Section 16(4) and the Retrospective Section 16(5)

And the Retrospective Section explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Two High Courts, the same problem, and the same resolution: the legislature moved before the constitutional question could be answered. What the courts said on the way to that resolution is not binding — and is quoted constantly anyway.

Section 16(5), inserted by section 118 of the Finance Act, 2024 with retrospective effect from 01.07.2017, allows credit for FYs 2017-18 to 2020-21 in any return under section 39 filed up to 30 November 2021, overriding section 16(4). Both Singh Construction Company v. State of Jharkhand [(2024:JHHC:33787-DB)] and Anand Steel v. Union of India [(2024:MPHC-IND:32971)] set aside pre-amendment orders on that basis.

The provision that caused it

"Section 16(4)… prescribes a time limit for the availment of Input Tax Credit… ITC cannot be availed after the due date of furnishing the return under section 39 for September, following the end of the financial year or the date of furnishing of the annual return, whichever is earlier."

And the cure: "Section 16(5), inserted via Finance Act, 2024 (w.e.f. 01.07.2017) allows registered persons to claim ITC in respect of invoices or debit notes of FYs 2017-18, 2018-19, 2019-20 and 2020-21, provided the return under section 39 was filed on or before 30 November 2021, overriding Section 16(4)."

Singh Construction: the order that lacked a legal basis

A civil construction firm challenged denial of credit "under Section 16(4) read with Rules 36… for the FY 2018-19 and 2019-20." The department, after an inspection "under Section 67 read with Rule 139", passed an order on 15.07.2023 disallowing credit as time-barred.

"During the pendency of the writ petition, Section 16(5) was inserted."

The Revenue did not resist: "The Counsel for Department submitted that in light of Section 16(5) inserted by the Finance Act, 2024, the matter deserved fresh adjudication."

The Court's reasoning is narrow and precise: the retrospective insertion "has a material bearing on the eligibility"; the order "was passed in the absence of the newly inserted provision, and therefore lacks a complete legal basis"; it was quashed and remanded for a fresh reasoned order.

And expressly left open: "The Court clarified that it had not gone into the merits of the challenge to limitation for ITC entitlement, leaving it open to be decided afresh."

One incidental point worth keeping — the judgment records rule 61(5), inserted by Notification No. 49/2019 dated 27.12.2019, which "declared GSTR-3B as a valid return under section 39 with retrospective effect." That is what makes GSTR-3B the reference return for both 16(4) and 16(5).

Anand Steel: strong words, narrow holding

A proprietorship had filed its FY 2018-19 GSTR-3B returns late, "discharging GST liability along with late fees". The department issued DRC-01A under section 73, then passed an order under section 74 disallowing the credit.

The assessee's core argument was structural: "the right to ITC accrues immediately upon fulfilment of conditions under Section 16(1) and (2); hence, refusal… for procedural delay is arbitrary", and disallowance after late fee and interest "amounts to punishing twice."

The Court agreed, in terms:

"a right on ITC is created when a tax payer fulfils all the conditions specified in Section 16(2)… which has been drafted as a non-obstante provision… imposition of a time limit through Section 16(4) would supersede or override this scheme of the statute; operation of Section 16(4) makes the non-obstante section 16(2) meaningless; Section 16(2) has overriding effect on Section 16(4)."

And on the practical reality of late filing: "The GST laws do not have any provision and scope for filing a revised return, taxpayers are extremely cautious to file the monthly return for March and may like to wait for a longer time to reconcile the entries… They even pay huge late fees… Allowing a taxpayer to file returns with payment of late fees and then disallow him the ITC… is punishing him twice for a single default. Moreover, with the payment of late fee u/s 47 as well as interest u/s 50, the treasury has been suitably compensated for the postponement of the tax… saddling with double payment of tax by way of Section 16(4) is arbitrary and capricious."

Then the Court stopped short: "Since, the Central Government… has proposed to amend Section 16… thereby jettisoning the condition of time limit, this Court opined that the petitions should be allowed without examining the constitutional validity of Section 16(4)."

The distinction the compilation insists on

"The ruling underscores the importance of distinguishing between Obiter Dicta (i.e. observations made by the Court) and Ratio Decidendi (i.e., the judicial verdict laid down). While the court made strong observations as regards the arbitrariness of Section 16(4), its decision was based on the amendments introduced by the Finance Act, 2024."

This is the practical point of both cases. The passages about section 16(2) overriding section 16(4) are persuasive observations, not binding law — section 16(4) has not been struck down anywhere, and it continues to govern every year outside FY 2017-18 to 2020-21.

What is binding is narrower and still useful: an order disallowing credit for those four years, passed before the amendment and resting only on section 16(4), cannot stand and must be re-adjudicated.

Also inserted by section 118 was section 16(6), dealing with registration cancellation and revocation — a separate relaxation on the same amendment, worth checking where a demand of that period involves a cancelled registration.

Key takeaways

• Section 16(5) (Finance Act, 2024, s.118) applies retrospectively from 01.07.2017 to FYs 2017-18 through 2020-21, where the section 39 return was filed by 30 November 2021.
• Singh Construction: the pre-amendment order "lacks a complete legal basis"; quashed and remanded.
• The Court expressly did not decide the limitation challenge on merits.
• Anand Steel: late fee under s.47 and interest under s.50 already compensate the treasury, so denying credit as well is "punishing him twice" and "arbitrary and capricious".
• The Court also held section 16(2), a non-obstante provision, overrides section 16(4) — but this is obiter.
• Both Courts declined to rule on constitutional validity, deciding on the amendment instead.
• Section 16(4) remains in force for all years outside the 2017-18 to 2020-21 window.
• Rule 61(5) (Notn 49/2019) makes GSTR-3B a valid section 39 return retrospectively.
• Section 16(6), also inserted by section 118, covers registration cancellation and revocation cases.

Read next

• ITC Denied for a Supplier's Default: The Bona Fide Purchaser Rulings
• ITC and the Wrong GSTIN on a Supplier's Invoice
• Section 161 Rectification and Limitation for Appeal

Disclaimer: Positions stated as on 5 September 2026, based on Singh Construction Company v. State of Jharkhand [(2024:JHHC:33787-DB)], Anand Steel v. Union of India [(2024:MPHC-IND:32971)], sections 16, 47, 50, 73 and 74 of the CGST Act, 2017, rule 61(5) of the CGST Rules, 2017 and section 118 of the Finance Act, 2024, as summarised in the ICAI compilation Significant Judicial and Advance Rulings in GST (Second Edition, February 2026).