Calcutta High Court Directs Fresh Consideration of Deferred GST ITC Claims Under Section 16(5)
Background: The Evolution of Section 16(5) and Its Impact
The recent Calcutta High Court judgment has brought significant relief to taxpayers who had their Input Tax Credit (ITC) claims deferred or denied due to late filings under Section 16(4) of the CGST Act. The court’s directive to the Appellate Authority to reconsider these claims under Section 16(5) marks a pivotal shift in the interpretation and application of GST law, especially for the financial years 2017-18 to 2020-21.
Section 16(5) was inserted into the CGST Act retrospectively, effective from July 1, 2017, through the Finance (No. 2) Act, 2024. This amendment was designed to provide a window for taxpayers to claim ITC for invoices related to the initial years of GST, even if their returns were filed after the original deadlines specified under Section 16(4). The October 8, 2024 notification further clarified the procedural aspects, ensuring that taxpayers could avail of this relief by following the prescribed rectification process.
Key Highlights of the Calcutta High Court Judgment
The Calcutta High Court’s recent order emphasizes the importance of considering Section 16(5) when adjudicating ITC claims for the financial years 2017-18 to 2020-21. The court directed the Appellate Authority to re-evaluate claims that were previously rejected solely based on the time limits under Section 16(4), without taking into account the retrospective benefit provided by Section 16(5).
Relief for Taxpayers
The judgment provides much-needed relief to taxpayers who had their ITC claims denied due to late filings. The court held that the Appellate Authority erred by applying only Section 16(4) and ignoring the retrospective effect of Section 16(5). This means that taxpayers can now claim ITC for the specified financial years if their returns were filed on or before November 30, 2021, regardless of the original deadlines under Section 16(4).
Procedural Compliance
The court also stressed the importance of compliance with the October 8, 2024 notification. Taxpayers must ensure that their rectification requests are submitted in the specified format and through the electronic portal as outlined in the CBIC circular. The state council has clarified that the same relief can only be granted upon an electronically submitted rectification application.
Implications and Next Steps for Taxpayers
The Calcutta High Court’s decision has far-reaching implications for taxpayers and tax authorities alike. It sets a precedent for the reconsideration of deferred ITC claims and reinforces the principle that ITC is a vested right that cannot be denied arbitrarily.
For Taxpayers
- Review your ITC claims for the financial years 2017-18 to 2020-21 to identify any claims that were denied due to late filings.
- Ensure that your returns for these years were filed on or before November 30, 2021.
- Submit a rectification request in the specified format and through the electronic portal as per the CBIC circular.
- Monitor the status of your application and be prepared to provide additional documentation if required.
For Tax Authorities
- Re-evaluate ITC claims for the financial years 2017-18 to 2020-21, taking into account the retrospective benefit provided by Section 16(5).
- Ensure compliance with the October 8, 2024 notification and the CBIC circular when processing rectification requests.
- Provide clear and transparent communication to taxpayers regarding the status of their applications.
Conclusion
The Calcutta High Court’s judgment is a significant step towards ensuring that taxpayers are not unfairly penalized for late filings during the initial years of GST. By directing the Appellate Authority to reconsider deferred ITC claims under Section 16(5), the court has reinforced the principle that ITC is a vested right and must be protected. Taxpayers and tax authorities should work together to ensure that the benefits of this judgment are realized in practice.
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