Kerala High Court Rules: ITC Cannot Be Denied for Late GST Return Filing Under Section 16(5) CGST Act

The Kerala High Court has delivered a landmark judgment affirming that Input Tax Credit (ITC) for FY 2019-20 cannot be rejected solely due to delayed GST return filing, provided returns were submitted before the November 30, 2021 cutoff under Section 16(5) of the CGST Act. This ruling offers significant relief to taxpayers facing ITC denials based on timing issues.[1][2][4]

Understanding Section 16(5) of the CGST Act

Section 16(5) was introduced with retrospective effect from July 1, 2017, to address hardships caused by the strict timelines in Section 16(4). It states that notwithstanding Section 16(4), ITC claimed in returns filed up to November 30, 2021, for FY 2017-18 to 2020-21 is valid.[2][4][6]

The provision overrides prior time limits, ensuring taxpayers who filed late but within the extended cutoff are not penalized. The court emphasized that no other conditions apply beyond this filing deadline, making it a clear statutory entitlement.[4]

• Applies to ITC availed in any return up to 30.11.2021.
• Covers financial years 2017-18 to 2020-21.
• Neutralizes demands raised purely on Section 16(4) violations.[8]

Key Legislative Intent

The non-obstante clause “notwithstanding anything contained in sub-section (4)” signals legislative override of earlier restrictions. This protects genuine claims from technical disallowances.[2][4]

Case Background and Kerala HC Ruling

In the referenced case, the petitioner’s ITC for May 2018 to March 2019 was denied due to Section 16(4) non-compliance. Despite an earlier High Court rejection of a constitutional challenge to Section 16(4), the current claim relied on the new Section 16(5).[4]

The court held the denial unsustainable since returns were filed before the 30.11.2021 deadline. It quashed the assessment order, directing regularization of eligible ITC. This aligns with broader judicial trends protecting buyers from seller defaults or procedural delays.[1][2]

• Petition challenged assessment solely on late filing grounds.
• Court: Section 16(5) creates independent entitlement.[4]
• Outcome: ITC regularization ordered; no further conditions imposed.

Related Precedents

The ruling echoes decisions like Calcutta HC in Suncraft Energy (GSTR 2A/3B mismatches not denying ITC if Section 16(2) met) and Kerala HC in Henna Medicals/Diya Agencies (discrepancies alone insufficient).[1][7][11]

Implications for Taxpayers and Compliance

This judgment provides big relief, potentially nullifying demands for ITC time-bar cases up to FY 2020-21. Tax professionals should review pending assessments or appeals before GSTAT deadlines (till June 30, 2026).[2][8]

Special rectification procedures under Section 148A notify applications within six months of relevant notifications (e.g., last date April 7, 2025, for some).[6][8]

• Review orders denying ITC purely on Section 16(4).
• File appeals or rectification applications promptly.
• Ensure evidence of return filing before 30.11.2021.
• Utilize ITC in next GSTR-3B post-regularization.[1]

Practical Steps for Businesses

Businesses should audit past ITC claims, gather proof of timely filing under Section 16(5), and challenge adverse orders. This ruling reinforces that late fees and interest suffice as deterrents, not ITC denial.[14]

Additionally, courts have ruled misclassification in GSTR-3B (e.g., wrong head) doesn’t invite penalties if total ITC covers liability.[3][13]

In summary, the Kerala HC decision strengthens taxpayer rights, promoting fair GST administration. Stay compliant and leverage these protections for eligible claims.