Rajasthan HC declines interim relief in Input Tax Credit reversal case lacking supporting evidence documentation

The Rajasthan HC addressed a writ petition concerning reversal of Input Tax Credit where the petitioner failed to provide supporting evidence such as debit entries in Electronic Credit Ledger or Books of Accounts. Following the precedent in Hindustan Unilever Ltd., the court noted the provision was challenged on grounds of workability and difficulty in collecting proof from recipients regarding ITC reversal. The court declined to grant interim relief and directed the Union of India to suggest an appropriate mechanism for addressing the procedural challenges. Notice was issued to respondents with the matter returnable on 22/1/2024.

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Issues involved:
The petitions challenge the Orders in Original dated 30/10/2023 and 31/10/2023, claiming various reliefs including questioning the validity of Section 15(3)(b)(ii) of the Central Goods and Services Tax Act, 2017, seeking direction for the appellate authority to hear the appeal without pre-deposit, and requesting a stay on the operation of the impugned orders.

Details of the Judgment:

Validity of Section 15(3)(b)(ii) of the CGST Act:
The petitioner contested the validity of Section 15(3)(b)(ii) of the CGST Act, arguing that the mechanism for matching credit notes with the reversal of Input Tax Credit (ITC) by recipients was not functional, leading to the imposition of tax demand. The petitioner highlighted the omission of Section 43 of the Act, which previously mandated the matching exercise. The Court noted the difficulty faced by the petitioner in collecting proof of ITC reversal by recipients and directed the Union of India to propose a suitable mechanism.

Appellate Authority's Consideration:
The Court emphasized that the adequacy of material regarding ITC reversal should be examined by the appellate authority. The petitioner's challenge to the authority's decision on ITC reversal and the inability to provide evidence can be addressed through a statutory appeal. The Court referenced a similar case involving Hindustan Unilever Ltd., where no interim order was granted, and directed the ASG to propose a mechanism for resolving such issues.

Court's Decision and Directions:
In line with the observations from the Hindustan Unilever Ltd. case, the Court refrained from granting an interim order and issued notice to the respondents, requiring them to respond to the petition. The ASG representing the Union of India was directed to present a suggested mechanism promptly. The Court stressed the need for compliance with previous directions, indicating the importance of expeditiously resolving the issues raised in the petition.

Conclusion:
The judgment addresses the challenges raised by the petitioner regarding the validity of statutory provisions, the necessity of providing evidence for ITC reversal, and the role of the appellate authority in assessing such matters. The Court's decision underscores the importance of statutory processes and the need for a functional mechanism to address tax-related disputes effectively.

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