Karnataka High Court Quashes ITC Denial Order — Retrospective Section 16(5) of CGST Act Comes to Assessee's Rescue
Background and Overview
The Karnataka High Court recently delivered a significant ruling in the matter of Shivneel Gas Sales Vs Assistant Commissioner of Commercial Taxes, wherein a writ petition was filed challenging an adjudication order that had denied Input Tax Credit (ITC) on account of delayed filing of GST returns for the financial year 2017-18. The Court's decision hinged on the retrospective insertion of Section 16(5) of the Central Goods and Services Tax Act, 2017, and its direct applicability to the assessee's situation.
This ruling carries considerable relevance for assessees who faced ITC denial during the early years of GST implementation, particularly where returns were filed late but still within the extended statutory window introduced through the retrospective amendment.
The Dispute — What Was Challenged
The assessee, M/s Shivneel Gas Sales, approached the Karnataka High Court by way of a writ petition directed against the following proceedings:
| Sl. No. | Particulars | Date | Provision |
|---|---|---|---|
| 1 | Order of Adjudication | 01.12.2023 | Section 73(9) of KGST Act, 2017 |
| 2 | Summary of the Order | 02.12.2023 | — |
| 3 | Show Cause Notice | 30.09.2023 | Section 73 |
| 4 | Summary of the Show Cause Notice | 30.09.2023 | — |
The primary grievance of the assessee was against the Adjudication Order dated 01.12.2023 passed under Section 73 of the Central Goods and Services Tax Act, 2017 read with the corresponding provisions of the Karnataka Goods and Services Tax Act, 2017. Along with the adjudication order, the assessee also challenged:
- The demand summary issued in Form GST DRC-07
- The Show Cause Notice and its summary in Form GST DRC-01
Additionally, the writ petition raised broader constitutional questions regarding the validity of Section 16(4) of the CGST Act and certain notifications that had extended statutory time limits under the GST framework.
The Core Issue — Delayed Return Filing and ITC Denial
The adjudication proceedings against the assessee arose from a straightforward factual matrix: the assessee had filed its GST returns beyond the prescribed due dates.
The relevant tax period covered by the impugned order was July 2017 to March 2018. For this period, the returns were originally due to be filed between August 2017 and April 2019. However, the assessee actually filed these returns between April 2019 and August 2019, thereby crossing the prescribed deadlines.
Under Section 16(4) of the CGST Act, 2017, ITC in respect of a supply is not available if the return for the relevant period is not filed within the time limit specified. The tax authorities, relying on this provision, denied the ITC claimed by the assessee and raised a demand accordingly through the adjudication order.
The fundamental question before the Court was whether such delay in filing returns could permanently extinguish the assessee's right to claim ITC, particularly in light of a subsequent statutory amendment introduced with retrospective effect.
The Game-Changer — Retrospective Insertion of Section 16(5)
The assessee's primary argument before the Karnataka High Court rested on the retrospective insertion of Section 16(5) into the CGST Act, 2017, made effective from 1 July 2017.