Special Procedure to Rectify ITC Demands Raised Solely on Section 16(4) Time-limit, Now Made Eligible Under Section 16(5)/(6)
1. Background and legislative trigger (why this special procedure was needed)
Section 16(4) of the GST law prescribes the statutory time limit for availing Input Tax Credit (ITC) in respect of invoices/debit notes of a financial year. Over the years, a large number of demands were raised and confirmed (including through adjudication, first appeal, and revision) wherein ITC was disallowed only on the ground that the credit was taken beyond the limitation prescribed under Section 16(4).
Subsequently, to address and resolve such disputes, the GST law was amended by introducing the following specific provisions granting relaxation/relief to eligible taxpayers:
- Section 16(5): a retrospective override/relaxation for invoices/debit notes pertaining to FY 2017-18 to FY 2020-21, where credit was earlier treated as time-barred under Section 16(4), subject to a specific statutory cut-off built into Section 16(5).
- Section 16(6): a relaxation for cases where registration was cancelled and later revoked, permitting ITC for the cancellation period within statutorily defined timelines, subject to conditions.
After that a parallel special-rectification mechanism was notified under Section 148 (special procedure) through Notification No. 22/2024-Central Tax (Dt. 08.10.2024), and CBIC issued the detailed operational guidance via Circular No. 237/31/2024-GST (Dt. 15.10.2024), which also flagged the "no refund" restriction and appeal-related consequences.
Delhi government has also now issued Notification No. 22/2024-State Tax (Dt. 01.12.2025) under Section 148 of the Delhi GST Act, 2017, prescribing a special procedure for rectification of orders where ITC was disallowed solely because of Section 16(4), but is now eligible as per Section 16(5) and/or Section 16(6).
2. Legal framework: key statutory provisions involved (Section-wise)
A. Section 16(4) - Time limit for taking ITC (core dispute driver)
- Establishes the statutory deadline to take ITC for invoices/debit notes pertaining to a financial year (historically linked to the due date of September return of next FY / annual return framework, as applicable).
- Many demands were raised/confirmed treating credit as wrongly availed where the only alleged contravention was "credit taken after Section 16(4) cut-off".
B. Section 16(5) - Retrospective override for FY 2017-18 to FY 2020-21 (detailed clause-by-clause meaning)
The text of Section 16(5) (as you quoted) is a retrospective insertion and it creates a one-time statutory override to the normal ITC time-limit in Section 16(4) for older financial years.
Below is the exact meaning, broken down clause-by-clause, with practical implications:
1) "Notwithstanding anything contained in sub-section (4)…"
This is a non-obstante clause. Legally, it means:
- Even if Section 16(4) would have barred the ITC as time-barred, Section 16(5) will prevail for the specified cases.
Important limitation: The override is only against Section 16(4) (time limit). All other ITC eligibility requirements under Section 16 (e.g., possession of invoice, receipt of goods/services, tax charged, etc., as applicable) continue to apply because Section 16(5) does not override Section 16 as a whole-only the time-bar in sub-section (4).
2) "in respect of an invoice or debit note… pertaining to FY 2017-18, 2018-19, 2019-20 and 2020-21"
This defines scope:
- Only invoices/debit notes belonging to these four financial years are covered.
- It is not a general extension for later years.
3) "the registered person shall be entitled to take input tax credit in any return under section 39…"
Section 39 refers to periodic returns (in practice, GSTR-3B). Therefore:
- A taxpayer could have taken ITC relating to FY 2017-18 invoices in a later tax period's GSTR-3B, so long as that GSTR-3B (Section 39 return) is within the cut-off described next.
4) "…which is filed up to the thirtieth day of November, 2021."
This is the single most important statutory condition.
What it means operationally:If the Section 39 return (GSTR-3B) in which ITC was availed was filed on or before 30.11.2021, then ITC relating to FY 2017-18 to FY 2020-21 invoices is treated as within time, even if it would have been time-barred under Section 16(4).
What it does NOT mean:It does not confer a fresh right to take that old ITC now (in 2025/2026), because Section 16(5) ties the entitlement to returns filed up to 30.11.2021.
Accordingly, Section 16(5) operates primarily as a "validation / cure" provision for ITC already availed in returns filed up to 30.11.2021, rather than a present-day reopening window. This aligns with the legislative design: it neutralises past disputes where demands were raised purely on Section 16(4) limitation for the specified FYs.
5) Why was Section 16(5) inserted in 2024 if the cut-off is 30.11.2021?
Because it was inserted retrospectively w.e.f. 01.07.2017, to neutralise past litigation/demands that were raised purely on Section 16(4) time-limit for these older FYs.
Practical consequence:If an order/demand alleges "wrong ITC" only because of Section 16(4), and the taxpayer had actually taken ITC in returns filed up to 30.11.2021, then that ITC becomes legally eligible under Section 16(5). This is precisely the class of disputes for which special rectification procedures/notifications (including Delhi's notification) were issued.
6) Illustrations (client-advisory ready)
Example 1 - Covered by Section 16(5)
- Invoice date: 15.02.2018 (FY 2017-18)
- ITC taken in GSTR-3B of Oct-2021, filed on 20.11.2021Result: Eligible due to Section 16(5) override of Section 16(4).
Example 2 - Not covered (return filed after cut-off)
- Invoice date: 10.07.2018 (FY 2018-19)
- ITC taken in GSTR-3B of Nov-2021, but return filed on 05.12.2021Result: Section 16(5) protection generally not available because the return was not filed up to 30.11.2021.
Example 3 - Attempt to claim now (2025) for FY 2018-19 invoice
- ITC never availed earlier; taxpayer wants to take nowResult: Section 16(5) does not help because it only covers credit taken in a Section 39 return filed up to 30.11.2021.
7) Critical caveat: "No refund" restriction (where tax already paid / ITC reversed)
Even if Section 16(5) retrospectively validates ITC, CBIC has highlighted that refund of tax paid or ITC reversed may be barred by the Finance (No. 2) Act mechanism (Section 150) in cases covered by the retrospective insertion. This becomes crucial where the client has already discharged demand or reversed credit.
8) Quick compliance takeaway (one-line meaning)
For invoices/debit notes of FY 2017-18 to FY 2020-21, if ITC was taken in a Section 39 return (GSTR-3B) filed up to 30.11.2021, the ITC cannot be denied merely on the ground of being time-barred under Section 16(4).
C. Section 16(6) - Relaxation for cancellation-revocation cases
Section 16(6) provides that where registration was cancelled and later revoked, the person may take ITC in respect of invoices/debit notes for supplies received during the period from cancellation to revocation, in the return filed up to 30 November following the end of the financial year, or within 30 days of the revocation order, whichever is later-subject to the condition that the Section 16(4) time limit had not already expired on the date of cancellation.
Practical meaning: ITC for the cancellation period is protected within statutory timelines; denial purely on Section 16(4) delay becomes untenable in eligible cases.
D. Section 148 - Power to notify "special procedure"
This is the enabling provision to prescribe a class-based special procedure to operationalise relief and standardise processing. Delhi has exercised this power for rectification of orders of the specified class.
E. Sections 73 / 74 / 107 / 108 - Orders covered
Delhi notification applies to orders under:
- Section 73
- Section 74
- Section 107
- Section 108
3. What Delhi Notification No. 22/2024-State Tax (01.12.2025) provides (fully retained)
3.1 Eligible cases (scope condition)
The special procedure applies where:
- An order under Section 73/74/107/108 has been issued; and
- Demand is confirmed for wrong ITC on account of contravention of Section 16(4); and
- Such ITC is now available under Section 16(5) and/or 16(6; and
- Appeal against the order has not been filed.
3.2 Time limit to apply (with specific date computation retained)
Eligible registered persons must file an electronic application on the common portal within 6 months from 01.12.2025.Practical outer date: typically 31.05.2026 (subject to departmental computation practice for "within six months").
3.3 Annexure A (prescribed statement)
The application must be accompanied by Annexure A containing:
- Order particulars (number/date/section)
- Year-wise tax/interest/penalty confirmed
- Break-up of demand that is now eligible under 16(5) and/or 16(6)
- Declaration (no appeal pending) and verification
3.4 Proper officer and timeline for rectified order
The proper officer is the authority who issued the original order. The authority shall decide and issue the rectified order, as far as possible, within 3 months from the date of application.
3.5 Portal trail/summary forms
- Rectification of Section 73/74 order → summary in FORM GST DRC-08
- Rectification of Section 107/108 order → summary in FORM GST APL-04
3.6 Limited scope (no reopening)
Rectification is confined only to the ITC demand denied due to 16(4) but now eligible under 16(5)/(6). No other issue is reopened.
3.7 Natural justice
Where rectification adversely affects the taxpayer, principles of natural justice must be followed.
4. Critical consequences and limitations (retained and sharpened)
- Limited relief: rectification is confined to ITC denied due to Section 16(4) but now eligible under Section 16(5)/(6).
- Appeal dimension: since the process culminates in a rectified order, appeal strategy must be evaluated based on limitation and the precise outcome.
- No-refund caveat (high-stakes): where tax has already been paid or ITC reversed, the statutory restrictions flagged by CBIC (including Finance (No. 2) Act mechanism) can materially affect whether relief translates into a refund/re-credit or only demand neutralisation/closure. This must be analysed case-wise before advising the remedy.
Conclusion
Sections 16(5) and 16(6) were introduced to settle disputes where ITC was denied only due to the Section 16(4) time-limit. If ITC for FY 2017-18 to FY 2020-21 was actually taken in GSTR-3B (Section 39 return) filed up to 30.11.2021, then Section 16(5) validates that credit and such demand becomes rectifiable. To operationalise this relief for already-passed orders, Delhi Notification No. 22/2024-State Tax dated 01.12.2025 (u/s 148) provides a special rectification procedure for orders under Sections 73/74/107/108, with an application deadline of 6 months from 01.12.2025 (typically up to 31.05.2026). Relief is limited only to the 16(4)-based ITC portion, and where demand is already paid/reversed, refund/re-credit may be restricted under the Finance (No. 2) Act mechanism.
The author can also be reached at varunmukeshgupta96@gmail.com
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