ITC Reversal under CGST Act: Madras HC Quashes Recovery Order, Applies S. 16(5) for Extended Deadline [Read Order]

The Madras High Court has quashed a recovery order passed by the Deputy State Tax Officer and held that the claim for InputTax Credit ( ITC ) is covered under the amended provisions of Section 16(4) and 16(5) of the Central Goods and Services Tax (CGST) Act, 2017.

Rivera Enterprises, the petitioner, represented by its proprietor Mr. Ganesha Murthy, filed a writ petition under Article 226 of the Constitution of India challenging the order dated 29.04.2024 passed by the Deputy State Tax Officer.

The petitioner sought a Writ of Certiorarified Mandamus to quash the order and direct the authorities to drop recovery proceedings, arguing that the ITC reversal was barred due to delays caused by financial constraints, COVID-19 lockdown, health ailments, and fire accidents.

The petitioner contended that while GSTR-1 returns were filed on time, GSTR-3B returns were delayed, leading to the denial of ITC claims under Section 16(4). The show cause notices and subsequent orders reversed the ITC and imposed tax, penalty, and interest without considering the genuine reasons for the delay.

A bench comprising Justice Krishnan Ramasamy observed that the amendments under Section 16(5) allow registered persons to claim ITC in returns filed up to November 30, 2021, notwithstanding Section 16(4). The court held that the impugned order was no longer sustainable in light of these developments.

The court noted that the issue was no longer res integra, as it had been decided in a batch of writ petitions. The court observed the extended deadline which was recommended on the 53rd GST Council Meeting on 22.06.2024 for availing ITC under Section 16(4) to November 30, 2021, for financial years 2017-18 to 2020-21.

This was enacted through the Finance (No.2) Act, 2024, with retrospective effect from 01.07.2017, and supported by Notification No. 17/2024-Central Tax dated 27.09.2024 and Circular No. 237/31/2024-GST.

The court quashed the order as it related to ITC claims barred by limitation under Section 16(4) but within the extended period under Section 16(5). It restrained the department from initiating proceedings on the limitation issue.

The court directed immediate de-freezing of the petitioner's bank accounts, and ordered refunds or adjustments of any amounts collected from cash or credit ledgers. The writ petition was allowed, with no costs, and the connected miscellaneous petition was closed.

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