Madras HC Quashes Limitation-Based ITC Reversal on Contractor’s 2019–20 Claim Within Section 16(5) Window

In brief

The question

1. Whether the impugned order was liable to be quashed insofar as it denied ITC as time-barred under Section 16(4), where the claim fell within the extended period under Section 16(5) of the CGST Act.

The court held

The writ petition was allowed.

It also directed

The order dated 13 February 2023 was quashed insofar as it related to ITC barred under Section 16(4) but permitted under Section 16(5), and the Department was restrained from taking action under the impugned order based on limitation.

The Court directed de-freezing of the petitioner’s bank account, if frozen in furtherance of the impugned order, addressed recovery and amounts collected or deposited, and granted the Department liberty to pursue other ITC-related issues in accordance with law.

No costs were ordered; WMP No. 47033 of 2026 was closed and WMP No. 47031 of 2026 was allowed.

01Facts

The petitioner, a registered GST dealer, challenged the assessment order and FORM GST DRC-07 dated 13 February 2023 for tax period April 2019–March 2020, by which its input tax credit (ITC) claim was reversed and tax, penalty and interest were demanded.

p. 1

The parties submitted that the limitation issue was covered by the Madras High Court’s common order dated 17 October 2024 in W.P. Nos. 25081 of 2023 etc., concerning the retrospective insertion of Section 16(5) of the CGST Act.

pp. 2–6

The respondent’s counsel accepted that the earlier order applied.

p. 6

02Issues

i.1. Whether the impugned order was liable to be quashed insofar as it denied ITC as time-barred under Section 16(4), where the claim fell within the extended period under Section 16(5) of the CGST Act.

pp. 6–7

ii.2. Whether the Department could pursue any issues in the impugned order other than limitation, including discrepancies or wrongful or excess ITC claims.

pp. 7–8

03Law Applied

Section 16(4) of the CGST Act ordinarily restricts the time for claiming ITC. Section 16(5), inserted with retrospective effect from 1 July 2017, operates notwithstanding Section 16(4) and permits ITC claims for invoices or debit notes relating to FYs 2017–18 to 2020–21 in a return under Section 39 filed up to 30 November 2021.

pp. 3–5

Applying the Court’s common order dated 17 October 2024 in W.P. Nos. 25081 of 2023 etc., an order denying ITC solely on the basis of Section 16(4) cannot stand to the extent the claim is within Section 16(5); other substantive ITC issues remain open for determination in accordance with law.

pp. 2–6, 8

Provisions in the judgment · 2 · Linked ones open on LawLens

Central Goods and Services Tax Act, 2017 Section 16 Section 39

04Reasoning

The petitioner’s assessment concerned FY 2019–20, a financial year expressly covered by Section 16(5).

p. 2

The parties accepted that the limitation issue was governed by the Court’s earlier common order, and the respondent did not oppose applying that ruling to this petition.

p. 2, 6

The Court therefore quashed the impugned order only to the extent it denied ITC on limitation grounds where the claim was within the period prescribed by Section 16(5).

pp. 6–8

It preserved the Department’s authority to proceed on any other grounds concerning the ITC claim.

pp. 6–8