Case Law Details
Ganapathi Pandi Industries Vs Assistant Commissioner (State Tax) (FAC) (Madras High Court)
Retrospective Amendment to ITC eligibility – Insertion of Section 16(5) & 16(6) of the CGST Act 2017: A Comprehensive Legal Analysis after the recent decision of the Honourable Madras High Court.
A: Preface: Understanding the Regulatory Landscape
1. The contemporary indirect taxation ecosystem in India represents a dynamic interplay of legislative frameworks, judicial interpretations, and evolving regulatory mechanisms. The Goods and Services Tax (GST) regime, since its inception, has been a testament to this regulatory architecture, continuously adapting to address systemic challenges and emerging economic realities. The dynamicity of changes has been so fast governed that it is extremely difficult to keep pace with it. The recent retrospective amendment to Input Tax Credit (ITC) provisions exemplify this ongoing process of regulatory refinement, demonstrating the responsive nature of India’s Indirect tax governance.
B: The Genesis of the Dispute: Contextualizing Pandemic-Induced Challenges
2. The COVID-19 pandemic emerged as an unprecedented disruptive force, challenging established paradigms of business operations, regulatory compliance and administrative mechanisms. For tax practitioners and businesses alike, the pandemic created a labyrinthine environment of operational uncertainties. Small and medium enterprises found themselves navigating an intricate maze of compliance requirements amidst lock downs, supply chain disruptions, workforce constraints, and financial volatilities. Traditional tax compliance mechanisms especially under the Goods and Services Tax laws appeared increasingly disconnected from the ground realities faced by taxpayers, creating a significant regulatory pressure point that demanded nuanced, empathetic intervention the proprietors of Law.
C: Statutory Backdrop: Decoding the Original Legislative Framework
3. Under the GST legislation, in terms of Section 16 (4) of the Central Goods and Services Tax (CGST) Act, 2017, which forms the backbone for deciding the eligibility of Input Tax Credit with reference to time, originally represented a stringent statutory provision designed to ensure timely and accurate tax credit claims. The provision was unequivocally structured to create a narrow but definitive window for taxpayers to claim input tax credits, essentially mandating that credits could only be claimed until the due date of the September return following the end of the financial year or the date of filing the annual return, whichever was earlier. This rigid framework inadvertently created significant challenges for businesses, particularly during the extraordinary circumstances presented by the pandemic, where operational disruptions made strict compliance exceptionally challenging. This required a generous legislative intervention.
D: Legislative Intervention: Anatomy of a Progressive Amendment: –
4. The GST council meetings made certain significant and pathbreaking recommendations for extending the benefits to genuine taxpayers who are eligible for their legislative benevolence which were otherwise hit by limitations of time. One such difficulty was availability of Input Tax Credit beyond the prescribed time frame.
5. During the presentation of the Budget 2024, a proposal was made to insert new Sub-Sections 16(5) and (6) after sub-section (4) of Section 16 in the CGST Act, 2017, thereby intending to regularize the Input Tax Credit taken after the limitation period as prescribed in Section 16(4) of the CGST Act, 2017. Sub Section (5) deals with the late filing of the Returns by normal taxpayers while sub-Section (6) deals with the taxpayers whose registration was cancelled under Section 29 but restored later under Section 30. The Section 16 of the Act lays down the lays down the law related to the eligibility and conditions for availing the input tax credit. Among the various other conditions, the sub-section 4 of Section 16 lays down that:
“16(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.
6. The Finance Act (No.2) of 2024 represented a landmark legislative intervention, introducing nuanced amendments through Sections 16(5) and 16(6). The presidential assent granted on 16.08.2024, for Finance Act, (No.2) of 2024, whereby, Section 16 of the CGST Act was amended with retrospective effect from 01.07.2017 by Government and the Notification No:17/2024 CT, dt: 27-09-2024 was issued in regard to the said amendment, and the Circular No. 237/31/2024-GST dt:15-10-2024 was issued by the Central Board of Indirect Taxes and Customs, clarifying the issues regarding implementation of provisions of sub-sections (5) and (6) in Section 16 of CGST Act, 2017.
After the amendments and insertions retrospectively, the sections read thus: –
Sec.16 (5) Notwithstanding 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 up to the thirtieth day of November 2021.
Sec.16 (6) Where registration of a registered person is cancelled under section 29 and subsequently the cancellation of registration is revoked by any order, either under section 30 or pursuant to any order made by the Appellate Authority or the Appellate Tribunal or court and where availment of input tax credit in respect of an invoice or debit note was not restricted under sub-section (4) on the date of order of cancellation of registration, the said person shall be entitled to take the input tax credit in respect of such invoice or debit note for supply of goods or services or both, in a return under section 39,–
(i) filed up to thirtieth day of November following the financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier; or
(ii) for the period from the date of cancellation of registration or the effective date of cancellation of registration, as the case may be, till the date of order of revocation of cancellation of registration, where such return is filed within thirty days from the date of order of revocation of cancellation of registration, whichever is later.
7. These amendments were not merely technical adjustments but represented a profound understanding of the extraordinary challenges faced by the business ecosystem. By providing a retrospective relief mechanism, the legislature demonstrated a remarkable capacity for responsive governance. The amendments effectively created extended windows for taxpayers to claim legitimate input tax credits for financial years 2017-18 to 2020-21, acknowledging the systemic disruptions caused by the pandemic and providing a structured pathway for tax credit rectification.
E: Judicial Interpretation: The Madras High Court’s Nuanced Perspective
8. It is in this backdrop a lot of weight is required to be adduced to the decision of the Honourable Madras High Court in its judgement under W.P.No.25081 of 2023 in the case of Sri Ganapathi Pandi Industries vs The Assistant Commissioner (State Tax) (FAC), Chennai North Division, where it has allowed a batch of writ petitions relating to delayed availability of ITC under GST, based on the recently inserted provisions of 16(5) of the CGST Act 2017. The case involved a series of writ petitions challenging orders by the GST Department denying the benefits of Input Tax Credit on limitations of time under Section 16(4) of the CGST Act 2017. The Petitioners separately in various writs, all registered GST taxpayers, sought relief against the demand for reversal of Input Tax Credit (ITC), along with penalties and interest imposed due to the delay in filing GSTR-3B returns for FYs 2017-18 to 2020-21. The delay was largely attributed to hardships during the COVID-19 pandemic. The impugned orders of the Department involved in directing the registered Taxpayers for reversing ITC claims solely based on the time deadline under Section 16(4), of the CGST Act 2017. All these Orders were deemed unsustainable by the Honourable High Court, considering the retrospective amendment. However, for cases involving issues beyond delayed ITC (e.g., reconciliation discrepancies, excess claims, or fake ITC, etc.,), the GST Department retains the right to act in accordance with the law. The Honourable Court held that the orders denying the ITC on limitations of time under Section 16(4) of the CGST Act were not sustainable and Orders reversing ITC claims due to delays under Section 16(4) were quashed, consequent upon new provisions of Section 16(5) & 16(6) of the CGST Act 2017. The Petitioners’ bank accounts frozen under these orders were directed to be defreezed immediately and any tax amounts already recovered should be refunded or adjusted against future tax payments.
9. This landmark case of Sri Ganapathi Pandi Industries vs Assistant Commissioner (State Tax) emerged as a critical judicial intervention in the evolving GST jurisprudence. The Madras High Court’s judgment went beyond a mere technical interpretation of the legislative amendment, presenting a holistic, contextual understanding of tax compliance challenges. By meticulously examining the operational impact during pandemic more particularly, the court articulated a balanced approach that simultaneously protected legitimate taxpayer interests and concurrently maintained the investigative integrity of tax administrative mechanisms as well .
F: Critical Judicial Observations: Balancing Compliance and Pragmatism
10. The High Court’s judgment represented a sophisticated legal analysis that transcended traditional regulatory interpretations. The court recognized that rigid compliance mechanisms could not be uniformly applied during extraordinary circumstances. By providing a retrospective relief mechanism, the judicial intervention acknowledged the genuine challenges faced by businesses while simultaneously maintaining robust safeguards against potential misuse. The judgment carefully delineated the scope of relief, ensuring that while time-barred ITC claims could be processed, the tax department retained comprehensive investigative powers to scrutinize potentially fraudulent or incorrect claims.
G: Jurisprudential Significance: Beyond Immediate Relief – for all Stake holders: –
11. So, consequently
- For the field formations of the Department, must implement the High Court order by reversing the demands, penalties and interest imposed due to delayed ITC claims, though it retains the ability to investigate fraudulent or incorrect ITC claims unrelated to the time-bar issue. It will need to align its systems and procedures to reflect the retrospective amendment and ensure consistent application of the new deadlines. The decision establishes a precedent for Similar Cases with clarity on the applicability of retrospective amendments, benefiting other taxpayers facing similar issues.
- For the GST department, this meant developing more flexible, context-sensitive assessment procedures. The amendment and subsequent judicial interpretation necessitated a fundamental recalibration of tax administrative frameworks. The regulatory approach shifted from a purely punitive model to a more collaborative, solution-oriented mechanism. Tax authorities were mandated to systematically review past orders, implement the retrospective amendment consistently, and develop nuanced enforcement strategies that balanced strict compliance requirements with practical business realities.
- For taxpayers, the amendment represented more than a mere technical relief – it was a comprehensive financial recalibration opportunity. Businesses could now retrospectively claim legitimate input tax credits for specified financial years, potentially recovering significant blocked capital. The amendment provided a structured pathway for systematic documentation, claim review, and financial reconciliation. Simultaneously, it imposed a responsibility on businesses to maintain meticulous records, develop proactive compliance strategies, and engage professional tax consultation to maximize the benefits of the retrospective amendment.
Before bidding adieu……
H: Conclusion: A Paradigm of Responsive Governance
12. The retrospective ITC amendment and the Madras High Court’s interpretation symbolize a transformative approach to tax compliance. They represent a shift from rigid, procedural frameworks to more flexible, context-sensitive regulatory mechanisms. This approach emphasizes substantive justice over procedural rigidity, recognizes the complex challenges faced by businesses, and demonstrates a sophisticated understanding of regulatory governance. The judgment transcended its immediate context, representing a pivotal moment in tax jurisprudence. It articulated a progressive legal philosophy that emphasized contextual legislative interpretation, humanitarian approaches to regulatory compliance, and recognition of extraordinary circumstances.
Finally…..
“Justice is not just about following the letter of the law, but understanding its spirit and intent.”
Jai Hind !!!!
*This comprehensive analysis is an academic interpretation of the author and should not be construed as definitive legal advice.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
This batch of Writ petitions have been filed by the petitioners/taxpayers, who are registered dealers on the files of the respondent-Department under the provisions of the Goods and Service Tax Act, 2017 (GST Act)/ Central Goods and Services Tax Act ( CGST Act) as the case may be, challenging the orders passed by the respondent-Department, whereby, their claim of ITC was reversed/negatived and the petitioners have been directed to tax/penalty/interest.
2. As the issue involved in all these Writ Petitions is identical in nature and the relief sought thereunder is interconnected, there were heard together and disposed of vide this Common Order.
3. For the purpose of disposal of these cases, Writ Petition No.25081 of 2023 is taken as a lead case, and it would suffice to note the facts stated thereunder.
i) The petitioner is a registered dealer on the files of the respondent under the provisions of the Goods and Service Tax Act, 2017. For the AY 2019-20, the petitioner filed the returns in GSTR-1 in time and filed GSTR-3B returns belatedly due to Covid-19, but, the respondent, without considering the reasons for the delay is genuine, passed the impugned order dated 06.06.2023, whereby, ITC claim was reversed and also levied interest/penalty under Section 73 of the Act. Hence, the present Writ Petition.
4. When these matters were taken up for hearing on an earlier occasion, i.e. on 24.09.2024, though learned counsel appearing for the respective writ petitioners argued the matters at length, assailing the impugned orders and the learned Standing Counsel appearing for the Official respondents as a counter-blast to such contentions, argued the matter, after heated arguments, the learned Additional Advocate General submitted that during the 53rd GST Council Meeting held on 22.06.2024, the GST Council recommended for extension of the deadline for availing ITC on any invoice or debit notice under Section 16(4) of the CGST Act and this extension would be applicable to any GSTR-3B returns filed for the Fys 2017-18, 2018-19, 2019-20 and 2020-21 with a new deadline deemed to be as “30.11.2021” and to facilitate this extension, the Council also recommended a retrospective amendment to Section 16(4) of CGST Act w.e.f. 01.07.2017.
4.1 Therefore, the learned Additional Government Pleader requested this Court to adjourn the matters by one month, as the Government of India had been requested to obtain Presidential Assent, and that if the proposed amendment come into force with retrospective effect, the same would give to roost to the issue involved in these Writ Petitions, as, by virtue of the said statutory benefit under the proposed Amendment Act, not only the petitioners but also other taxpayers, who were similarly placed like that of the petitioners herein would be benefited. Since the request made by the learned Additional Government Pleader appears to be that, till Presidential Assent is granted to the Amendment of Section 16 of the CGST Act, no useful purpose would be achieved in adjudicatings the Writ Petitions, this Court adjourned the matters to today.
6. Accordingly, when the matters are taken up for hearing today, (i.e. 17.10.2024, the learned counsel appearing for the petitioners made a submission in union that the recommendation made by the GST Council during its 53rd GST Council Meeting held on 22.06.2024 for extension of the deadline for filing returns for FYs 2017-18 to 2020-21 with retrospective effect was given approval by the Ministry of Law and Justice, Legislative Department, vide Finance Act (No.2) Act, 2024, dated 16.08.2024, whereby, suitable amendment was made by interpolating subsections (5) and (6) after Section 16 (4) of the Central Goods and Services Tax Act and a copy of such presidential assent granted on 16.08.2024, vide Finance Act, (No.2) of 2024, whereby, Section 16 of the CGST Act was amended with retrospective effect from 01.07.2017 by the Ministry of Finance and the Notification issued in regard to the said amendment, and the Circular issued by the Central Board of Indirect Taxes and Customs, clarifying the issues regarding implementation of provisions of sub-sections (5) and (6) in Section 16 of CGST Act, 2017 were produced before this Court for reference and therefore, prayed for quashment of the impugned orders.
6. The learned Additional Advocate General-I and the learned Standing Counsel appearing for the respondent-Department have fairly admitted the legal position and submitted that in the event, ITC pertains to the FYs 2017-18 to 2020-21, in respect of which period, the petitioners have availed ITC benefit on or before 30.11.2021, they are entitled to the claim, and therefore, appropriate orders may be orders, insofar as the impugned orders pertains to belated claim of ITC made by the petitioners for the said Financial Years on or before 30.11.2021. However, as far as the impugned orders relating to other issues such as discrepancies in availing the ITC/wrong availment of ITC/excess claim of ITC/Fake ITC claim, as the case may be, he prayed that liberty may be granted to the respondent-Department to proceed against the assessees/petitioners in furtherance of the impugned orders in accordance with law.
7. In reply, Mr.Joseph Prabakar, learned counsel appearing for the petitioner in one of the Writ Petitions would submit that issue involved in all these Writ Petition is identical in nature, as the issue is only with regard to the availment of ITC beyond the period of limitation prescribed under Section 16 (4) of the CGST Act, therefore, the question of discrepancy in availing the ITC or any other issues as pinpointed by the learned Additional Advocate General-I would not arise, therefore, the apprehension expressed on the side of the respondent-Department is baseless and therefore, prayed for appropriate orders.
8. I have given due considerations to the submissions made on either side and perused the materials available on record.
9. The petitioners in all these Writ Petitions are registered dealers on the files of the respondent-Department under the provisions of the Goods and Service Tax Act, 2017/CGST Act 2017. Though the petitioners have filed GSTR-1 returns in time, however, insofar as claim of ITC is concerned, since the petitioners were faced with certain difficulties, such as Financial constraints (as there was complete lockdown due to outbreak Covid-19) health related ailments, fire accidents, they were unable to file GSTR-3B returns, which prompted them not raising their claim ITC in time before the prescribed date. Whereas, the respondent-Department without considering such vital aspects and that reasons for the delay is not deliberate, issued the show cause notices to the petitioners, proposing to reverse the ITC availed and went to the extreme level of confirming the proposals contained in the show cause notices by passing the impugned orders,whereby, the claim made by the petitioners for ITC was reversed and the petitioners have been directed to tax/penalty/interest. Aggrieved against the impugned orders, the petitioners are before this Court by way of present Writ Petitions seeking for setting aside the impugned orders.
10. After the filing of these Writ Petitions, certain development took place, i.e. that 53rd GST Council Meeting was held on 22.06.2024, and during the said Meeting, the GST Council recommended for extension of the deadline for availing ITC on any invoice or debit note under Section 16(4) of the CGST Act and this extension would be applicable to any GSTR-3B returns filed for the Fys 2017-18, 2018-19, 2019-20 and 2020-21 with a new deadline deemed to be as “30.11.2021”, to which, the Presidential Assent was also obtained by the Government of India on 16.08.2024, whereby, the financial proposals of the Central Government for the Financial Year 2024-25 was given effect to vide Finance Act, (No.2) of 2024, and in view of the aforesaid enactment, the Ministry of Finance (Department of Revenue) Central Board of Indirect Taxes and Customs, issued a Notification, bearing No.17 of 2024-Central Tax, dated 27.09.2024, pursuant to which, a Circular No.237/31/2024-GST was issued by the Central Board of Indirect Taxes and Customs, which was addressed to all the Principal Chief Commissioners/Chief Commissioners/Principal Commissioners/Commissioners of Central Tax (All), thereby, clarifying the issues regarding implementation of provision of sub-section (5) and subsection (6) in Section 16 of CGST Act, 2017, the impugned orders are no longer sustainable and liable to be quashed. In this context, it would be apposite to refer to both Section 16(4) of the CGST Act, 2017, as well as amendment made to Section 16 (4) by interpolations of sub-sections 16 (5) and (6), and by insertion of sub-section (5) to Section 16, which are extracted hereinunder:-
Section 16 (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.“
Section 16 (5) :-
“Notwithstanding 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 persons shall be entitled to take input tax credit in any return under section 39 which is filed upto the thirtieth day of November, 2021.“
10.1 Thus, a perusal of above Section 16 (5) makes it clear that ‘notwithstanding anything contained in sub-section 4, referred to above, in respect of any invoice or debit note for supply of goods or services or both pertaining to the Fys 2017-18 to 2020-21, the registered persons shall be entitled to take ITC in any return under section 39 which is filed upto the 30th day of November, 2021.
10.2 Thus, this Court considering the fact that the issue involved in all these Writ Petitions is only with regard to the availment of ITC, which is barred by limitation in terms of Section 16 (4) of the CGST Act, and in the light of the subsequent developments took place, whereby, Section 16 of the CGST Act was amended and sub-section (5) was inserted to Section 16, which came into force with retrospective effect from 01.07.2017, the petitioners are entitled to avail ITC in respect of GSTR-3B filed in respect of FYs 2017-18, 2018-19, 2019-20 and 2020-21 as the case may be, on or before 30.11.2021, is inclined to quash the impugned orders.
11. Accordingly, this Court passes the following orders.
i) The orders impugned in all Writ Petitions are quashed insofar as it relates to the claim made by the petitioners for ITC which is barred by limitation in terms of Section 16 (4) of the CGST Act, 2017 but, within the period prescribed in terms of Section 16 (5) of the said Act.
ii) Therefore, the respondent-Department is restrained from initiating any proceedings against the petitioners by virtue of the impugned orders based on the issue of limitation.
iii) In view of the fact that the impugned orders are quashed, the respondent-Department is directed to take immediate steps towards de-freezure of the concerned petitioners bank accounts, which have been freezed in furtherance of the impugned orders, by sending intimation to the concerned bankers.
iv) In the event, in the interregnum, i.e. during the pendency of these Writ Petitions, if any orders are proposed to be passed towards recovery, same shall be dropped immediately upon production of the order copy by the petitioners, in whichever case, where, there is no interim order.
v) It is also made clear that if at all, if there is any tax amounts were collected from the petitioners based on the impugned assessment orders from the cash ledgers/credit ledgers of the petitioners concerned, the same shall be refunded to them or by means of orders of this Court or even in the absence of any order from this Court, if any amount is deposited either in the cash ledgers/credit ledgers of the petitioners concerned, the same is permitted to be utilized/adjusted by the petitioners towards payment of future tax.
iii) Insofar as the apprehension expressed by the learned Additional Advocate General for the respondent-Department that in certain Writ Petition apart from the issue on limitation, challenges have also been made to the order related to issues such as discrepancies in availing the ITC/wrong availment of ITC/excess claim of ITC/Fake ITC claim, as the case may be, or such other issues, liberty is be granted to the respondent-Department to proceed against the assessees/petitioners in furtherance of the impugned orders in accordance with law.
12. In the result, all the Writ Petitions are allowed on the aforesaid terms. No costs. Consequently, connected Miscellaneous Petitions are closed.
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