THE ASSISTANT COMMISSIONER (STATE TAX) (FAC) TONDIARPET ASSESSMENT CIRCLE, CHENNAI [2024 (10) TMI 1631 - MADRAS HIGH COURT] wherein, this Court has categorically held that 'this Court considering the fact that the issue involved in all these Writ Petitions is only with regard to the availment of ITC, which is barred by limitation in terms of Section 16 (4) of the CGST Act, and in the light of the subsequent developments took place, whereby, Section 16 of the CGST Act was amended and sub-section (5) was inserted to Section 16, which came into force with retrospective effect from 01.07.2017, the petitioners are entitled to avail ITC in respect of GSTR-3B filed in respect of FYs 2017-18, 2018-19, 2019-20 and 2020-21 as the case may be, on or before 30.11.2021, is inclined to quash the impugned orders.' The impugned original order dated 02.04.2024 is quashed insofar as it relates to the claim made by the petitioner 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 petitioners by virtue of the impugned order based on the issue of limitation. Petition allowed by way of remand. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether denial/reversal of input tax credit (ITC) solely on the ground of limitation under Section 16(4) of the CGST Act is sustainable when the claim falls within the extended entitlement period provided under Section 16(5) for specified financial years. (ii) What consequential reliefs should follow from quashing the impugned order on the limitation issue, including restraint on limitation-based proceedings, de-freezing of bank account(s), treatment of recoveries/collections already made, and consideration of refund. (iii) Whether, despite quashing on limitation, the Department may proceed against the taxpayer on other grounds relating to ITC (e.g., discrepancies, wrong/excess/fake ITC) in accordance with law. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Sustainability of ITC reversal/denial on limitation under Section 16(4) when Section 16(5) applies Legal framework (as applied by the Court): The Court applied Section 16(4) of the CGST Act (time-limit for availing ITC) along with the subsequently inserted Section 16(5) (a 'notwithstanding' relaxation for invoices/debit notes pertaining to FYs 2017-18 to 2020-21, permitting ITC in returns filed up to 30.11.2021). Interpretation and reasoning: The Court treated the controversy as confined to limitation for availing ITC. It accepted that, in view of the statutory change and its operation for the relevant period, an ITC claim that would otherwise be hit by Section 16(4) cannot be rejected if it falls within the entitlement contemplated by Section 16(5). Accordingly, the impugned order, to the extent it reversed/negatived ITC only on limitation though the claim was within the Section 16(5) window, was held unsustainable. Conclusion: The impugned original order was quashed insofar as it related to reversal/denial of ITC on the limitation ground under Section 16(4) where the claim was within the period prescribed under Section 16(5). Issue (ii): Consequential directions after quashing on limitation-restraint on proceedings, de-freezing, recovery actions, and refund/adjustment Legal framework (as discussed): The Court fashioned consequential reliefs flowing from quashing the order on the limitation issue, addressing enforcement measures and the handling of amounts collected pursuant to the quashed order. Interpretation and reasoning: Since the impugned order was invalidated on the limitation-based ITC denial, the Court held that continuation of enforcement founded on that limitation reasoning could not be permitted. It therefore restrained further action on limitation, directed removal of coercive measures linked to the impugned order (including de-freezing of bank account(s), if frozen), and required that any proposed recovery steps during pendency be dropped upon production of the Court's order copy where no interim order operated. Regarding amounts already collected from cash/credit ledgers under the impugned assessment order, the Court directed refund, or alternatively permitted utilisation/adjustment towards future tax liability; additionally, it granted liberty to seek refund by separate application, to be decided by the Department on merits and according to law. Conclusions: (a) The Department was restrained from initiating proceedings based on limitation under the quashed order; (b) bank account(s), if frozen pursuant to the impugned order, were to be de-frozen by intimation to the concerned banker(s); (c) recovery actions proposed during pendency were to be dropped upon production of the order copy (where no interim order existed); (d) sums collected under the impugned assessment from cash/credit ledgers were to be refunded, and/or amounts deposited in such ledgers could be utilised/adjusted towards future tax; and (e) the taxpayer was permitted to file a separate refund application, to be decided on merits in accordance with law. Issue (iii): Scope to proceed on other ITC-related grounds notwithstanding quashing on limitation Legal framework (as applied): The Court limited its interference to the limitation aspect, while expressly preserving the Department's ability to proceed on other legally permissible grounds. Interpretation and reasoning: The Court clarified that quashing was confined to the limitation-based reversal/denial of ITC and did not immunise the taxpayer from scrutiny or action on distinct allegations such as discrepancies in availing ITC, wrong availment, excess claim, fake ITC claim, or other issues, if arising. It therefore preserved the Department's liberty to proceed in accordance with law on such non-limitation issues. Conclusion: The Department was granted liberty to proceed against the taxpayer on other ITC-related issues (apart from limitation) in accordance with law.