Karnataka HC Directs to Unblock Credit Balance and Implement New ITC Mechanism | Ganapathy Aluminium vs. UOI & Ors.

Introduction

Background:

The petitioner, Ganapathy Aluminium and Hardwares, challenged the blocking of their Input Tax Credit (ITC) balance under the Goods and Services Tax (GST) regime.

Key Details:

• Petitioner’s Request: The petitioner sought the unblocking and release of ITC based on the recently inserted Section 16(5) of the CGST Act.
• Interpretation of Section 16(4): They argued for a reading down of Section 16(4) to treat the time limit for claiming ITC as procedural and directory.
• Precedent: The petitioner relied on the precedent set in the Sadhana Enviro Engineering case where similar issues regarding ITC were addressed.

Court Judgement

Observations:

• The High Court acknowledged the recent amendment to the CGST Act through Section 118 of The Finance (No.2) Act, 2024, which inserted Section 16(5).
• This amendment necessitated immediate implementation as it sought to provide relief to taxpayers by ensuring a more flexible mechanism for claiming ITC.
• The court observed that the petitioner’s blocked ITC balance needed to be addressed promptly under the new provisions.

Decision:

• The court directed the Revenue Authorities to immediately unblock and release the ITC credit balance for the petitioner.
• The court ordered the authorities to implement the amended provisions under Section 16(5) of the CGST Act, which provides a more taxpayer-friendly approach for claiming ITC.
• The matter was relegated to the show cause notice stage, allowing the authorities to proceed further with the case in compliance with the amended provisions.
• Writ Petition Allowed: The court allowed the writ petition, granting relief to the petitioner.

Conclusion:

This ruling underscores the judiciary’s response to evolving GST laws and its role in safeguarding taxpayer interests. The Karnataka High Court’s decision to unblock the ITC balance and direct the implementation of the new ITC mechanism demonstrates an important step in the taxpayer-friendly approach of the Indian taxation system.