The ………………..

Reference:- Your advisory bearing DIN/ Ref No.………………………
Subject:- Our submission relating to applicability of section 16(4)

Respected Sir,

With reference to the above, the undersigned would like to submit as follows:-

That we are in receipt of the advisory for inadmissibility of Input tax credit availed to the tune of Rs. ………….. We understand that the said advisory is inter-alia founded on the strength of a condition / restriction laid under sub section 4 of Section 16 of the CGST Act, 2017 that any registered person shall not be entitled to take any credit in respect of any invoice or a debit note, if the said registered person has filed the GSTR 3B return in respect of the tax periods July 2017 to March 2018 after 30.04.2019 and/ or the tax periods April 2018 to March 2019 after 20.10.2019 respectively.

Relying upon the condition laid under Section 16(4), it has been advised to deposit an equivalent amount of tax by using DRC-03 with applicable interest.

That the said advisory also mentions that in case the opportunity for voluntary compliance as suggested is not availed, appropriate action for recovery of tax paid using such inadmissible credit with interest and imposition of penalty shall be initiated as per the law.

That the aforesaid advisory has not been issued under Section 61 or Section 73 of the CGST Act, 2017 and the advice issued is just an opinion of the issuing authority.

That due to genuine hardships and reasons beyond our control, we could not file our GSTR 3B for the period ………………… (relating to FY 2017-18) within 30/04/2019 and/ or …………………..  (relating to FY 2018-19) within 20/10/2019. We agree that we claimed the input tax credit of Rs. ………….. by uploading the delayed GSTR 3B, but the alleged condition laid under Section 16 (4) does not affect the admissibility of such credit which was duly taken in compliance of the substantive conditions specified Section 16 (1) and (2) of the CGST Act 2017.

That the text of Section 16(4) is reproduced herein below for the ready reference:-

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 due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.”

That, we have a bona fide belief that we are not liable for making any payment of input tax credit claimed in GSTR 3B which were filed belatedly on the following grounds, each of which are without prejudice to each other:-

(1) There is no mandate under Section 16 (4) about availing of Input tax Credit in the GSTR 3B within the time limit specified therein :-

(i) That the mandate under Section 16 (4) is about restricting the time limit to take input tax credit. To our understanding, credit is taken by any taxpayer when goods or services or both are received under valid invoice/ document by passing appropriate entry in the books of accounts. The credit taken is thus declared under the return or any other form whatsoever in the manner prescribed to avail the input tax credit for utilizing it further for payment of output tax liability.

(ii) That it is worthy to note that the restriction plotted under Section 16(4) is with regard to taking of input tax credit. Thus, if there is an entry in the proper books of accounts made within the specified time, and there is no restriction on the availment of the ITC which is done through the common portal as such, in such a case the input tax credit as availed by us in the Form GSTR 3B filed late cannot be denied lawfully.

(2) There is clear conflict between the provisions of Section 16 (1) and Section 16(4); Section 16 (4) not being a non obstante, Section 16 (4) cannot be enforced where it contradicts Section 16(1).

(i) Section 16 (1) entitles every registered person to take credit of input tax charged on any supply of goods or services or both to him subject to following conditions:-

a) Such goods and services are used or intended to be used in the course or furtherance of his business.

b) He will be entitled for the credit such conditions and restrictions as may be prescribed. (Prescribed means “prescribed in rules” only). Prescription cannot be under the Section itself subsequently.

c) The credit will be taken in the manner specified in Section 49. It may be noted that there is no mention of sub section (4) under Sub section (1).

(ii) Section 16 (4) has attempted to superimpose an additional condition of time limit to take the input tax credit which is in clear conflict with the provision of section 16 (1) and is unwarranted. The conditions under Section 16 (2) are laid differently, i.e. by way of non obstante The very reason that Section 16 (4) is not structured like Section 16(2) or the condition under Section 16(4) was not included under Section 16(2) itself, clearly establishes that the said sub section is not enforceable and if at all, it is only a procedural/ directory provision.

(3) The due date of filing of Return u/s. 39 for the month of September of the year following the financial year to which it relates was never notified; the taxpayer carried bona fide belief while complying:

(i) That sub –section (4) of Section 16 has two limbs. The time limit under the impugned Section 16(4) is to be the earlier of the following two dates:-

(a) Due date of furnishing return under Section 39 for the month of September after end of the financial year to which the invoice pertains; or

(b) Date of furnishing of the relevant annual return;

First of all, if the input tax credit was taken in books of accounts before the time limit under Section 16(4), the ITC which is substantive right of the taxpayer could be availed at any time by entering it into the electronic credit ledger as stated hereinabove. Even in the alternate, if input tax credit is to be taken under GSTR 3B, which was/ were filed on any date prior to the date of furnishing of the annual return(s), one of the two dates stood duly complied with.

However, when referring to the due date of filing of the return u/s. 39 for the month of September following the end of financial year, it may kindly be appreciated that no due date of filing of return u/s. 39 i.e. Form GSTR 3 was notified or prescribed.

(ii) That Hon’ble Gujarat High Court in case of AAP and Company Vs UOI [TS-490-HC-2019(GUJ)-NT] had held that GSTR-3B is not a return for the purposes of Section 39 of CGST Act, 2017. The Honorable High Court observed as follows:

“Thus, in view of the above, the impugned press release dated 18th October 2018 could be said to be illegal to the extent that its para-3 purports to clarify that the last date for availing input tax credit relating to the invoices issued during the period from July 2017 to March 2018 is the last date for the filing of return in Form GSTR-3B”.


“GSTR 3B was not introduced as a return in lieu of return required to be filed in Form GSTR-3. The return in Form GSTR-3B is only a temporary stop gap arrangement till due date of filing the return in Form GSTR-3 is notified.”

The said case is still holding the ground as it is not over ruled till date.

(4) Demands based on the strength of retrospective amendment of Rule 61(5) which is triggering Section 16(4) and making it a harshly provision is the most barbaric allegation and needs to be read down:

(i) That in the 37th meeting of the GST Council, the Co-convenor of the law committee stated that the aforesaid judgment of the Gujrat High Court led to further challenges such as legality of interest payable as FORM GSTR 3B was not considered as valid return etc. Consequently the council recommended amendment of Rule 61 of the CGST Rules, 2017 to say explicitly that FORM GSTR-3B is a return under sub-section (1) of Section 39 of the CGST Act. Ironically, the lawmakers have retrospectively amended the Rule 61 (5) vide Notification No. 49/2019-Central Tax dated 09.10.2019 to prescribe GSTR 3B as a return in lieu of GSTR 3, but with effect from 01.07.2017 in the interim to address the defects after being lashed by the Hon’ble Court.

(ii) The Rule 61(5) is a sub ordinate prescription, the retrospective amendment of which is being used to deny the substantive right of legitimate input tax credit to the taxpayer after failing the test of law in Court. The said amendment has not yet been subjected to and has not yet sustained the test of judiciary. Creation of additional liability on the tax payers by retrospective amendment of a rule is not permissible in law. It is almost settled law that the taxpayers cannot be punished due to any retrospective amendment of rule. Making retrospective amendment in the procedural law resulting in the denial of the existing valuable rights is against the spirit of the law and also against the spirit of the Constitutional safeguards provided to Indian Citizens under Article 19(1)(g) and Article 300A. The litmus test of the sustainability of the retrospective amendment and its competence in denying the substantive right of the taxpayer is yet to be performed.

(iii) That it is well appreciated that the Government is well empowered to make and amend rules and to give retrospective amendments to such rules, but such powers are conferred with some limitations. As per the settled preposition of the law, no amendment in rules is allowed which results in curtailment of the existing valuable rights. This retrospective legislation appears to be contrary to the general principle that ‘legislation introduced for the first time need not change the character of past transactions carried out upon the faith of the then existing law’ and does not stand tenable.

(iv) That Hon’ble Apex court in the case of West Ramnad Electric Distribution Co. Ltd. v State of Madras AIR 1961 SC 1753 has held that penal statutes are generally considered prospective. Those penal statutes which create offences or which have the effect of increasing penalties for existing offences will only be prospective by reason of constitutional restriction imposed by Article 20 of the Constitution.

(v) That the submissions and grounds hereinabove, clearly indicate the proposal to deny ITC under Section 16(4) is a result of unintended mischief created under Section 16 (4) due to defects and deficiencies under erstwhile Section 39 and Rule 61 which have been rectified by way of random/ situational/ frivolous amendments from time to time culminating into a final retrospective amendment suited to the interest of revenue. The said mischief has travelled beyond the rationale to derive unjust benefit by way of denial of claimed ITC in past periods on good faith and such demand if confirmed by availing the benefit of rule of mischief could be the sternest action that any tax administrator could take upon its taxpayers and such action may be seriously abstained from. This rule of mischief deserves to be eliminated.

(vi) That it so appears that the said amendment in Rule 61 (5) has given the shape of a grossly harsh penal provision to Section 16(4) which alleges to operate in such a manner that it robs one of its rightful ITC thereby triggering cascading of taxes, and also makes one appear guilty of having evaded taxes by paying tax liability through inadmissible ITC and hence liable for penalty. Such a dramatic provision operating through a sub ordinate legislation of retrospective amendment of a prescribing rule is the most barbaric in Indian indirect tax history and deserves to be read down.

(5) Restrictions imposed in the procedural / directory provision of Section 16(4) cannot be powerful enough to deny substantive right of the tax payers and is against the spirit of GST Law as it triggers absolute cascading of tax:-

(i) That under the GST Act, tax is leviable on every supply of goods and services, irrespective of whether it is the first, second or third supply. However, in order to ensure that the Act does not fall foul of the prohibition placed by the Constitution of India on double taxation, the provisions of the Act permit a dealer to deduct the amount of tax paid by him on his purchases while calculating his net tax liability.

(ii) That Input Tax Credit is a substantive right and property of the taxpayer. It cannot be denied by invoking any provision which in itself is lacking clarity and operates through various sub ordinate legislations and prescriptions not forming part of the mother provision. It is a settled legal preposition that any penal provision of a statute must be construed narrowly in favour of the person proceeded against. This rule implies a preference for the liberty of the subject in case of ambiguity in the language of the provision.

(iii) That in view of the foregoing, it is almost settled law that credit of tax paid on eligible purchases is a substantive right and no procedural/ directory provision like Section 16 (4) is competent enough to curtail such substantial rights when the basic conditions laid in the mother provision are satisfied. Law of limitation can only place a sun-set hour to the claiming of a remedy but cannot be exploited by the tax administrators to extinguish a lawfully earned substantive right.

(iv) That Section 16(4) is no more than a machinery provision. Hon’ble Karnataka High Court in the case Kirloskar Electric Co. Ltd. v. State of Karnataka –2018-TIOL-131-HC-KAR-VAT has held that machinery provisions of return filing cannot defeat the substantive claims of input tax credit otherwise allowable under the Act. It was also held that the Revenue is entitled only to verify that the Sale Invoices are genuine and valid and such ITC claim is not duplicate, fictitious or bogus. Article 265 of the Constitution of India does not entitle the State to retain such tax paid by Selling Dealers and deny the claim of ITC credit or set off in the hands of the Purchasing Dealers who claim such ITC against their Output Tax Liability when they sell goods further, incurring such Output Tax liability.

(v) That the Apex Court in the case Eicher Motors Ltd. And Anr vs Union Of India And Ors. Etc, 1999 (1) SCR 295 has held that the right (to credit) accrued to the assessee on the date when they paid the tax on the raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods existed and that credit under the Modvat scheme was as good as tax paid. Similar view was also taken by the Apex Court in the case Collector Of Central Excise, Pune … vs Dai Ichi Karkaria Ltd. Etc. 2002-TIOL-79-SC-CX-LB. In the later case, the Supreme Court had also held that a manufacturer was entitled to use credit and credit reversal can be sought only when the same was taken illegally or irregularly.

(vi) That filing of returns is a procedural machinery which operates on the strength of the specified/ statutory records of the entity. The statutory records, i.e. the books of accounts are the fundamental records based on which GST liability and rights arise is beyond dispute and is accepted for performing reconciliation and audit under GST also. The denial of credit solely based on date of filing forms is unwarranted even if alleged under any sub ordinate/ procedural provision.

(6) Delay in filing is subject to late fees in terms of Section 47; taxpayer cannot be penalized again manifold for sole reason of delay in filing of return or any other form:

(i) That hefty late fees in terms of Section 47 has already been paid by us for delay in filing of return and we have not contravened any provisions of the law intentionally and even if there is any lapse, of a technical nature or whatsoever, like delay in filing any return etc. it is only because of genuine hardship faced by us under the new tax regime implemented in the country with effect from 01.07.2017. Once the late fee under section 47 is levied for delay in filing of return, it is trite that the taxpayer cannot be penalized again by denying ITC on the sole reason of delay in filing return which is qualifying all other conditions for availing credit.

(ii) That it may also be noted that Section 47 and section 50 allows the taxpayer to file returns even beyond the due date on account of any reasons without any condition of disallowing ITC. The privilege of filing the return remains with the taxpayer and it has not been subjected to any condition even if beyond the due date of filing of GSTR 3B for September of the following year after the said financial year. The only condition that the Government has to be compensated for its revenue loss for the said period by payment of interest under section 50(1) and late fee for delay in furnishing of return u/s 47. Therefore, it so appears that provision to restrict the time period to avail the ITC crafted in section 16(4) in light of Section 39, stands contrary to the provision of Section 47 and Section 50 and the crafting of this provision is a unilateral and ambiguous stipulation. It may also be noted here that conditions for availing ITC are laid under Section 16(2) also which are non obstante, but Section 16(4) is not a non obstante provision and hence is subject to all other provisions of the law. It cannot be operated on force of Section 39 alone.

(7) The filing of Form GSTR 3B has been constrained by the common portal if full payment of tax is not paid; Payment of tax and filing of returns are independent events under any tax law; such created paralysis of infrastructure cannot be exploited as a tool to deny Input Tax Credit:

That it may be further appreciated that the due date for return and payment of tax are prescribed independently under all tax laws including GST Law (Refer Section 39(1) and 39(7) of the CGST Act) and payment of tax is not a pre-condition for filing of return as per the implemented law in letter and spirit. The due date for payment of tax is the last date on which he is required to file such return, but the GST Common portal does not allow to file GSTR 3B unless and until payment of tax liability is made before filing GSTR 3B. Due to this infrastructure gap in the implementation of the GST Law at the GST Common Portal, the taxpayer has been suffering and are unable to comply with the law for filing returns in time. The consequences of the same are manifold and fatal and deserve to be relaxed.

In view of the foregoing, we fully trust and are highly hopeful that the Honorable Council and the federal Government will understand the panic among the tax payers and sensitize its tax officers to keep the issuance of demands by alleging recovery under Section 16(4) in abeyance until the input tax credit is allowed in such cases by way of a proper notification under Section 172 or in such suitable manner as is found appropriate by the Honorable GST Council. The matter deserves to be kept in abeyance at least until the Honorable Apex Court give its final verdict in the matter where Government has challenged that Judgement of Honorable Gujarat high Court.

It is also demonstrated and deliberated in the earnest that if the proposed disallowance of input tax credit for Rs. …………… is enforced, for payment of tax alongwith interest, it will cause immense financial hardship to our business and may have larger consequences.

Thanking you
Yours truly,



This draft is for the purpose of academic discussion among the tax professionals. We are not taking any responsibility whatsoever in case any damage is occurred or if the different views are taken by authorities.

Author- CA O. P. Agarwalla, Guwahati and CA Raginee Goyal, Guwahati

CA. O.P. Agarwalla, Guwahati and CA. Raginee Goyal, Guwahati

Author Bio

More Under Goods and Services Tax


  1. R. K. Makharia says:

    Respected. Sir! Very Exclusive, with Legal facts, opinion adduced for the Sufferer of Taxpayers All over the Country. Hope, either Govt. Or, S. C. will definitely provide certain Remedy to Honest, Taxpayers at the earliest. R. K. Makharia.

  2. Kishan Daga says:

    I have already filed my reply to commissioner & PRO of GST based on above article in March before lockdown started. Let’s see what reply I get. BTY they have already reversed my credit ledger balance in GST. So I will be forced to stop the business if they don’t release my ledger balance, because I will not be able to make future payments to GST if my ledger balance is not released.

  3. Ankur says:

    I also get notice of huge amount itc to reverse which is impossible for me. Sir do you have any latest update on this matter. Should I send this draft to tax commisioner of district. What might be reply from them if any idea would be helpful. And do you people have any idea how many people facing this advisory. I am worried what to do. Please do reply.

  4. vikram bindra says:

    Dear Sir ,,thanks for such detailed reply , my submission is , if this reply is submitted as such to authorities , what can be specific outcome.
    Sir hope that your good self will respond to my query
    warm regards
    vikram bindra
    email [email protected]

  5. Srikanta Prasad says:

    An excellent document depicting the legal framework and restrictions thereon. Its an excellent, in depth analysis of the provisions and practical problems of the existing business houses in complying GST provisions.

  6. Beni Prasad says:

    Excellent and Very well drafted Article and will really benefit to those who are facing such issues even after payment of large amount of GST with interest if they are penalized due to lapse of ITC. Grateful to you and your team for such knowledge and insight on Section 16(4) of CGST.

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May 2021