Karnataka HC Sets Aside ITC Rejection as GST Returns Were Filed Before 30 Nov 2021

ABE Security Mechanics Private Limited Vs Superintendent of Central Tax (Karnataka High Court)

The Karnataka High Court considered a writ petition challenging an Order-in-Original dated 22 February 2024 and the related show cause notice dated 5 December 2023 issued under the Central Goods and Services Tax Act, 2017. The petitioner contended that its appeal against the Order-in-Original had been rejected solely on the ground of delay without examination of the merits of the Input Tax Credit (ITC) claim.

The dispute concerned rejection of delayed ITC claims relating to the financial years covered under Section 16 of the CGST Act. The petitioner argued that the issue required reconsideration in light of the amendment introduced through insertion of sub-section (5) to Section 16 of the CGST Act. According to the petitioner, by virtue of the amendment, ITC claims would be allowable if returns were filed before 30 November 2021.

The Court noted that the Order-in-Original dated 22 February 2024 had been passed taking into account Section 16(4) of the CGST Act, which prescribes the time limit for availing ITC. The order recorded that under Notification No.19/2019-Central Tax dated 22 April 2019, the due date for filing GSTR-3B return for March 2019 had been extended to 23 April 2019, and therefore the last date for availing ITC for the financial year 2017-18 was 23 April 2019 unless the annual return had been filed earlier. Since the petitioner had filed GSTR-3B returns for the relevant periods after 23 April 2019, the authority treated ITC amounting to Rs.5,09,467 as ineligible.

The Court then examined Section 16(5) of the CGST Act, which had been inserted with a non-obstante clause. The provision states that notwithstanding anything contained in sub-section (4), a registered person would be entitled to take ITC for invoices or debit notes pertaining to financial years 2017-18, 2018-19, 2019-20, and 2020-21 if returns under Section 39 were filed up to 30 November 2021.

The Court referred to observations made in an earlier order dated 11 March 2026 in W.P. No.6883/2026, where similar issues had been considered. In that order, the Court had noted that sub-sections (5) and (6) of Section 16 were inserted retrospectively with effect from 1 July 2017 by the Finance (No.2) Act, 2024. The Court also took note of CBIC Circular No.237/31/2024-GST dated 15 October 2024, which clarified implementation of the amended provisions and stated that the earlier time restriction prescribed under Section 16(4) stood retrospectively extended in specified cases.

The earlier order referred to by the Court clarified that claims of ITC availed through GSTR-3B returns filed up to 30 November 2021 would be permissible. It also observed that Section 16(5), being a non-obstante provision, overrides the earlier time restriction under Section 16(4).

Applying these principles to the present case, the Court observed that the petitioner’s claim related to the financial year 2019-20 and that the returns had been filed on 30 September 2020, which was before the cut-off date of 30 November 2021 specified in Section 16(5). The Court held that if returns were filed within the extended time prescribed under Section 16(5), the petitioner would be eligible to claim ITC.

The Court further noted that since the appellate authority had dismissed the appeal only on the ground of delay, it was open to the Court to examine the merits of the impugned order. It therefore interfered with the validity of the Order-in-Original dated 22 February 2024.

Accordingly, the Court set aside both the Order-in-Original and the show cause notice. The matter was remitted to the respondent authority for reconsideration in light of the observations made in the judgment and the earlier order dated 11 March 2026 in W.P. No.6883/2026.

The Court also observed that since the petitioner had filed returns within the extended timeline contemplated under Section 16(5), the petitioner would be entitled to claim ITC and the respondent authority should reconsider the matter in accordance with law. All other contentions were left open. The writ petition was accordingly disposed of.

FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT

Sri Aravind Chavan, learned counsel accepts notice for the respondents.

2. The petitioner has challenged the Order-in-Original passed by the respondent Authority at Annexure-¹6¹ dated 22.02.2024 as well as the Show Cause Notice at Annexure-¹A¹ dated 05.12.2023.

3. The petitioner submits that the appeal against such order came to be rejected on the basis of delay in terms of the Order-in-Original at Annexure-¹B¹ without entering into the merits of the matter.

4. It is submitted that the order whereby delayed claim of ITC was rejected requires to be reconsidered in light of amendment made to Section 16 of the Central Goods and Services Tax Act, 2017 (for short ‘CGST Act’) by virtue of insertion of sub-clause (5) to Section 16, by virtue of which the assessee would be entitled to claim Input Tax Credit (ITC), if returns are filed before 30.11.2021.

5. It is to be noticed that the Order-in-Original at Annexure-¹B¹ is passed on 22.02.2024 taking note of Section 16(4) of the CGST Act.

6. Sri Aravind Chavan, learned counsel appearing for the respondents submits that the Court may take note of the legal effect of sub-clause (5) to Section 16 inserted by way of amendment.

7. Perused the impugned Order-in-Original at Annexure-¹B¹ dated 22.02.2024. It is noticed that the respondent Authority has held that the claim for ITC was delayed. The observations made at para 3.2 reads as follows:-

3.2 As per Notification No.19/2019-Central Tax dated 22-04-2019, the due date for filing the GSTR-38 return for the month of March, 2019 was extended to 23^rd April, 2019 from 20^th April, 2019, hence the last date for availing the ITC for the year 2017-18 is 23^rd April, 2019, if the annual return for the year 2017-18 in not filed prior to 23^rd April, 2019. If the annual return (GSTR-9) is filed prior to 23^rd April, 2019 the last date for availing ITC will be such date on which the annual return for 2017-18 is filed. In the present case, the GSTR-38 returns for the period 2018-2019 were filed by the noticee after 23^rd April 2019 and as such the ITC amounting to Rs.509467/ (IGST:RS.2,22,879/-, CGST:Rs.1,43,294/-, SGST: Rs.1,43,294/-) availed for the said period has to be treated as ineligible ITC, as per Table below:-

8. It is to be noticed that amendment to Section 16(5) starts with a non-obstante clause. Section 16(5) reads as follows:-

“16. Eligibility and conditions for taking input tax credit.

(5) Nothwithstanding anything contained in sub-section (4), in respect of an invoice or debit note for supply of goods or services or both pertaining to the Financial Years 2017-18, 2018-19, 2019-20 and 2020-21, the registered person shall be entitled to take input tax credit in any return under section 39 which is filed upto the thirtieth day of November, 2021.”

9. The observations made in the order dated 11.03.2026 passed in W.P. No.6883/2026 at paras-4 to 6 are extracted hereinbelow:-

“4. Perused the Order-in-Original and Order-in-Appeal. The only ground on which steps were taken to deny ITC claim is that it was claimed beyond the period prescribed under Section 16(4). Section 16(4) and Section 16(5) of the CGST Act reads as hereunder:

“16. Eligibility and conditions for taking input tax credit.

(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the [thirtieth day of November] following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier.

(5) Nothwithstanding anything contained in sub­section (4), in respect of an invoice or debit note for supply of goods or services or both pertaining to the Financial Years 2017-18, 2018-19, 2019­20 and 2020-21, the registered person shall be entitled to take input tax credit in any return under section 39 which is filed upto the thirtieth day of November, 2021.”

5. It is pertinent to note that the Central Board of Indirect Taxes and Customs vide Circular No. 237/31/2024-GST dated 15.10.2024, issued to all Principal Chief Commissioners/Chief Commissioners/ principal Commissioners/ Commissioners of Central Tax (All) and Principal Director General/Directors General (All) has clarified the issues regarding implementation of provisions of sub-section (5) and sub-section (6) in section 16 of CGST Act, 2017. The Circular clarifies that sub-section (5) of Section 16 has been inserted retrospectively with effect from 01.07.2017 vide Finance (No.2) Act, 2024, thereby overriding the earlier time restriction prescribed under sub-section (4) of Section 16 in respect of the financial years 2017-18, 2018-19, 2019-20 and 2020-21. Sub­section (5) to Section 16 was inserted by the Finance (No.2) Act, 2024, with retrospective effect from 01.017.2017. In pursuant thereof, the Ministry of Finance (Department of Revenue) Central Board of Indirect Taxes and Customs, issued Notification No.17/2024-Central Tax, dated 27.09.2024, followed by Circular No. 237/31/2024-GST dated 15.10.2024 providing clarification regarding the implementation of the said provision. The aforesaid legislative development by insertion of sub-section (5) to Section 16 through Finance (No.2) Act 2024, read with the clarification, affirms that claims of Input Tax Credit (ITC) availed through GSTR-38 returns filed up to 30th November 2021 shall be permissible. The relevant extract is reproduced hereunder:

“Reference is invited to sub-section (5) and sub-section (6) of section 16 of the Central Goods & Services Tax Act, 2017 (hereinafter referred to as the “CGST Act”) inserted in section 16 of the CGST Act, with effect from the 1st day of July, 2017, vide section 118 of the Finance (No. 2) Act, 2024, whereby the time limit to avail input tax credit under provisions of sub-section (4) of section 16 of CGST Act has been retrospectively extended in certain specified cases.”

6. It must be noticed that Section 16(5) was inserted by way of an amendment by Finance Act (No.2), 2024. The said clause is a non-obstante clause, as it states, “notwithstanding anything contained in sub-section (4)”. If that were to be so, in light of the petitioner having claimed ITC with respect to the financial year 2018-19, by virtue of Section 16(5), petitioner’s entitlement would be extended till 30.11.2021, whereas the return of the petitioner was filed on 28.10.2019. The return filed is within the extended time prescribed under Section 16(5).”

10. In light of the provision starting with a non-obstante clause, it could be construed that the provision would enable the claim of ITC, if the returns are filed with respect to the years mentioned in sub-section (5) of Section 16 before 30.11.2021. In the present case, the claim of ITC relates to the year 2019-2020. If that were to be so, if the returns were filed before 30.11.2021, the petitioner is eligible for claim of ITC. In the present case, the returns were filed on 30.09.2020. If that were to be so, the claim of the petitioner regarding ITC requires to be taken note of and the matter is to be re-adjudicated.

11. In light of appeal having been dismissed only on the ground of delay, the Court can enter into the merits of the impugned order. Accordingly, the validity of the Order-in-Original at Annexure – IT dated 22.02.2024 is interfered with.

12. Accordingly, the Order-in-Original at Annexure-¹B¹ dated 22.02.2024 as well as the show cause notice at Annexure-‘A’ dated 05.12.2023 are set aside. The matter is remitted to respondent No.1 for reconsideration in light of the observations made hereinabove and also the observations made in the order dated 11.03.2026 passed in W.P.No.6883/2026.

13. In light of the fact that the petitioner has filed the returns within the time stipulated, the petitioner would be entitled for claim of ITC and the respondent Authority may consider the same and re-adjudicate the matter as per law. All other contentions are kept open.

Subject to the above observations and directions, the petition is disposed of.