Analysis of Sub Section 16(4) of the CGST Act 2017 in the backdrop of Sub Section 16(5)

[K Balasubramanian]

1. Introduction: The sub section 16(4) creates a curb on availment of ITC after 30^th November of the immediately preceding Financial Year. Thus, credits based on invoice or debit note pertaining to the current financial year 2024-25 to be availed latest by 30/11/2025.  Even this limit of 30^th November is available only with effect from 01/10/2022, prior to which the limit was only up to corresponding October.

2. Insertion of 16(5): Notification Number 17/2024 Central Tax dated 27/09/2024 inserted this sub section which shall be effective from 01/07/2017 itself. In short, this sub section allows ITC pertaining to the period up to 31/03/2021 provided that all the returns up to 31/03/2021 are filed latest by 30/11/2021. This is a welcome step and there are only two aspects to be looked into. One is ITC for the period from 01/07/2017 till 31/03/2021 is available in applicable cases. Two is that all the returns pertaining up to the period 31/03/2021 SHOULD HAVE BEEN filed latest by 30/11/2021 to avail this benefit.

3. Non-Obstante Clause: The newly inserted sub section 16(5) starts with Notwithstanding anything contained in sub section 4. This would simply mean that sub section 5 of Section 16 shall be having overriding effects on sub section 4 and hence, when one need to rely on 16(5), nothing contained in sub section 16(4) prevents him from relying so on sub section 16(5).

4. Intervening Period: As the insertion of sub section 16(5) was through Finance  Act (No 2) 2024 which was inserted on 27/09/2024, taxpayers who got the orders prior to the insertion of sub section 16(5) were forced to approach the Jurisdictional High Courts to seek the required relief. However, as neither the proper officer nor the taxpayer was aware of 16 (5), CBIC is liberal on 16(5) and any taxpayer who is entitled to benefits of 16(5) may act quickly to seek the desired relief as discussed in para 14.

5. High Courts: Several High Courts are taking a uniform stand wherever the writs were fled on 16(4) curbs and the benefits of 16(5) are available by directing the proper officer to re- adjudicate the original order in line with the sub section 16(5)

6. Case Laws: This article is to create awareness on this burning issue by analyzing four case laws on identical issues. The legislative intent of the insertion of the sub section 16(5) on 27/09/2024 is abundantly clear that for the period from 01/07/2017 till 31/03/2021, ITC may be availed subject to the ONE AND ONLY condition that the applicable GSTR 3B  for the period up to 31/03/2021 were filed latest by 30/11/2021.

7. Karnataka High Court: The constitutional validity of sub section 16(4) was challenged by the petitioner even before the insertion of sub section 6(5). The High Court ruled on 24/09/2024 in the case of M/S. SRI. GANAPATHY ALUMINIUM AND HARDWARES VERSUS THE UNION OF INDIA NEW DELHI, THE STATE OF KARNATAKA, THE COMMISSIONER OF COMMERCIAL, THE ASSISTANT COMMISSIONER OF COMMERCIAL TAXES BANGALORE - 2025 (1) TMI 112 - KARNATAKA HIGH COURT that based on the proposal contained in the Finance Bill (No 2) 2024, the order denying ITC under section 16(4) to be re-adjudicated. However, the High Court did not express any opinion on constitutional validity of Section 16(4).

8. Madras High Court: On identical issues, the Madras High Court allowed the writ on 17/10/2024 in the case of SRI GANAPATHI PANDI INDUSTRIES, REP. BY ITS PROPRIETOR VERSUS THE ASSISTANT COMMISSIONER (STATE TAX) (FAC) TONDIARPET ASSESSMENT CIRCLE, CHENNAI - 2024 (10) TMI 1631 - MADRAS HIGH COURT. The respondents shall have liberty to pass orders in line with the Law.

9. Madhya Pradesh High Court: The High Court held on 22/11/2024 in the case of M/S ANAND STEEL (TRADE NAME) (PRO. SHRI JAGDISH KUMAR MANSUKHANI) , M/S DIGIANA INDUSTRIES PRIVATE LIMITED, M/S VITAL TRENDS PRIVATE LIMITED, M/S DOSHI AGENCY (TRADE NAME) (PRO. SHRI PRAVEEN KUMAR PARIKH) , M/S EKTA ENTERPRISES TRADE NAME (PROP. SHRI SURESH KUMAR MANSUKHANI) , M/S ARIHANTAM INFRAPROJECTS PRIVATE LIMITED, M/S UB INFRASTRUCTURE (PROP. VIKARAM ANJANA HUF) , M/S MODERN RETAIL (TRADE NAME) (PROP. SAPNA CHANDNANI) , M/S SAWRIYA CONSTRUCTION (PROP. JITENDRA SINGH SAWNER) , VERSUS UNION OF INDIA AND OTHERS AND M/S SHREENATH AGRO ENTERPISES, M/S ABDUL PARVEJ KHAN CONTRACTOR VERSUS UNION OF INIDA THROUGH THE CENTRAL BOARD OF INDIRECT TAXEX AND CUSTOMS THROUGH ITS CHAIRMAN AND OTHERS - 2024 (11) TMI 1332 - MADHYA PRADESH HIGH COURT that SCNs and Adjudication orders passed relying on 16(4) are set aside with liberty to State to deal with the case with the amended provisions under section 16(5).

10. Gujarat High Court: The High Court held on 11/12/2024 in the case of SHIV CONSTRUCTION COMPANY (AXAYKUMAR PRAVINBHAI DESAI, PARTNER) VERSUS THE ADDITIONAL COMMISSIONER (APPEALS) - 2025 (1) TMI 774 - GUJARAT HIGH COURT that as the developments took place subsequent to passing of the orders, the orders passed by appellate authority are set aside and the matter is remanded to the adjudicating authority for passing a fresh  denova order.

11. Observations: In all the four cases discussed above, the High Courts are taking almost UNIFORM STAND. However, as the developments took place after passing of the adjudication order appellate orders, the High Courts have concluded that re-adjudication is necessary to pass on the applicable benefits arising out of 16(5).

12. Circular: The efforts of the CBIC in issuing the Circular number 237/31/2024 dated 15/10/2024 are laudable. CBIC has considered all cases at all levels where the taxpayer has not gone on writ with the jurisdictional high court and clarifies that the intended benefits are available subject to filing of rectification as per law.

13. Notification: Number 22/2024 Central Tax dated 08/10/2024 provides a time limit up to 07/04/2025 to seek the required relief.

14. Conclusion: Taxpayers who are entitled for relief under sub section 16(5) but not acted so far may act immediately to apply in time for rectification. As only few days are left with for filing such rectifications as explained in para 3.5.1 of the Circular dated 15/10/2024.  Both the Circular Number 237/31/2024 as well as the Notification Number 22/2024 dated 08/10/2024 are crucial.