Madras
High Court Upholds ITC Claims for Delayed Filings: A Landmark Judgment on GST
Compliance
By Yogesh Verma (CS/LLB) / 2 min read / GST Case Law
Introduction
The Goods and Services Tax (GST) regime in India has
undergone several amendments since its inception in 2017. One of the key issues
faced by businesses has been the timely availing of Input Tax Credit (ITC),
which allows taxpayers to claim credit for taxes paid on purchases. However,
procedural delays and compliance issues have led to disputes between taxpayers
and the tax department.
A recent case, M/s. Ghalaxy International Industries vs.
The State Tax Officer (W.P. No. 3584 of 2025), decided by the Madras
High Court on 05.02.2025, has brought significant relief to taxpayers
facing ITC reversals due to delayed filings. The court, while relying on an
earlier decision in W.P. No. 25081 of 2024, quashed the impugned order
reversing ITC claims and reinforced the principle that taxpayers should not be
penalized unfairly when subsequent policy changes extend the eligibility
period.
This article provides an in-depth analysis of the case, the
arguments presented, the legal provisions involved, and the implications of the
judgment.
Case Details
- Case
Name: M/s. Ghalaxy International
Industries vs. The State Tax Officer
- Case
Number: W.P. No. 3584 of 2025
- Court: High Court of Judicature at Madras
- Date
of Judgment: 05.02.2025
- Presiding
Judge: Hon’ble Mr. Justice Krishnan
Ramasamy
- Petitioner’s
Counsel: Mr. A.N.R. Jayaprathap
- Respondent’s
Counsel: Mr. U. Baranidaran
(Additional Government Pleader - T)
Background of the Case
M/s. Ghalaxy International Industries, a registered taxpayer
under the GST Act, 2017, had filed its GSTR-1 returns on time but was
unable to file GSTR-3B returns due to financial constraints and other
operational difficulties. Consequently, the petitioner was unable to claim ITC
of ₹18,46,964, leading to a show cause notice from the State Tax
Officer, Kumarapalayam Assessment Circle.
The tax department proceeded with reversing the ITC claim
and imposed penalties and interest, citing Section 16(4) of the CGST Act,
2017, which prescribes a time limit for claiming ITC. Aggrieved by this
decision, the petitioner approached the Madras High Court seeking
relief, arguing that the issue had already been settled in W.P. No. 25081 of
2024, where a batch of similar petitions was allowed based on a subsequent
amendment extending the ITC claim deadline.
Arguments Presented in Court
Petitioner’s Submissions
1.
Precedent
from W.P. No. 25081 of 2024: The
petitioner relied on the earlier judgment, where the court ruled that ITC
claims should be allowed considering practical difficulties faced by
taxpayers, especially during the COVID-19 pandemic.
2.
Extension
of ITC Deadline: The petitioner cited the 53rd
GST Council Meeting (22.06.2024), which recommended extending the deadline
for claiming ITC for FYs 2017-18 to 2020-21 until 30.11.2021.
3.
Amendment
to Section 16(4): The petitioner highlighted that Section
16(5) was introduced with retrospective effect from 01.07.2017, allowing
ITC claims until 30.11.2021.
4.
No Revenue
Loss to the Government: Since
the taxes were already paid to the government, denying ITC due to procedural
delays would be unjust and against the principles of GST, which allows
seamless credit flow.
Respondent’s Submissions
1.
The State Tax Officer
initially defended the ITC reversal based on Section 16(4) of the CGST Act,
which mandates that ITC must be claimed before the deadline.
2.
However, the Additional
Government Pleader (T) conceded that the issue was already settled in W.P.
No. 25081 of 2024 and agreed that the same relief should be extended to the
petitioner.
Court’s Findings and Judgment
Findings of the Court
1.
Impact of
GST Council’s Decision: The
court took note of the 53rd GST Council Meeting recommendations, which
proposed extending the ITC claim period. The recommendation was accepted by the
Government of India and given effect through the Finance Act (No.2)
of 2024.
2.
Legal
Amendment to Section 16(4): The
court analyzed the amendment to Section 16 of the CGST Act, 2017,
particularly the insertion of Section 16(5), which allowed ITC claims
for FYs 2017-18 to 2020-21 up to 30.11.2021.
3.
Precedent
from W.P. No. 25081 of 2024: Since a
batch of similar writ petitions had already been allowed, the court ruled that
denying the same relief to the petitioner would amount to discrimination and
violation of the principles of equity.
Judgment
The Madras High Court allowed the writ petition and
passed the following orders:
1.
Quashing
of the ITC Reversal Order: The
impugned order reversing ₹18,46,964/- ITC was quashed.
2.
Restriction
on Further Proceedings: The State
Tax Officer was restrained from initiating any proceedings against
the petitioner on the ITC limitation issue.
3.
De-Freezing
of Bank Accounts: If the tax department had frozen
the petitioner’s bank accounts due to the order, immediate de-freezing
was directed.
4.
Refund or
Adjustment of Tax Collected: If the
department had already collected any amount under the impugned order, it had to
be refunded or adjusted against future tax liabilities.
Legal and Practical Implications of
the Judgment
1. Precedent for Future ITC Disputes
This judgment reinforces the principle that taxpayers
cannot be penalized unfairly for procedural delays, especially when policy
changes provide relief. Other businesses facing ITC reversals due to
similar circumstances can rely on this ruling to challenge adverse orders.
2. Interpretation of GST Law in
Favor of Taxpayers
The ruling highlights the judiciary’s approach to GST
compliance, ensuring that taxpayers are not burdened by strict procedural
limitations when substantive compliance is met.
3. Impact of GST Council
Recommendations
This case demonstrates the binding nature of GST
Council recommendations, which play a crucial role in shaping tax
administration.
4. Protection Against Harsh Taxation
Policies
The judgment upholds the taxpayer-friendly intent of GST,
ensuring that the objective of seamless ITC flow is not obstructed due
to administrative constraints.
Conclusion
The Madras High Court’s decision in M/s. Ghalaxy
International Industries vs. The State Tax Officer marks a significant
victory for taxpayers, reaffirming their right to claim ITC despite
procedural delays, provided they comply with retrospectively extended
deadlines.
By quashing the ITC reversal order, the court not
only upheld the principles of equity and fairness but also set an
important precedent for future GST litigation. This ruling sends a strong
message that administrative hurdles should not override substantive tax
benefits, ensuring that the ITC mechanism functions as intended under
the GST law.
Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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