Doulathray S.Marnoor Vs Deputy Commissioner of Commercial Taxes (Audit)-1 (Karnataka High Court)
The Karnataka High Court partly allowed a writ petition challenging an adjudication order passed under Section 73(9) of the CGST/KGST Acts for the financial year 2018-19, wherein the petitioner’s Input Tax Credit (ITC) claim had been denied under Section 16(4) of the CGST Act, 2017. The petitioner, a government contractor registered under the GST laws, had filed statutory returns for the assessment year 2018-19. Following an audit conducted by the respondent authority, an audit report dated 28.04.2023 alleged short payment of tax, ineligibility of ITC under Section 16(4), interest liability, and GST liability on royalty payments to the Government.
Based on the audit report, a show cause notice dated 04.12.2023 was issued proposing determination of tax, interest, and penalty under Section 73 of the CGST/KGST Acts. The petitioner submitted a detailed reply on 04.01.2024 explaining the factual and legal position and specifically relied upon the insertion of Section 16(5) of the CGST Act, 2017 to contend that denial of ITC was unsustainable. According to the petitioner, the respondent failed to consider the reply and mechanically passed the adjudication order dated 22.04.2024 confirming the proposed demand.
The High Court noted that the issue had already been considered by a coordinate bench in W.P. No. 6883/2026. The Court referred to Circular No. 237/31/2024-GST dated 15.10.2024 issued by the Central Board of Indirect Taxes and Customs, which clarified the implementation of sub-sections (5) and (6) of Section 16 of the CGST Act. The Circular stated that Section 16(5) had been inserted retrospectively with effect from 01.07.2017 through the Finance (No.2) Act, 2024, thereby overriding the earlier time restriction prescribed under Section 16(4) for financial years 2017-18, 2018-19, 2019-20, and 2020-21.
