HC: ITC Refund Limitation Runs from Financial Year End

M/s Kanika Exports and Malik Seasoning and Spices found themselves in a classic tax trap. They had filed for GST refunds on unused Input Tax Credit (ITC) that had built up because the tax on their raw materials was higher than the tax on their finished products, a situation known as an “inverted duty structure”.

When they filed their claims for periods before July 2022, the GST Department slammed the door, calling the applications “time-barred”. The department was using a new rule from the Finance Act, 2022, which changed the “relevant date” for the two-year filing deadline to the actual return filing date. Under this new rule, the companies were a few days late. However, under the old rule, where the clock only started ticking at the end of the financial year, they were perfectly on time.

Central Issue:  Can the government retrospectively apply a new, stricter deadline to kill off refund claims that were perfectly valid under the law as it existed at the time?

HC’s Ruling:  The High Court ruled in favour of the exporters, setting aside the rejection orders. The Court made it clear that the 2022 amendment is “prospective”, meaning it only applies to the future, not the past. The Judges pointed out that changing how a deadline is calculated is a “substantive” change, not just a minor clerical one.

Unless the law explicitly says it should reach back in time, it shouldn’t be used to snatch away a “vested right” that a company already earned. The Court emphasised that refund rules are meant to help businesses, not act as a trap. Since these companies had already accumulated their credit before the law changed, their right to a refund was already locked in. The Court ordered the department to stop using the new deadline for these older cases and directed them to process the refunds on their merits within three months.

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