Kerala High Court Overturns ITC Rejection, Mandates Re-evaluation Under Section 16(5) of CGST Act

The intersection of strict statutory deadlines and substantive tax benefits frequently leads to litigation under the Goods and Services Tax (GST) regime. A prominent area of dispute revolves around the time limits for claiming Input Tax Credit (ITC). In a significant judicial intervention, the Kerala High Court, in the matter of Ezhupunna South Service Co-Operative Bank Limited Vs State Tax Officer, addressed the denial of ITC stemming from delayed return filings. The Court evaluated the protective umbrella offered by Section 16(5) of the CGST Act, providing crucial relief to the assessee.

This article provides a comprehensive summary and legal analysis of the judgment delivered in WP(C) No. 23682 of 2026 on 16/07/2026, exploring the statutory interpretations of the relevant provisions under the CGST Act and the SCGST/KSGST Act.

Factual Matrix of the Dispute

The assessee, a registered entity operating under the framework of the SCGST/KSGST Act, found itself aggrieved by an assessment order designated as Ext.P4. This specific order was issued by the proper officer under Section 73 of the CGST Act, pertaining to the financial year 2019-2020.

The assessing authority had finalized the assessment and raised a demand primarily on two distinct statutory grounds:

  1. Delayed Filing of Returns: The tax department disallowed the ITC claimed by the assessee for the tax periods spanning from October 2019 to March 2020. The rationale provided was that the assessee had failed to furnish the requisite returns within the strict time limit prescribed under Section 16(4) of the CGST Act.
  2. Supplier Compliance Deficiencies: The authority also cited non-compliance with Section 16(2)(c) [referenced contextually alongside Section 2(c) in the initial proceedings], pointing out that the actual remittance of tax to the government exchequer by the respective suppliers had not been adequately substantiated.

Faced with the adverse assessment order, the assessee approached the Kerala High Court seeking judicial redress, arguing that statutory exceptions and procedural fairness warranted a re-evaluation of the ITC denial.

Submissions by the Assessee

The assessee mounted a two-pronged defense against the Ext.P4 assessment order, targeting both the time-bar issue and the supplier compliance issue.