Section 16(4) Demand Quashed; Retrospective Benefit of Section 16(5) Applied

Issue

Time-Barred ITC (Section 16(4)): Whether the demand raised for Input Tax Credit (ITC) availed after the statutory deadline (under Section 16(4)) for the financial year 2019-20 is sustainable.
Mismatch (3B vs 2A): Whether the demand based on the difference between GSTR-3B and GSTR-2A is valid.

Facts

Period: Financial Year 2019-20.
The Demand: The Department confirmed a demand against the petitioner-dealer on two counts:
1. Excess ITC availed when comparing GSTR-3B (claimed) with GSTR-2A (auto-populated).
2. Irregular availment of ITC alleged to be time-barred under Section 16(4) (i.e., taken after the September/November deadline of the following year).
Amount Involved: The specific demand related to the Section 16(4) issue was approximately Rs. 44,21,912.

Decision

Section 16(4) Settled by Statute: The High Court noted that the controversy regarding ITC availment timelines for FY 2017-18, 2018-19, 2019-20, and 2020-21 has been settled by the Finance (No. 2) Act, 2024.
Insertion of Section 16(5): A new sub-section, Section 16(5), was inserted with retrospective effect from 01-07-2017. This provision effectively extends the deadline for availing ITC for these initial years up to 30-11-2021.
Demand Quashed: Since the petitioner’s claim fell within this extended retrospective window, the demand of Rs. 44.21 lakhs was held to be unsustainable and was set aside.
Remand for Mismatch: Regarding the remaining issue (GSTR-3B vs 2A mismatch), the matter was remitted back to the assessing authority to pass a fresh order on merits (likely allowing the assessee to prove genuineness via invoices/ledgers).

Key Takeaways

The Section 16(5) Rescue: This is a massive relief for taxpayers. If you have any pending litigations or demands solely because you claimed ITC “late” for any period between July 2017 and March 2021, those demands are now invalid (provided the ITC was taken before 30th Nov 2021).
3B vs 2A is Separate: While the timeline issue is solved, the mismatch issue (3B vs 2A) still requires factual verification. You still need to produce invoices and proof of payment to the supplier to defend these differences.

HIGH COURT OF MADRAS

Sai Speed Medical Institute Pvt. Ltd.

Assistant Commissioner GST and Central Excise^*

C. Saravanan, J.

W.P. No. 47809 of 2025
W.M.P. No. 53378 of 2025

DECEMBER 9, 2025

A. Shabnam Banu for the Petitioner. Rajendran Raghavan, Senior Standing Counsel for the Respondent.

ORDER

1. Mr. Rajendran Raghavan, learned Senior Standing Counsel takes notice for the Respondent.

2. This Writ Petition is being disposed of at the stage of admission itself with the consent of the learned counsel for the Petitioner and the learned Senior Standing Counsel for the Respondent.

3. The Petitioner is before this Court against the impugned order in Original No.30/2024 dated 26.08.2024. By the impugned order, the proposal in Show Cause Notice No.07/2024 dated 15.05.2024 has been confirmed against the Petitioner as follows:-

S. No	Issue Involved	Amount Involved (in Rupees)
1	Excess ITC availed on comparison between GST – 3B and GSTR – 2A for FY 2019-20	6,10,854
2	Irregular availment of ITC in terms of Section 16(4) of the CGST Act, 2017	44,21,912
3	Non-Payment of Interest for belated payment of GST and late filing of GST Returns	11,14,737
4	Late fee on belated filing of GSTR – 9 return	As applicable

4. As far as the demand in the above table in Sl.No.2 is concerned, the issue is settled in favour of the Petitioner by way of a statutory intervention in view of the insertion of Section 16(5) to the respective GST enactments by Finance (No.2) Act, 2024 (15 of 2024) dated 16.08.2024 vide SO 4253(E) with retrospective effect from 01.07.2017. To that extent prima facie, the demand confirmed vide impugned order is not sustainable for a sum of Rs.44,21,912/-.

5. As far as the mis-match in details between GSTR-3B and GSTR-2A and non-payment of interest for belated payment of GST and late filing of GSTR – returns are concerned, admittedly, the Petitioner has not filed a reply to the Show Cause Notice in DRC – 01.

6. The learned counsel for the Petitioner further submits that the Petitioner also paid the late fee demanded vide impugned order on 05.07.2025.

7. Therefore, the case is remitted back to the Respondent to pass a fresh order on merits in respect of the surviving issues subject to the Petitioner depositing 50% of the disputed tax as confirmed in Sl. No.1 of the above table in cash from the Petitioner’s Electronic Cash Register, within a period of thirty (30) days from the date of receipt of a copy of this order.

8. Within such time, the Petitioner shall also file a reply to the Show Cause Notice in GST DRC-01 dated 15.05.2024 together with requisite documents to substantiate the case by treating the impugned Order dated 26.08.2024 as an addendum to the Show Cause Notice dated 15.05.2024.

9. In case the Petitioner complies with the above stipulations, the Respondent shall proceed to pass a final order on merits and in accordance with law as expeditiously as possible, preferably, within a period of three (3) months of such reply/pre-deposit. Subject to the Petitioner complying with the above stipulations, the attachment of the bank account of the Petitioner shall also stand automatically vacated.

10. It is made clear that bank attachment shall be lifted subject to the deposit of 50% of the disputed tax as ordered above and the Petitioner is not in arrears of any other amount barring the amount demanded under the impugned Order.

11. In case the Petitioner fails to comply with any of the stipulations, the Respondent is at liberty to proceed against the Petitioner to recover the tax in accordance with law as if this Writ Petition was dismissed in limine today.

12. Needless to state, before passing any such order, the Respondent shall give due notice to the Petitioner.

13. This Writ Petition stands disposed of with the above observations. No costs. Connected Writ Miscellaneous Petition is closed.