GST ITC reversed on Grounds of Late Claim beyond Prescribed Time u/s 16(4): Madras HC quashes Order Considering S. 16(5) [Read Order]

The Madras High Court has quashed orders passed by the GST (Goods and Services Tax) Department that had reversed the input tax credit (ITC) claims of a registered taxpayer on grounds of late availment beyond the prescribed time under Section 16(4) of the Central Goods and Services Tax (CGST) Act, 2017.

The writ petition was filed by the petitioner, a registered dealer, challenging the department’s action directing payment of tax, penalty, and interest after disallowing ITC claims solely for missing the statutory deadline.

During the hearing, both the petitioner’s counsel and the Additional Government Pleader for the GST Department acknowledged that the issue was squarely covered by the Madras High Court’s earlier common order dated 17 October 2024 in a batch of writ petitions.

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In that ruling, the court examined the retrospective amendments introduced through the Finance Act (No. 2) of 2024, which inserted Section 16(5) into the CGST Act, effectively extending the deadline for availing ITC on invoices and debit notes related to financial years 2017-18, 2018-19, 2019-20, and 2020-21. Under the amended provision, taxpayers were allowed to claim ITC in any return filed up to 30 November 2021, notwithstanding the original limitations under Section 16(4).

The court noted that the earlier batch of writ petitions involved taxpayers who, due to unavoidable circumstances like financial hardships during COVID-19 lockdowns, health issues, or fire accidents, were unable to file GSTR-3B returns on time despite having filed their GSTR-1 returns. The department, without considering these genuine difficulties, had reversed their ITC claims and passed adverse assessment orders, which were ultimately set aside by the court in light of the retrospective Section 16(5) insertion.

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Following the same reasoning, Justice Krishnan Ramasamy quashes the impugned order, ruling that the disallowance of ITC under GST Section 16(4) could not stand when Section 16(5) explicitly permitted such claims for the specified financial years up to 30 November 2021.

The court restrained the department from proceeding further against the petitioner based on the reversed ITC and directed the immediate de-freezing of the petitioner’s bank accounts if they had been frozen pursuant to the impugned order.

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Additionally, the court clarified that any tax amounts already recovered under the set-aside order must be refunded or credited back to the petitioner’s ledger for future tax adjustment. However, the court granted liberty to the department to proceed in accordance with law if there were independent grounds such as discrepancies, wrongful ITC availment, excess claims, or fake invoices unrelated to the limitation issue.

Accordingly, the writ petition was allowed.

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To Read the full text of the Order CLICK HERE

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