Facts of the Case

Propcare Mall Management (India) Pvt. Ltd. challenged an order dated 16.03.2024 passed under Section 73 of the CGST/KGST Act, 2017 for the period April 2018 to March 2019, along with the consequential summary in Form GST DRC-07. The demand arose from denial of Input Tax Credit under the time-bar in Section 16(4), notwithstanding that the substantive conditions in Section 16(1) and (2) were admittedly satisfied. The petitioner had reversed Rs.1,81,43,860 in Form DRC-03 and sought its refund, and separately challenged the retrospective amendment to Rule 61(5) of the CGST/KGST Rules (via Notification Nos. 49/2019-CT and its State equivalent) and the constitutionality of Section 16(4) itself, besides seeking condonation of delay in filing GSTR-3B returns for December 2018 to March 2019.

Issues Involved

  1. Whether the denial of ITC solely on the procedural time-bar under Section 16(4), where the substantive conditions under Section 16(1)/(2) are met, can survive in view of newly inserted Section 16(5).
  2. Whether the retrospective validity challenges to Rule 61(5) and Section 16(4) itself need to be decided given the intervening statutory amendment.

Petitioner's Arguments

  • Section 16(5), inserted by the Finance (No. 2) Act, 2024, extends the time to avail ITC for FY 2017-18 to 2020-21 to any return filed up to 30.11.2021, and directly covers the petitioner's case.
  • Relied on a coordinate Bench ruling in M/s. Sadhana Enviro Engineering Services v. Joint Commissioner of Central Tax, which had disposed of an identical dispute by directing implementation of Section 16(5) without deciding the other constitutional challenges.

Respondent's Arguments

  • Fairly conceded that Section 16(5) applied to the petitioner and similarly placed assessees, and that the requisite notification giving effect to it would be issued shortly.

Court Order / Findings

  • Following Sadhana Enviro Engineering on identical facts, the Court held the petition deserved to be allowed and disposed of on the same terms.
  • The impugned order dated 16.03.2024 (and its DRC-07 summary) was quashed.
  • The parties were relegated to the stage of the show-cause notice dated 07.12.2023, with a direction to give effect to Section 16(5) after hearing the petitioner, within one month.
  • The blocked electronic credit ledger was ordered to be unblocked and the credit balance released forthwith.
  • All other contentions, including the constitutional challenges and the refund claim of Rs.1.81 crore, were kept open to be decided by the original authority on reconsideration.

Important Clarification

  • Where Section 16(5) squarely covers a dispute, courts are relegating parties to the adjudicating authority to give effect to the amendment rather than ruling on the broader vires challenges to Section 16(4) or Rule 61(5).
  • A blocked ITC ledger arising from a Section 16(4)-based demand that is superseded by Section 16(5) ordinarily warrants immediate unblocking pending reconsideration.

Sections Involved

  • Section 16(4) of the CGST Act, 2017 — time-limit for availing input tax credit.
  • Section 16(5) of the CGST Act, 2017 (inserted by the Finance (No. 2) Act, 2024) — extends the ITC availment window for FY 2017-18 to 2020-21 up to returns filed by 30.11.2021.
  • Section 73 of the CGST/KGST Act, 2017 — demand and recovery for tax short-paid/ITC wrongly availed.
  • Rule 61(5) of the CGST Rules, 2017 — relates to filing of return in Form GSTR-3B.

Decision – In Favour of

In favour of the Assessee — the demand order was quashed and the authority directed to implement Section 16(5); the constitutional challenges and refund claim were left open for reconsideration.

Case Details

Court: High Court of Karnataka at Bengaluru — Case No.: WP No. 10699 of 2024 (T-RES) — Neutral Citation: 2025:KHC:42973 — Coram: Hon'ble Justice S.R. Krishna Kumar — Date of Order: 28 October 2025.

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