GST ITC Reversal on Limitation Unsustainable After Retrospective Insertion of S.16(5) of CGST Act: Madras HC Rules in Favour of Jewellery [Read Order]

The Madras High Court has ruled that Goods and Services Tax (GST) Input Tax Credit (ITC) reversal on the ground of limitation is not sustainable after the retrospective application of the inserted section 16(5) of the Central Goods and Services Tax Act (CGST).

The court quashed an assessment order issued under Section 73 of the Tamil Nadu GST Act, 2017, which had reversed the ITC claimed by a registered dealer on limitation grounds.

The petitioner, Selva Vilas Jewellery, a jewellery dealer registered under GST, had challenged the order dated 2 April 2024, which denied ITC and imposed tax, penalty, and interest. The Department had relied on Section 16(4)of the CGST/TNGST Act, which restricts ITC claims beyond 30 November following the end of the relevant financial year or the filing of the annual return, whichever is earlier.

The petitioner argued that the order was cryptic, barred by limitation, and unsustainable after the legislative amendment. They sought quashing of the order and restoration of their ITC entitlement, pointing out that the amendment had retrospective effect and therefore applied to their case.

The Court earlier in a batch of writ petitions, had held that ITC reversals based solely on Section 16(4) were unsustainable after the insertion of Section 16(5). That order had noted the recommendations of the 53rd GST Council meeting held in June 2024, which extended the deadline for availing ITC on invoices or debit notes of the financial years 2017–18 to 2020–21.

The Council’s recommendation was given legislative effect through the Finance Act (No.2) of 2024, which inserted Section 16(5) with retrospective operation from 1 July 2017. Notifications and circulars issued by the CBICsubsequently clarified that ITC claims for those years could be availed in returns filed up to 30 November 2021.

Applying this precedent, Justice Krishnan Ramasamy held that the impugned order dated 2 April 2024 was liable to be quashed insofar as it denied ITC on limitation grounds. The Court emphasized that the retrospective amendment overrides Section 16(4) and entitles taxpayers to ITC claims for the specified years, provided returns were filed by 30 November 2021. Consequently, the Department’s Section 16(4) to deny ITC was unsustainable, and the assessment order could not stand.

The Court granted relief by quashing the assessment order to the extent it was based on limitation.

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