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. Issues: (i) Whether claims for input tax credit (ITC) barred by Section 16(4) of the CGST Act can be sustained in view of the insertion of Section 16(5) permitting ITC for specified financial years if returns under Section 39 were filed up to 30.11.2021; (ii) Whether impugned orders based on limitation should be quashed and whether recovery proceedings and bank freezes founded on those orders should be restrained or reversed; (iii) Whether the petitioners are entitled to refund or utilisation/adjustment of amounts collected/ deposited pursuant to the impugned orders; (iv) Whether the Revenue may proceed against assessees on grounds other than limitation, including alleged wrongful or fake ITC claims.Issue (i): Whether claims for ITC barred by Section 16(4) are nevertheless allowable under Section 16(5) for invoices/debit notes pertaining to FYs 2017-18 to 2020-21 where returns under Section 39 were filed up to 30.11.2021.Analysis: The legal framework consists of Section 16(4) which prescribes a time limit for availing ITC and the subsequently inserted Section 16(5) which, with retrospective effect from 01.07.2017, creates an exception for invoices/debit notes pertaining to FYs 2017-18 to 2020-21 by permitting ITC in any return under Section 39 filed up to 30.11.2021. The Court applied the amended statutory text and the administrative notifications/circulars implementing that amendment to determine entitlement to ITC for the specified periods.Conclusion: Section 16(5) permits the petitioners to avail ITC for the specified financial years in accordance with its terms, and impugned orders denying ITC solely on limitation grounds are quashed insofar as they relate to claims covered by Section 16(5).Issue (ii): Whether impugned orders based on limitation should be quashed and whether recovery proceedings and bank account freezes founded on those orders should be restrained or reversed.Analysis: Having concluded that Section 16(5) renders the limitation defence inapplicable to eligible ITC claims, the Court examined the appropriate remedial directions. The Court balanced the retrospective entitlement with the need to protect assessee assets pending final determination, and considered administrative measures (notifications/circulars) clarifying implementation.Conclusion: The impugned orders are quashed insofar as they relate to limitation-based denial of ITC; the Revenue is restrained from initiating or continuing recovery proceedings based on limitation; bank accounts frozen pursuant to such orders are to be de-frozen by administrative intimation to bankers.Issue (iii): Whether petitioners are entitled to refund or utilisation/adjustment of amounts collected or deposited pursuant to the impugned orders.Analysis: The Court addressed remedies available where tax amounts were collected or deposited under the impugned orders, indicating procedural avenues for refund and permitting utilisation/adjustment of deposited amounts toward future tax liabilities, subject to statutory and administrative processes.Conclusion: Petitioners are granted liberty to apply for refunds; amounts collected or deposited pursuant to the impugned orders shall be refunded or may be utilised/adjusted for future tax liabilities as permitted by law or administrative order.Issue (iv): Whether the Revenue may proceed against assessees on grounds other than limitation, such as discrepancies, wrongful or fake ITC claims.Analysis: The Court distinguished limitation-based denials from substantive allegations of wrongful or fraudulent ITC claims, recognising the Revenue's statutory authority to investigate and proceed where prima facie mischief exists, subject to applicable legal safeguards and procedures.Conclusion: Liberty is granted to the Revenue to proceed in accordance with law on issues other than limitation, including alleged discrepancies or wrongful/fake ITC claims.Final Conclusion: The decision gives prospective effect to the statutory amendment creating a limited exception to the time bar on availing ITC for specified financial years and provides remedial administrative directions to restore assessee rights while preserving the Revenue's ability to pursue non-limitation based allegations in accordance with law.Ratio Decidendi: A statutory exception enacted by insertion of Section 16(5) of the CGST Act, 2017, which, with retrospective effect, permits availing input tax credit for invoices/debit notes pertaining to FYs 2017-18 to 2020-21 in any return under Section 39 filed up to 30.11.2021, displaces limitation-based denials under Section 16(4) for claims that meet those conditions.