Kerala High Court on ITC Denial for Delayed Returns: Interplay of Section 16(4) and Section 16(5) of CGST Act

Background of the Dispute

The matter in Silver Castle Holidays And Resorts (India) Pvt. Ltd. Vs Superintendent came before the Kerala High Court as a challenge to an assessment order issued under Section 73 of the CGST Act.

The assessee, registered under the CGST/SGST regime, was denied input tax credit (ITC) for the period from April 2018 to March 2019. The department took the view that the relevant GST returns were not filed within the time limit prescribed in Section 16(4) of the CGST Act, and therefore ITC for that period could not be availed.

In addition, the assessment order also fastened a separate liability on the assessee on the allegation of excess availment of ITC. The assessee accepted this latter component of liability and did not dispute it. The sole controversy before the Court was with respect to the denial of ITC on the ground of delayed filing of returns under Section 16(4).

Procedural History

  • An assessment order (referred to as Ext.P3 in the proceedings) was passed under Section 73 of the CGST Act.
  • In this order, ITC relating to April 2018–March 2019 was rejected due to non-furnishing of returns within the time-limit under Section 16(4).
  • Further, a separate demand was raised for excess ITC availed, which the assessee agreed to discharge.
  • The assessee approached the Kerala High Court through a writ petition, but confined the challenge only to the portion of the assessment order that denied ITC based on Section 16(4).

The central question was:

Whether ITC can validly be denied by invoking Section 16(4) of the CGST Act when the assessee has filed the relevant returns before the cut-off date contemplated in Section 16(5) of the CGST Act?

This required the Court to examine the relationship between Section 16(4) and Section 16(5), particularly in light of the extended timelines permitted for availing ITC.

Relevant Statutory Provisions

The Court considered the following provisions of the CGST Act:

  • Section 73 – dealing with determination of tax not paid or short paid, or ITC wrongly availed or utilised, other than by reason of fraud, wilful misstatement or suppression of facts.
  • Section 16(4) – prescribing the time limit for availing ITC in relation to an invoice or debit note, usually linked with the due date of furnishing the return under Section 39 for the month of September following the end of the financial year, or the date of furnishing annual return, whichever is earlier.
  • Section 16(5) – a special provision (inserted as a relaxation measure) permitting availment of ITC where returns are furnished on or before 30.11.2021, thereby extending the time window for certain periods.

The Court treated Section 16(5) as a beneficial provision that allowed ITC to be claimed even where the original time limits under Section 16(4) had technically expired, subject to the condition that returns were filed on or before 30.11.2021.

Contentions of the Assessee