Interest Demand on Belated ITC Quashed; Retrospective Regularization of Section 16(4) applies to Interest too

Issue

Whether interest under Section 50 can be demanded on Input Tax Credit (ITC) claimed belatedly (beyond the Section 16(4) deadline), when the substantive ITC claim itself has been regularized by a retrospective statutory amendment (or court order giving effect to it).

Facts

Period: 2018-19.
The Dispute: The Department issued notices (ASMT-10/DRC-01) proposing to reverse ITC claimed in violation of the time limit under Section 16(4).
Regularization: In an earlier Writ Petition (WP No. 16289 of 2025), the High Court/Statute had regularized this belated ITC claim (likely referring to the insertion of Section 16(5) via Finance Act, 2024, which allows ITC for FY 17-18 to 20-21 if filed up to 30.11.2021).
The Residual Demand: Despite the ITC being regularized, the Department proceeded to demand interest on the “belated” availment and initiated recovery (DRC-13).
Petitioner’s Stand: Since the retrospective amendment regularizes the availment itself as if it were valid from the start, demanding interest for “delayed” availment is arbitrary and contradictory.

Decision

Arbitrary Recovery: The High Court held that once the belated availment of ITC stands regularized by a statutory insertion or court order, the foundation for levying interest (i.e., that the availment was “wrong” or “delayed” at that time) dissolves.
No Interest on Regularized ITC: Determining interest on an amount that the law now deems to have been validly claimed is arbitrary.
Ruling: The recovery notice (DRC-13) was quashed. The matter was remanded for reconsideration specifically to align with the earlier order regularizing the ITC.

Key Takeaways

Section 16(5) Effect: The new Section 16(5) (Finance Act, 2024) is a non-obstante clause that regularizes ITC claims for FY 2017-18, 2018-19, 2019-20, and 2020-21 filed up to 30.11.2021. The Department cannot levy interest on these claims because the provision deems them to be in accordance with the law retrospectively.

Check your DRC-07: If you have received orders demanding interest solely because you filed your GSTR-3B late (but before Nov 2021) for the initial years of GST, you can challenge the demand citing this regularization.

HIGH COURT OF MADRAS

Rivera Enterprises

Commercial Tax Officer (STO)

C. Saravanan, J.

WP No. 40833 of 2025
WMP. Nos. 45765 and 45766 of 2025

OCTOBER 30, 2025

K. Sureshkumar for the Petitioner. Mrs. K.Vasanthamala, GA for the Respondent.

ORDER

1. In this Writ Petition, the petitioner has challenged the impugned assessment order dated 08.03.2024 and the impugned garnishee order dated 01.09.2025 in DRC-13.

2. Earlier the Petitioner was issued with GST ASMT-10 under Rule 99(1) on 19.05.2022. In the aforesaid intimation in GST ASMT-10, the petitioner was called upon to reverse the sum of Rs.6,68,257/- being the input tax credit availed on IGST belatedly beyond the limitation prescribed under Section 16(4) of the respective enactments. As the petitioner failed to reverse the same, earlier an order came to be passed on 29.04.2024 in response to the notice in DRC-01 dated 19.12.2023.

3. The above order was successfully challenged by the petitioner before this Court in Rivera Enterprises v. Deputy State Tax Officer, Chengalpattu [WP. No.16289 of 2025, dated 2.7.2025] in the light of the statutory intervention with the insertion of Rule 16(5) to the respective GST Rules vide SO 453(E) with retrospective effect from 01.07.2017 inserted by Finance (No.2) Act, 2024 (15 of 2024) dated 16.08.2024.

4. Vide order dated 02.07.2025 in WP.No.16289 of 2025, the impugned order therein was set aside following the views taken by this Court earlier in a batch of Seeniselvam v. Regional Passport Officer [W.P.(MD) No. 25081 of 2024], etc. batch, vide order dated 17.10.2024.

5. As far as the input tax credit of IGST, which was also availed belatedly is concerned, the same stands now regularised by virtue of the order dated 02.07.2025 in WP.No.16289 of 2025. The impugned order dated 08.03.2024 and the consequent impugned recovery notice in DRC-13 dated 01.09.2025 are concerned, prima facie indicates are for recover the interest on account of the belated availing of the input tax credit on the IGST during the tax period 2018-19.

6. The amount of IGST in the mentioned impugned order also matches with the amount mentioned in Form GST ASMT-10 for a sum of Rs.6,68,257/-, which was the subject matter of the challenge before this Court in WP.No.16289 of 2025 in order dated 27.12.2025. Rs.6,88,527/- appears to be a typographical error.

7. Therefore, the impugned order of recovery proceedings in DRC-13 dated 01.09.2025 pursuant to the impugned order dated 08.03.2024 are arbitrary as the belated availing of the input tax credit has been regularised by way of statutory intervention as mentioned above, in view of the order of the Writ Court dated 02.07.2025 in WP.No.16289 of 2025.

8. Considering the over all circumstances of the case, the case is remitted back to the respondents to pass a fresh order taking note of the order of the Writ Court in WP.No.16289 of 2025 as expeditiously as possible. Since the matter is remitted back to the respondents to redo the exercise afresh in the light of the above observations, the recovery proceedings in DRC-13 dated 01.09.2025 stands quashed. Accordingly, this Writ Petition is disposed of. No costs. Consequently, connected miscellaneous petitions are closed.