Madras High Court Quashes ITC Reversal Orders Under CGST Act, Citing Retrospective Amendment and GST Council Clarification

In a significant ruling, the Madras High Court in K. Sudhakar and Co. v. Superintendent of GST and Central Excise (W.P.(MD) No. 4813 of 2026) addressed the validity of orders reversing input tax credit (ITC) claims on the ground of limitation under Section 16(4) of the Central Goods and Services Tax Act, 2017 (CGST Act). The petitioner, a registered dealer, challenged the department’s order that reversed their ITC claim and directed payment of tax, penalty, and interest.

The core issue before the Court was whether the reversal of ITC claims for the financial years 2017-18 to 2020-21, on the ground that they were filed beyond the limitation period prescribed under Section 16(4) of the CGST Act, could be sustained in light of subsequent legislative and administrative developments. The petitioner relied on a recent common order of the Madras High Court dated 17.10.2024, which had addressed similar issues and quashed such reversal orders, following the recommendations of the 53rd GST Council Meeting and subsequent statutory amendments.

The Court noted that the GST Council, in its 53rd meeting held on 22.06.2024, recommended extending the deadline for availing ITC on invoices or debit notes for the financial years 2017-18 to 2020-21 to 30.11.2021. This recommendation was given statutory effect through the Finance Act (No.2) of 2024, which inserted Section 16(5) into the CGST Act with retrospective effect from 01.07.2017. Section 16(5) expressly provides that, notwithstanding Section 16(4), registered persons are entitled to claim ITC in any return filed up to 30.11.2021 for the relevant financial years. The Central Board of Indirect Taxes and Customs (CBIC) also issued clarificatory notifications and circulars to this effect.

The Court observed that the impugned orders, which reversed ITC claims solely on the ground of limitation under Section 16(4), were no longer sustainable in view of the retrospective amendment and the clarifications issued by the authorities. The Court reiterated the legal position that ITC claims for the specified financial years, if made in GSTR-3B returns filed on or before 30.11.2021, are valid and cannot be denied on limitation grounds.

Accordingly, the Court quashed the impugned order dated 22.12.2023 to the extent it related to the ITC claim barred by Section 16(4) but within the period prescribed by Section 16(5). The respondent department was restrained from initiating any further proceedings against the petitioner on the issue of limitation. The Court also directed the department to de-freeze the petitioner’s bank accounts, if frozen pursuant to the impugned order, and clarified that any tax amounts collected from the petitioner based on the impugned order must be refunded or allowed to be adjusted against future tax liabilities.

The Court granted liberty to the petitioner to file a separate application for refund, which the department must consider on its merits. It was further clarified that if there are other issues such as discrepancies, wrong availment, excess claim, or fake ITC claims, the department retains the liberty to proceed in accordance with law on those grounds.

In conclusion, the writ petition was allowed on these terms, with no order as to costs, and all connected miscellaneous petitions were closed. This judgment reinforces the legal position that the retrospective amendment to Section 16 of the CGST Act protects taxpayers’ ITC claims for the specified years, provided the returns were filed by the extended deadline.