Retrospective Relief for Belated ITC: The Finance Act 2024 Shield

Retrospective Relief for Belated ITC: The Finance Act 2024 Shield

This ruling for AY 2026 (delivered in early 2026) reflects one of the most significant legislative “corrections” in the history of GST. It provides a life jacket to thousands of taxpayers who were denied Input Tax Credit (ITC) simply because they filed their returns after the strict deadlines of Section 16(4).

The Legal Issue

Can the Department deny ITC for early years of GST (FY 2017-18 to 2020-21) on the grounds of “limitation” if the taxpayer eventually filed the returns and paid the tax with late fees?

The “Game-Changing” Amendment

Through the Finance (No. 2) Act, 2024, the Government inserted two new sub-sections to Section 16, with retrospective effect from July 1, 2017:

• Section 16(5): It overrides the standard time limit. For invoices pertaining to FY 2017-18, 2018-19, 2019-20, and 2020-21, the ITC is deemed to be validly availed if the return (GSTR-3B) was filed on or before November 30, 2021.

• Section 16(6): It provides relief for taxpayers whose registration was cancelled and later revoked. It allows them to claim ITC for the “intervening period” (from cancellation to revocation) if the return is filed within 30 days of the revocation order.

The Decision

The High Court (following the Madras High Court’s lead in cases like Selva Vilas Jewellery and Power Builders) ruled in favour of the assessee:

• Statutory Settlement: The Court held that the issue of “belated availment” is no longer a matter of debate. The retrospective amendment has removed the legal basis for denying credit solely because of the Section 16(4) time limit.

• Remand for Merits: While the “time limit” hurdle is gone, the Court clarified that ITC is not an unconditional right. The matter was sent back to the Adjudicating Authority to verify:

  1. Possession of a valid tax invoice (Section 16(2)(a)).

  2. Actual receipt of goods or services (Section 16(2)(b)).

  3. Payment of tax by the supplier to the Government (Section 16(2)(c)).

• Outcome: The original order (OIO) was set aside. If the petitioner proves compliance with all conditions other than the time limit, the tax demand, interest, and penalties must be dropped.

Key Takeaways for Taxpayers

• Check Your Dates: If your ITC was denied for the first four years of GST (2017–2021), check if your GSTR-3B for those periods was filed by Nov 30, 2021. If yes, your credit is now legally “settled” as valid.

• Rectification Opportunity: Under Circular No. 237/31/2024, taxpayers can apply for rectification of past orders within six months (usually until April 2025) if they didn’t file an appeal.

• No Refundo Rule: Note that while you can stop future demands, the law (Section 150 of Finance Act 2024) specifically states that no refund will be granted for taxes already paid or ITC already reversed before this amendment came in.