Taxpayer wins partial relief as wrongly demanded ITC reversal set aside despite earlier compliance

Madras HC partly allowed writ petition challenging DRC-07 notice for wrongly availed ITC. Court set aside demand under item 3, finding petitioner had already reversed the incorrect ITC claim in February 2020 GSTR-3B return. Despite respondent's admission of reversal, they erroneously included demand citing portal limitations. HC held this reasoning unacceptable since first respondent had ordered reversal treatment as payment under Section 73 CGST Act 2017. Petitioner granted liberty to seek amnesty for other claims through appropriate authority.

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Issues:
Challenge to DRC-07 notice demanding payment; Reversal of wrongly availed ITC; Error in demand notice; Applicability of amnesty provision; Maintainability of writ petition.

Analysis:
The writ petition challenges a DRC-07 notice issued by the second respondent, demanding payment for three counts. The petitioner's counsel argued that the first respondent had already determined and rectified the wrongly availed Input Tax Credit (ITC) as per Section 73 of the CGST Act, 2017. The petitioner sought to set aside the portion of the DRC-07 notice related to this issue, while proposing to utilize the amnesty provided by the Department for the other two claims.

In response, the Senior Standing Counsel for the respondents contended that the inclusion of the amount in the demand notice was not erroneous, suggesting that any alleged error could be rectified through an appeal. He referenced provisions of the GST Act, 2017 and a previous judgment to support the validity of the DRC-07 notice. The counter affidavit filed by the second respondent also highlighted the absence of a provision on the portal to adjust or enter the already paid/reversed amount.

The court considered the submissions from both sides. It noted that the first respondent had already acknowledged and accepted the reversal of the wrongly availed ITC by the petitioner, treating it as payment under the CGST Act, 2017. Despite the efforts of the standing counsel to defend the DRC-07 notice, the court found no specific justification for the demand in question. The court deemed the demand related to the ITC reversal as wholly erroneous and set it aside, granting the petitioner the freedom to seek amnesty for the remaining claims.

Ultimately, the court partially allowed the writ petition, specifically setting aside the demand linked to the ITC reversal while permitting the petitioner to pursue legal remedies for other aspects. No costs were awarded, and the connected Miscellaneous Petitions were closed as a result of the judgment.

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