Facts of the Case:

In this case, the petitioner who had duly filed GSTR-1 returns within the prescribed time. However, due to circumstances such as financial constraints during the COVID-19 lockdown, health issues, and other unavoidable difficulties, the petitioner could not file GSTR-3B returns within the statutory timelines for certain financial years. As a result, the petitioner could not avail Input Tax Credit (ITC) within the time limit prescribed under Section 16(4) of the CGST Act, 2017. The department issued show cause notices proposing reversal of ITC on the ground of limitation and subsequently passed orders reversing the ITC and directing payment of tax, interest, and penalty. 

During the pendency of the writ petition, significant legislative developments took place, including recommendations of the 53rd GST Council Meeting, enactment of the Finance Act (No. 2), 2024, insertion of Sections 16(5) and 16(6) into the CGST Act with retrospective effect, and issuance of Notification No. 17/2024–CT dated 27.09.2024 along with Circular No. 237/31/2024-GST, extending the deadline for availing ITC for FYs 2017-18 to 2020-21 up to 30.11.2021.

Issue:

Whether the reversal of Input Tax Credit and consequential demands made solely on the ground of limitation under Section 16(4) of the CGST Act, 2017 could be sustained, in view of the retrospective insertion of Section 16(5) extending the time limit for availing ITC for the relevant financial years.

Held that:

The High Court held that the issue involved in the present writ petition was squarely covered by its earlier common order dated 17.10.2024 passed in a batch of writ petitions. The Court observed that, in light of the retrospective amendment to Section 16 of the CGST Act by insertion of sub-section (5), registered persons are entitled to avail ITC pertaining to FYs 2017-18 to 2020-21 if the relevant return under Section 39 was filed on or before 30.11.2021, notwithstanding the limitation prescribed under Section 16(4).

The Court held that the impugned order reversing ITC merely on the ground of limitation had become unsustainable in law. Accordingly, the impugned order was quashed to the extent it denied ITC within the extended period prescribed under Section 16(5). The respondent Department was restrained from initiating any proceedings based on limitation, directed to de-freeze the petitioner’s bank account, and to drop any recovery proceedings initiated during the pendency of the writ petition.

Accordingly, the impugned order was quashed to the extent it denied ITC within the extended period prescribed under Section 16(5). The respondent Department was restrained from initiating any proceedings based on limitation, directed to de-freeze the petitioner’s bank account, and to drop any recovery proceedings initiated during the pendency of the writ petition. 

The Court further clarified that any tax amounts already recovered were liable to be refunded or allowed to be adjusted against future tax liabilities. However, liberty was expressly reserved to the Department to proceed separately in accordance with law on issues unrelated to limitation, such as fake ITC, excess claim, or discrepancies, if any.

Case Name:Arunachala Gas Agency Represented by its Partner V.M. Jayaraman Versus The Assistant Commissioner of CGST and Central Excise, Madurai dated 28.01.2026

To read the complete judgement 2026 Taxo.online 243