The Goods and Services Tax Appellate Tribunal (GSTAT), State Bench at Ghaziabad, has set aside the denial of input tax credit (ITC) of ₹20,94,605, holding that credit covered by retrospective Section 16(5) cannot be rejected merely because of incorrect disclosure or carry-forward reporting in GSTR-9 and GSTR-9C.

The bench of Sanjay Kumar Chandhariyavi (Judicial Member) and Sungita Sharma (Technical Member) quashed the consequential penalty of ₹2,09,461 and set aside any interest attributable exclusively to the disputed ITC demand. It held that the department could not sustain a demand originally founded on the time restriction under Section 16(4) by subsequently introducing allegations that supplies had not been received or that suppliers had not paid tax.

Buy Now: E-Magazine: 1000+ Landmark GST Judgments (2017–2026)

The appellant/assessee provides freight forwarding, logistics, customs house agency and transportation support services.

During scrutiny of its returns for FY 2019–20, the Uttar Pradesh State GST Department issued a notice in Form GST ASMT-10 dated August 8, 2022. The department identified differences between GSTR-3B and GSTR-2A, an outward-tax mismatch, and variations between annual returns, reconciliation statements and the company’s accounts.

A subsequent show-cause notice dated February 20, 2023, issued under Section 73, alleged an ITC mismatch of ₹32,30,798 between GSTR-3B and GSTR-2A, an outward-tax mismatch of ₹53,00,589, and a turnover variation of ₹2,00,097 between GSTR-9 and GSTR-9C. It also questioned differences between the turnover in the profit and loss account and GSTR-9 relating to multiple State registrations.

The company explained that ITC of ₹34,21,676 pertained to FY 2018–19 and was reflected in GSTR-2A for that financial year. Of this amount, ₹13,27,071 had been availed before September 30, 2019, while the remaining ₹20,94,605 was claimed between October 2019 and March 2020 because supplier invoices were received late.

It maintained that the supplies were genuine, the suppliers had paid tax to the Government, and the conditions for claiming ITC had been fulfilled.

Adjudicating Authority Denied Credit On Limitation Grounds

The adjudicating authority allowed the credit of ₹13,27,071 claimed up to September 30, 2019. However, it disallowed ₹20,94,605 claimed between October 1, 2019, and March 31, 2020, treating it as time-barred under Section 16(4).

According to the Tribunal’s account of the proceedings, the adjudicating authority confirmed a total demand of ₹32,46,638, comprising IGST of ₹20,94,605, interest of ₹9,42,572 and penalty of ₹2,09,461.

The first appellate authority upheld the demand by an order dated May 6, 2025. It also relied on deficiencies in carry-forward disclosures in GSTR-9 and GSTR-9C, the absence of supplier or professional certificates, and alleged non-compliance with the conditions concerning receipt of supplies and payment of tax under Section 16(2).

The company challenged that decision before the GSTAT.

Retrospective Amendment Removed The Original Time Bar

The Tribunal examined Section 16(5), which permits ITC relating to FY 2017–18, FY 2018–19, FY 2019–20 and FY 2020–21 to be taken in a return under Section 39 filed up to November 30, 2021, notwithstanding the restriction in Section 16(4).

The disputed credit related to FY 2018–19 and had been taken through GSTR-3B returns filed between October 2019 and March 2020. Those returns were filed before the deadline prescribed by Section 16(5).

The Tribunal therefore held that the retrospective amendment removed the original basis for denying the credit. The company was relying on an express statutory entitlement created by Parliament, rather than seeking a discretionary relaxation of the earlier deadline.

Department Cannot Introduce New Grounds To Preserve The Demand

A central issue was whether the department could sustain the demand by relying on alleged non-receipt of supplies or non-payment of tax by suppliers when those allegations did not form the basis of the original notice and adjudication.

The Tribunal found that the original disallowance rested on Section 16(4). The original adjudication contained no independent finding of non-receipt under Section 16(2)(b) or non-payment of tax under Section 16(2)(c).

It applied Section 75(7), which prohibits confirmation of a demand on grounds other than those specified in the notice. Relying on the Supreme Court’s decision in SACI Allied Products Ltd. v. Commissioner of Central Excise, Meerut, the bench held that a demand cannot be sustained on a new and different basis outside the show-cause notice.

Once Section 16(5) removed the limitation-based foundation, the department could not preserve the same demand by constructing a fresh case under Section 16(2)(b) or Section 16(2)(c).

The Tribunal nevertheless clarified that Section 16(5) does not cure substantive ineligibility. Allegations involving fake invoices, non-receipt of supplies, blocked credit or other statutory defects may still be raised, proved and adjudicated through proceedings conducted in accordance with law.

GSTR-3B Qualifies As A Return Under Section 39

The Revenue also contended that the disputed credit had not been taken in a return under Section 39 because it was claimed through GSTR-3B.

Rejecting this submission, the Tribunal relied on the Supreme Court’s decision in Union of India v. Bharti Airtel Ltd. It held that GSTR-3B is a return within the meaning of Section 39.

Consequently, the company’s claim through GSTR-3B satisfied the requirement in Section 16(5) that credit be taken in a return under Section 39 filed by November 30, 2021.

GSTR-9 And GSTR-9C Errors Cannot Extinguish Credit Already Availed

The Tribunal rejected the first appellate authority’s reliance on the manner in which credit was disclosed or carried forward in annual reporting documents.

It explained that GSTR-9 is an annual return and GSTR-9C is a reconciliation statement. Neither is the Section 39 return through which the disputed credit was taken.

Section 16(5), the bench held, does not make entitlement dependent on correct disclosure in a particular column of GSTR-9, correct carry-forward reporting in GSTR-9C, or the absence of an annual reconciliation discrepancy.

Where the credit was taken through a qualifying return within the statutory deadline, a subsequent reconciliation error could not retrospectively turn that credit into credit that had never been availed.

The Tribunal observed that annual return discrepancies may prompt verification, but they do not, by themselves, create, extinguish or alter the character of ITC already taken through GSTR-3B.

Availment And Utilisation Of ITC Are Different Events

The bench also distinguished between taking credit and using it to discharge output tax liability.

Availment occurs when eligible credit is claimed through the prescribed return and credited to the electronic credit ledger. Utilisation occurs when that ledger is subsequently debited towards payment of output tax.

The Tribunal held that Sections 16(4) and 16(5) govern the time for taking credit. They do not require credit validly taken within the permitted period to be fully utilised within that same period.

Accordingly, later utilisation of credit protected by Section 16(5) cannot be treated as delayed availment.

Rectification Procedure Does Not Control Statutory Entitlement

The Revenue’s objection concerning Notification No. 22/2024-Central Tax was also rejected.

The Tribunal explained that the notification provides a special procedure for rectifying specified orders where credit denied under Section 16(4) subsequently became available under Section 16(5) or Section 16(6). That procedure applies where no appeal against the order has been filed.

Although filing an appeal may prevent a taxpayer from using that particular rectification mechanism, it does not remove the substantive entitlement arising directly from Section 16(5).

The Tribunal also referred to Circular No. 237/31/2024-GST, which addresses the application of the retrospective provisions in pending proceedings and appeals.

Consequential Interest And Penalty Set Aside

Having held that the disputed credit could no longer be treated as wrongly availed, the Tribunal concluded that interest based exclusively on that alleged wrongful availment could not survive.

It noted that the demand summary recorded determined interest as nil. Nevertheless, it expressly held that any interest remaining or sought to be recovered on the disputed ₹20,94,605 credit was unsustainable.

The penalty of ₹2,09,461 under Section 73(9) was also set aside because its sole foundation—the alleged time-barred availment—had disappeared following the retrospective amendment.

The bench clarified that this finding does not mean every independent GST penalty falls whenever a tax demand is quashed. Penalties for separate, independently established contraventions must be considered under their applicable statutory provisions.

Allowing the appeal, the Tribunal set aside the denial of ₹20,94,605 in IGST credit and held that the claim was protected by retrospective Section 16(5).

It also quashed the consequential penalty and any interest attributable exclusively to that demand. The company was granted consequential relief in accordance with law, including appropriate treatment or refund of its statutory pre-deposit, subject to the governing refund provisions.

Membership Required to Access Case Details & Order Copy

To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.

Read More: Marriage Reaches ‘Dead End’: SC Grants Divorce Granted With ₹35 Lakh Alimony