ITC Reversal on Sale of MEIS Scrips: Tribunal Clarifies Scope of Section 74

The treatment of MEIS scrips and similar duty credit instruments under GST has been a contentious issue. Initially, these scrips were notified as exempt supplies under Notification No. 35/2017 dated 13.10.2017, requiring reversal of Input Tax Credit (ITC). However, with Notification No. 14/2022 dated 05.07.2022, clause (d) was inserted in Explanation 1 to Rule 43, excluding duty credit scrips from exempt supplies. The amendment was held to be prospective, not retrospective, leaving taxpayers exposed to ITC reversal obligations until June 2022. Case Law: The Commissioner CGST & CX, Kolkata North Commissionerate Versus M/s Power Tech Global Private Limited - 2026 (8) TMI 1116 - GSTAT KOLKATA  The Hon'ble GSTAT - Kolkata Bench examined whether ITC reversal was required on sale of MEIS scrips and whether Section 74 of the CGST Act could be invoked. Key Findings: Notification No. 14/2022: Tribunal held the amendment excluding duty credit scrips from exempt supplies is prospective. ITC reversal applied until June 2022. Section 164(3): Government has power to give retrospective effect but chose prospective application. Hence, ITC benefit cannot be claimed retrospectively. Section 74(1): Can be invoked only when fraud, wilful misstatement, or suppression of facts to evade tax is proven with material evidence. Mere incorrect ITC claim or non disclosure in GSTR 3B is insufficient. Instruction No. 05/2023 GST: Clarifies that Section 74 requires investigation and evidence of fraud; otherwise, liability must be determined under Section 73. Suppression and Time Bar Considerations The Tribunal emphasized that suppression must be construed strictly as intentional concealment to evade tax, not clerical mistakes. Investigation and incriminating material is required for invoking Section 74. Compliance Outlook The ruling provides clarity on two fronts: ITC reversal is required until June 2022, but not thereafter. Section 74 cannot be invoked without investigation and material evidence of fraud. Incorrect claims or omissions fall under Section 73.

For taxpayers, this means: Review ITC claims for FY 2020 21 to FY 2022 23 and reverse common ITC where applicable: For FY 2022 23, the Section 73 time bar remains open until 30th September 2026. Taxpayers should evaluate whether sales of MEIS/ RoDTEP scrips occurred up to 5th July 2022 and reverse ITC accordingly. For FY 2020 21, the Section 74 time bar extends until 31st August 2026, and for FY 2021 22 until 30th June 2027. Importantly, only common ITC needs to be reversed, not ITC directly linked to manufacturing activities. Ensure documentation supports the absence of fraud or wilful misstatement. Prepare for scrutiny under Section 73, but resist unwarranted invocation of Section 74. Conclusion The Tribunal's decision in Power Tech Global Pvt. Ltd. sets important contours for ITC reversal and enforcement under GST. By distinguishing between genuine errors and fraudulent suppression, it ensures that taxpayers are not unfairly penalized. The compliance message is: reverse common ITC on MEIS scrips until June 2022, maintain transparency, and defend against unjustified Section 74 proceedings. One needs to see incase taxpayers wish to contest this core issue in other fora.