Entitlement to input tax credit despite limitation -- quashing limitation-based assessments and restraining recovery, with directions on refunds

Entitlement to input tax credit survives despite a limitation bar because an amendment creating a new limitation regime operates retrospectively; assessments founded solely on the prior limitation ground were quashed, and recovery based only on limitation is restrained. The Department must de-freeze bank accounts and refund or permit adjustment of any amounts recovered or held in tax ledgers; petitioners may apply separately for refunds. The Department retains liberty to reopen or pursue cases on merits where allegations of wrong, excess, or fraudulent ITC claims exist, and may proceed in accordance with law.

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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 notwithstanding the limitation in Section 16(4) of the CGST Act, 2017 by virtue of the insertion of Section 16(5) (and related notifications/circulars) and whether the impugned orders reversing ITC and directing recovery must be quashed to that extent.

Analysis: The issue concerns interplay between Section 16(4) (which prescribes the deadline for availing ITC) and the subsequently inserted Section 16(5) which, with retrospective effect from 01.07.2017, permits registered persons to take ITC in any return filed under section 39 up to 30.11.2021 for invoices/debit notes pertaining to FYs 2017-18 to 2020-21. The legislative change received Presidential assent and was implemented by Finance Act (No.2) of 2024, followed by Notification No.17 of 2024-Central Tax and Circular No.237/31/2024-GST clarifying implementation. The impugned assessment orders reversed ITC solely on limitation grounds under Section 16(4). Given the retrospective operation of Section 16(5) and the administrative clarifications, the orders reversing ITC as time-barred are inconsistent with the amended statutory position and related administrative instructions; consequential measures tied to those orders (such as account freezes and recovery steps) affect the petitioners' rights and require remedy.

Conclusion: The impugned order is quashed insofar as it reverses or denies the petitioner's claim for ITC that is otherwise allowable within the period provided by Section 16(5) of the CGST Act, 2017. Relief is granted in favour of the assessee on the limitation issue.

Final Conclusion: The decision gives effect to the retrospective amendment embodied in Section 16(5) for the specified financial years, restrains proceedings and recovery premised solely on the limitation under Section 16(4), and directs restoration of reliefs and procedural steps (including de-freezing of accounts and allowance for refund/adjustment) subject to other lawful challenges not based on limitation.

Ratio Decidendi: Section 16(5) of the CGST Act, 2017, as inserted with retrospective effect and supported by implementing notification and circular, permits registered persons to claim ITC in returns filed under section 39 up to 30.11.2021 for invoices/debit notes pertaining to FYs 2017-18 to 2020-21, and administrative or adjudicatory orders reversing ITC solely on the ground of limitation under Section 16(4) must be quashed to that extent.

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