GST ITC Denial Due to Supplier Default: Kerala HC Grants Dealers One-Month Window to Claim Relief under CBIC Circulars [Read Order]

The Kerala High Court has granted relief by providing one-month window time to claim ITC to multiple dealers whose Input Tax Credit claims were denied due to supplier defaults or technical issues in GST ( Goods and Services Tax ) filings.

Justice Dinesh Kumar Singh, while disposing of a batch of writ petitions held that taxpayers would be allowed to approach the appropriate GST authorities within thirty days to seek relief under CBIC Circular Nos. 183/15/2022-GST and 193/05/2023-GST.

The petitions were filed by various dealers, including Nallepilli Arumughan Jyothikumari, M/s. Thomson Bakers, M/s. Neerakkal Latex (P) Ltd., and others, who faced denial of ITC due to reasons such as non-reflection of tax payments in GSTR-2A by suppliers or delays in return filing during the initial rollout of GST.

The petitioners argued that they had valid invoices, proof of payment for goods and services, and evidence of remittance of tax components to suppliers but were still denied ITC owing to technical lapses or defaults beyond their control.

The Court observed that the Government had already recognized the hardships faced by genuine taxpayers during the initial years of GST implementation (2017–2019), when the return matching mechanism under GSTR-2A was not fully functional.

To remedy such bona fide cases, the Central Board of Indirect Taxes and Customs (CBIC) had issued Circular No. 183/15/2022-GST dated 27.12.2022 and Circular No. 193/05/2023-GST dated 17.07.2023, providing a framework for dealers to claim ITC if proof of tax payment by suppliers could be furnished.

The court, referring to its earlier judgment dated 04.06.2024 in W.P.(C) No. 31559/2019 and connected matters, observed that the benefit of the above circulars should be extended to all eligible dealers who could not avail the relief within the prescribed time.

The Court directed that such taxpayers may approach the GST authorities within thirty days to claim ITC by substantiating their case with requisite documentary evidence. The authorities were instructed to verify and grant relief in accordance with the provisions of the circulars.

Further, the Court clarified that the amendment made to Section 39 of the CGST Act by the Finance Act, 2022 which extended the due date for furnishing returns for September from 30th September to 30th November was procedural and should be given retrospective effect from 01.07.2017.

Accordingly, taxpayers who filed their returns for September up to 30th November in the relevant financial years would also be eligible to have their ITC claims processed if otherwise entitled.

The Court, however, rejected the challenge to the constitutional validity of Sections 16(2)(c) and 16(4) of the CGST Act, which link ITC eligibility to actual tax payment by the supplier and time limits for availing ITC. However, it said that the legislative and executive measures, including the CBIC circulars, sufficiently addressed the difficulties faced by genuine taxpayers.

Accordingly, the court held that all petitioners covered under this batch could avail the benefit of the CBIC circulars within one month and that the concerned authorities must process such claims expeditiously. All pending interlocutory applications were accordingly closed.

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