High
Court Rules in Favor of Taxpayer: A Major Relief on GST Input Tax Credit (ITC)
Claims
By Yogesh Verma (CS/LLB) / 2 min read / GST Case Law
Introduction
In a significant ruling, the Madras High Court provided
relief to M/s. Excel Engineering Enterprises by allowing their Input Tax Credit
(ITC) claim, which was earlier denied by the GST department due to filing
delays. The case highlights the impact of retrospective amendments to the Goods
and Services Tax (GST) law and sets a precedent for businesses facing similar
issues.
The judgment is particularly relevant to taxpayers who faced
operational and financial difficulties in the initial years of GST implementation,
especially during the COVID-19 pandemic. The ruling reinforces the principle
that taxpayers should not be penalized unfairly for procedural delays when
legislative amendments offer relief.
Case Details
Case Title:
M/s. Excel Engineering Enterprises v. Union of India & Ors.
Case Number: W.P. No. 13932 of 2021
Court: High Court of Judicature at Madras
Date of Order: 14th February 2025
Presiding Judge: Hon’ble Mr. Justice Krishnan Ramasamy
Petitioner: M/s. Excel Engineering Enterprises
Respondents:
1.
Union of India, Ministry of Finance,
Department of Revenue
2.
Central Board of Indirect Taxes and
Customs (CBIC)
3.
Commissioner of Commercial Taxes,
Chennai
4.
Under Secretary, CBIC
5.
Appellate Deputy Commissioner (GST),
Trichy & Vellore Division
6.
State Tax Officer (Intelligence),
Vellore
Background of the Case
Understanding Input Tax Credit (ITC)
and Its Importance
Under the GST system, businesses can claim ITC on taxes paid
for the purchase of goods and services, thereby reducing their overall tax
liability. However, this benefit is subject to compliance with statutory
deadlines. If a business fails to file its returns within the prescribed
timeframe, it risks losing the ITC, leading to increased tax payments.
Events Leading to the Dispute
M/s. Excel Engineering Enterprises, a registered taxpayer
under the GST regime, failed to file its GSTR-3B returns on time due to
financial difficulties and other operational constraints. Consequently, the tax
authorities denied their ITC claims under Section 16(4) of the CGST Act,
2017, which specifies the deadline for availing ITC.
As a result, the GST department issued a show cause notice
and subsequently passed an order reversing the ITC claim and imposing tax,
penalty, and interest. The petitioner challenged this order before the High
Court, arguing that the denial of ITC was unjust and contrary to recent
legislative changes that extended the ITC claim period.
Legal Arguments Presented in Court
Petitioner’s Contentions
1.
Delay Due
to Exceptional Circumstances:
The petitioner argued that the delay in filing returns was not deliberate but
was caused by financial difficulties and disruptions due to the COVID-19
pandemic.
2.
Retrospective
Amendment to GST Law: The Finance Act (No.2) of 2024
introduced Section 16(5) of the CGST Act, which extended the deadline
for ITC claims for financial years 2017-18 to 2020-21 to November 30,
2021.
3.
Wrongful
Denial of ITC: Since the petitioner had filed its
GSTR-3B before the newly extended deadline, its ITC claim should have been
allowed under the amended law.
4.
Unfair
Taxation: The petitioner contended that
denying ITC led to double taxation—once at the supplier’s end and again at the
recipient’s end—contrary to the principles of fair taxation.
Respondents’ Arguments
1.
Strict
Compliance with Deadlines: The tax
authorities argued that Section 16(4) imposed a clear deadline for availing ITC
and that failure to comply with this deadline resulted in automatic forfeiture
of credit.
2.
No
Automatic Application of Amendments:
The department maintained that the amendment extending ITC claim deadlines
should not automatically apply to all cases and should be assessed on a
case-by-case basis.
3.
Risk of
Fraudulent Claims: The authorities expressed concerns
that extending ITC claim deadlines could encourage fake or excess claims.
Findings and Judgment of the High
Court
Recognition of Retrospective
Amendment
The High Court acknowledged that the Finance Act (No.2)
of 2024 introduced an amendment to Section 16 of the CGST Act,
allowing ITC claims for past financial years up to November 30, 2021.
This amendment was given retrospective effect, meaning it applied to ITC
claims for earlier years as well.
Quashing of the Tax Department’s
Order
The court ruled that the tax department wrongfully denied
ITC to the petitioner without considering the retrospective amendment.
Consequently, the impugned order was quashed, and the authorities were
directed to reverse their decision.
Relief Granted to the Petitioner
1.
Restoration
of ITC Claim: The court held that the
petitioner’s ITC claim was valid and should be allowed as per the amended law.
2.
Protection
from Further Action: The tax authorities were restrained
from taking any further action against the petitioner based on the reversed
ITC claim.
3.
De-freezing
of Bank Accounts: Since the impugned order led to the
freezing of the petitioner’s bank account, the High Court ordered the
authorities to de-freeze it immediately.
4.
Refund of
Collected Tax: If any tax had already been
collected from the petitioner under the impugned order, it was to be refunded
or adjusted against future tax liabilities.
Clarification on Other ITC Disputes
The court clarified that if there were any other
allegations, such as fake or excess ITC claims, the tax authorities could
pursue separate investigations in accordance with the law. However, the
current case strictly related to the issue of ITC denial due to delayed
filing and was resolved in favor of the petitioner.
Significance of the Judgment
Recognition of Legislative Intent
The ruling reinforced the legislative intent behind the
Finance Act (No.2) of 2024, which aimed to provide relief to taxpayers by extending
ITC claim deadlines for past financial years. The court emphasized that retrospective
amendments must be implemented fairly and should not be ignored by tax
authorities.
Precedent for ITC Disputes
The judgment sets a precedent for other businesses facing
similar ITC denial issues. Taxpayers who filed their GSTR-3B returns
within the extended deadline may now cite this ruling to support their
claims.
Relief for Businesses Affected by
the Pandemic
The decision acknowledges the difficulties faced by
businesses during the COVID-19 pandemic and ensures that taxpayers are not
unfairly penalized for procedural delays caused by exceptional circumstances.
Strengthening of Taxpayer Rights
The ruling strengthens taxpayer rights under the GST
regime by affirming that tax laws should be applied in a manner
consistent with fairness and equity. It also discourages arbitrary actions
by tax authorities that may lead to unjust financial burdens on businesses.
Conclusion
The Madras High Court’s ruling in M/s. Excel Engineering
Enterprises v. Union of India & Ors. is a landmark decision in GST
litigation. It not only provides relief to businesses but also strengthens
the principle of fair taxation. By allowing ITC claims based on
retrospective amendments, the court has ensured that genuine taxpayers are not
unfairly penalized for procedural delays.
This judgment will serve as an important precedent
for future disputes over ITC claims and emphasizes the need for a more
taxpayer-friendly approach in GST administration. Businesses should take
note of this ruling and ensure compliance with the latest GST laws to
avoid similar disputes in the future.
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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