The Madras High Court quashed demand notices issued for denial of Input Tax Credit ( ITC ) on account of delay in filing GSTR-3B returns due to covid, citing the retrospective amendment made to Section 16 of the Goods and Services Tax ( GST ) Act.
The petitioner challenged the impugned demand notices dated 23.05.2024, contending that the delay in filing GSTR-3B returns for the relevant financial years was due to hardships caused by the pandemic. While the returns under GSTR-1 were timely filed, the inability to file GSTR-3B led to denial of ITC and subsequent demands for tax, interest, and penalty.
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The petitioner relied on the 53rd GST Council Meeting held on 22.06.2024, which recommended an extension of the deadline for availing ITC for the financial years 2017-18 to 2020-21. Following the Council’s recommendation, the Finance Act (No. 2) of 2024 introduced a retrospective amendment inserting Section 16(5), which permits ITC on returns filed up to 30.11.2021, notwithstanding the earlier bar under Section 16(4). This amendment received Presidential assent on 16.08.2024 and was subsequently notified by the CBIC through Notification No. 17/2024 dated 27.09.2024 and Circular No. 237/31/2024-GST.
The bench, referring to its earlier decision in a batch of similar petitions, reiterated that since the delay in claiming ITC was not deliberate but due to unavoidable circumstances such as COVID-induced lockdowns, health issues, and financial constraints, the taxpayers were entitled to the benefit of the retrospective amendment. It held that the impugned orders denying ITC on limitation grounds under Section 16(4) were unsustainable and directed that the orders be treated under Section 16(5) instead.
Accordingly, Justice Krishnan Ramasamy quashed the impugned orders to the extent they related to denial of ITC based on limitation, restrained the department from initiating recovery proceedings, and ordered the immediate defreezing of bank accounts where applicable.
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It also directed that any amounts debited from the petitioners’ credit or cash ledgers be refunded or allowed to be adjusted against future tax liabilities. However, the Court clarified that the department would be at liberty to proceed against assessees for other issues such as incorrect or fraudulent ITC claims, if any, as per law.
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