Kerala High Court Grants Relief on ITC Deadline: The Primacy of Section 16(5) over Section 16(4)
Introduction to the GST ITC Timeline Controversy
The Input Tax Credit (ITC) mechanism under the Goods and Services Tax (GST) regime forms a critical aspect for taxpayers to claim credit on taxes paid on inputs and input services. However, the timing of such claims has been a point of legal contention due to conflicting provisions under the GST Act—particularly Sections 16(4) and 16(5). Recently, the Kerala High Court has clarified the precedence of these provisions, granting taxpayers a significant relief by prioritizing Section 16(5) and its extended deadline over the otherwise strict cutoff articulated in Section 16(4).
Understanding Sections 16(4) and 16(5) of the CGST Act
Section 16(4): The Earlier Time Limit
Section 16(4) of the CGST Act originally imposed a stringent timeline, mandating that taxpayers must claim ITC on invoices or debit notes before the due date of the return for the month of October following the end of the financial year, or before the filing of the relevant annual return, whichever was earlier. This provision effectively barred claims submitted after this deadline, regardless of their validity, thereby emphasizing strict compliance deadlines.
Section 16(5): The Relaxation Clause
Introduced later as a relaxatory provision, Section 16(5) begins with a non-obstante clause: “Notwithstanding anything contained in sub-section (4)…” This clearly signals that where the returns pertaining to invoices for supply of goods or services were filed before a stipulated cut-off date (specifically November 30, 2021), taxpayers are entitled to avail ITC even if their claims violate the previous deadline under Section 16(4). Essentially, this provision overrides the rigid limits imposed by Section 16(4) for specified financial years.
The Kerala High Court’s Landmark Judgment
The Facts and the Issue
The Kerala High Court entertained a writ petition filed by a taxpayer who was denied ITC for the financial year 2018-19 on the grounds that the statutory deadline under Section 16(4) had lapsed. However, the taxpayer had, in fact, filed the relevant GST returns between February and December 2019, which was before the November 30, 2021 cut-off prescribed in Section 16(5).
The Court’s Reasoning and Relief
The Court observed that Section 16(5), by its very wording, overrides Section 16(4). Since the petitioner filed returns within the Section 16(5) timeline, the denial of ITC on the basis of Section 16(4) was unsustainable. The Court quashed the impugned order denying ITC and remanded the matter for fresh consideration consistent with Section 16(5).
Broader Implications for Taxpayers
- Taxpayers who filed their GST returns before November 30, 2021, for the financial years from 2017-18 to 2020-21, can claim ITC even if late as per previous rules.
- This landmark relief helps businesses that faced genuine issues in initial GST implementation phases.
- It sets a precedent for favoring statutory rights over procedural technicalities, especially where taxpayers have acted in good faith.
Conclusion: Navigating the ITC Timeline Post Kerala HC Ruling
The Kerala High Court ruling signals an important development, placing Section 16(5)’s later and more taxpayer-friendly timeline above the stricter limits of Section 16(4). It highlights the necessity for taxpayers to keep abreast of legislative amendments and judicial interpretations that can protect their statutory rights. Businesses are advised to review their GST filings for the covered financial years and seek professional advice to claim eligible ITC without fear of wrongful denial based on outdated deadlines.
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