Input tax credit limitation under CGST Act quashed as time-bar issue; refund application permitted and accounts to be de-frozen

The article addresses reversal of an input tax credit (ITC) claim under Section 16(4) of the CGST Act, finding the ITC claim barred by limitation but falling within the period prescribed by Section 16(5); the impugned order is quashed insofar as it sustains the time-barred ITC denial, and the respondent is restrained from initiating proceedings based on limitation. Liberty is granted to the taxpayer to file a separate refund application, which the respondent must decide on merits and in accordance with law. The respondent is also directed to de-freeze any bank accounts frozen pursuant to the impugned order by intimating the bankers.

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Issues: Whether the petitioner is entitled to avail input tax credit (ITC) for invoices/debit notes pertaining to FYs 2017-18 to 2020-21 which would otherwise be barred by the time-limit in Section 16(4) of the CGST Act, in view of the amendment inserting Section 16(5) and its retrospective effect.

Analysis: The legal framework comprises Section 16(4) which prescribes the cut-off for claiming ITC and the subsequently enacted Section 16(5) which, with retrospective effect from 01.07.2017, permits registered persons to take ITC in any return under Section 39 filed up to 30.11.2021 for invoices/debit notes pertaining to FYs 2017-18 to 2020-21. The impugned departmental orders reversed ITC claims on the ground of limitation under Section 16(4). In light of the insertion of Section 16(5) and the notifications/circulars implementing the amendment, the claim of ITC falling within the period permitted by Section 16(5) cannot be sustainedly denied on limitation grounds. Consequential reliefs flowing from quashing of such orders include restraint on recovery proceedings based on limitation, de-freezing of bank accounts frozen pursuant to the impugned order, and refund/adjustment of amounts standing in cash/credit ledgers.

Conclusion: The impugned order is quashed insofar as it denies ITC claims barred by Section 16(4) but allowable within the period prescribed by Section 16(5); relief is granted in favour of the petitioner on that issue.

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