Facts of the Case

M/s TT Steel Service India Private Limited, incorporated under the Companies Act, had availed secondment services and paid IGST on them in October and November 2022 for services received during July 2017 to November 2022, but claimed the corresponding Input Tax Credit only subsequently. The department disallowed this ITC of about Rs. 1,99,60,521, treating it as a belated claim under Section 16(4) of the CGST Act, and the appellate authority upheld the disallowance through Order-in-Appeal No. MYS-GST-000-APP-PKS-15-2024-25 dated 23.01.2025. The petitioner approached the Karnataka High Court seeking to quash this order and to have it declared that no interest or Section 74 penalty was payable, since it had not made any belated payment of IGST as such.

Issues Involved

  1. Whether ITC on IGST paid belatedly on secondment/manpower supply services can be disallowed as time-barred under Section 16(4) of the CGST Act.
  2. Whether penalties under Section 74 were validly imposable on the facts of a bona fide valuation/timing dispute over secondment fees.

Petitioner's Arguments

  • The identical issue of time period for claiming ITC under Section 16(4) on secondment fees had already been considered and decided by a coordinate bench of the same High Court in M/s. Toyoda Gosei South India Pvt. Ltd. vs Joint Commissioner of Central Tax (WP No. 5598/2024, decided 03.04.2025), and the same reasoning should apply.
  • Penalties under Section 74 were not imposable on the facts, and the petitioner was entitled to consider decisions in Toyota Kirloskar Motor Pvt. Ltd. vs Union of India and Thales India Pvt. Ltd. vs Additional Commissioner of CGST, Audit-II, Delhi in support of its claim.

Respondent's Arguments

  • Learned counsel for the respondents confirmed that the submission regarding the applicability of the Toyoda Gosei ruling was correct and did not oppose the relief sought on that basis.

Court Order / Findings

  • Given the concession by respondents' counsel that the Toyoda Gosei precedent squarely applied, the Court found it unnecessary to independently adjudicate the Section 16(4) timing question.
  • The impugned Order-in-Appeal dated 23.01.2025 was quashed, and the petitioner was relegated to the stage of filing a reply to the original show cause notice, with liberty to rely on the Toyoda Gosei, Toyota Kirloskar Motor, and Thales India rulings before the adjudicating authority, and to seek the benefit of the Amnesty Scheme under Section 128A by converting the proceedings from Section 74 to Section 73.
  • The Court expressly clarified it had not expressed any opinion on the merits of the underlying dispute.

Important Clarification

  • Disputes over the time limit for claiming ITC under Section 16(4) on IGST paid on secondment/manpower services, and on the correct valuation of such fees, are being remitted for fresh adjudication in light of the Toyoda Gosei line of Karnataka High Court rulings rather than decided at the writ stage.
  • Assessees facing Section 74 proceedings on such secondment-fee ITC disputes can seek conversion to Section 73 to access the Section 128A Amnesty Scheme, a route the Court expressly preserved.

Sections Involved

  • Section 16(4), CGST Act, 2017 – prescribes the time limit for availing input tax credit, the central issue in dispute.
  • Section 74, CGST Act, 2017 – invoked by the department for penalty, alleging fraud/suppression regarding the ITC claim.
  • Section 128A, CGST Act, 2017 – Amnesty Scheme allowing waiver of interest/penalty on conversion of certain Section 74 proceedings to Section 73.
  • Circular No. 211/5/2024-GST dated 26.06.2024 – CBIC clarification relevant to valuation/ITC on secondment arrangements.

Decision – In Favour of

The writ petition was allowed in favour of the assessee, with the appellate order quashed and the matter remitted for fresh consideration, while leaving the door open for the department to reconsider under Section 73 via the Amnesty Scheme.

Case Details

Court: High Court of Karnataka at Bengaluru. Case No.: Writ Petition No. 11245 of 2025 (T-RES). Neutral Citation: 2025:KHC:24244. Coram: Hon'ble Mr. Justice Suraj Govindaraj. Date of Order: 4th July, 2025.

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