Kerala High Court: ITC Cannot Be Denied Under Section 16(4) When Taxpayer Qualifies for Relief Under Section 16(5)

The Kerala High Court has provided significant relief to taxpayers by holding that Input Tax Credit (ITC) cannot be denied under Section 16(4) of the CGST Act where the taxpayer satisfies the conditions prescribed under Section 16(5). The ruling reinforces the legislative intent behind the special relaxation introduced for past tax periods and offers an important precedent for businesses facing similar disputes.

Background of the Case

Case: Chellakudam Varghese Devassykutty v. State Tax Officer
Court: Kerala High Court
Citation: WP(C) No. 17328 of 2026

The petitioner had claimed ITC relating to the tax period of March 2020. However, the tax authorities denied the credit on the ground that the relevant GST returns were not furnished within the time limit prescribed under Section 16(4) of the CGST Act.

The petitioner challenged the denial and relied on Section 16(5) of the CGST Act, a special provision inserted subsequently to provide relief to taxpayers for certain past periods.

Understanding Section 16(5)

Section 16(5) was introduced through the Finance Act, 2023 and provides a one-time relaxation for claiming eligible ITC relating to financial years 2017-18, 2018-19, 2019-20, and 2020-21, subject to specified conditions.

The provision allows eligible taxpayers to avail ITC where the relevant return was furnished on or before 30 November 2021, notwithstanding the time restriction contained in Section 16(4) of the CGST Act.

The section begins with a non-obstante clause, which means it overrides conflicting provisions contained in Section 16(4).

Key Facts Considered by the Court

The Court noted the following:

• The petitioner’s ITC pertained to March 2020.
• The GST return had been filed on 31 December 2020.
• The filing date was well before the cut-off date of 30 November 2021 prescribed under Section 16(5).
• The denial of ITC was based solely on the limitation contained in Section 16(4).

Decision of the Kerala High Court

The Kerala High Court ruled in favour of the taxpayer and observed that:

• Section 16(5) contains an overriding provision that prevails over Section 16(4).
• Once a taxpayer satisfies the conditions prescribed under Section 16(5), the limitation under Section 16(4) cannot be used to deny ITC.
• Since the petitioner had filed the relevant return before 30 November 2021, the benefit of Section 16(5) was available.
• The tax authority was not justified in rejecting the ITC claim solely on the basis of Section 16(4).

Accordingly, the Court:

• Quashed the ITC denial order.
• Directed the concerned authority to reconsider the matter.
• Ordered the grant of relief under Section 16(5), subject to fulfilment of other eligibility conditions.

Practical Impact for Taxpayers

This judgment is particularly relevant for businesses whose ITC claims were denied due to delayed filing of returns for earlier financial years.

Taxpayers should review:

• Orders denying ITC solely under Section 16(4).
• Whether the relevant returns were filed on or before 30 November 2021.
• Eligibility to seek relief under Section 16(5) where disputes are pending.

The decision highlights that beneficial statutory relaxations introduced by the legislature must be given full effect and cannot be defeated by relying on the original time limitation provisions.

Conclusion

The Kerala High Court has reaffirmed that Section 16(5) provides a substantive relaxation for eligible taxpayers and overrides the time restriction contained in Section 16(4). Where the prescribed conditions are satisfied, ITC cannot be denied merely because the claim would otherwise be time-barred under the original provision.

Businesses facing similar disputes should evaluate whether they are entitled to relief under Section 16(5) and consider appropriate legal remedies where ITC has been denied.

For expert guidance on this topic, contact your tax professional today.