Petitioner wins partial relief as wrongful ITC reversal of Rs. 9.83 crores ordered restored within four weeks

Gujarat HC held that petitioner was wrongfully compelled to reverse ITC of Rs. 9,83,53,032/- during summons proceedings without proper adjudication. The court found double debiting occurred - once during forced reversal and again when filing refund application under Rule 89. While not determining petitioner's entitlement to refund (matter sub-judice before Appellate Authority), HC directed restoration of reversed ITC to Electronic Credit Ledger within four weeks, finding the initial reversal violated constitutional provisions and CGST Act sections. Petition allowed in part.

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Issues Involved:
1. Legitimacy of the reversal of Input Tax Credit (ITC) by the petitioner.
2. Double deduction of ITC in the Electronic Credit Ledger.
3. Compulsion to reverse ITC without adjudication.
4. Entitlement to ITC refund under the provisions of the CGST and IGST Acts.

Detailed Analysis:

1. Legitimacy of the Reversal of ITC by the Petitioner:

The petitioner, engaged in manufacturing and exporting goods, availed ITC on tax invoices related to the transfer of leasehold rights. The petitioner claimed this ITC in July 2021, which was reflected in Form GSTR-2A. However, during an inspection by the Senior Intelligence Officer of the Directorate General of GST Intelligence, the petitioner was compelled to reverse this ITC on 13th January 2023, amidst ongoing summons proceedings. The petitioner argued that this reversal was done under duress and without any formal adjudication process determining the ineligibility of the ITC under Section 17(5) of the CGST Act. The court acknowledged the petitioner's claim that the reversal was compelled without adjudication, leading to the conclusion that the reversal was not legitimate.

2. Double Deduction of ITC in the Electronic Credit Ledger:

The petitioner filed a refund claim on 30th June 2023, which led to a second debit of the same ITC amount from the Electronic Credit Ledger due to the operation of Rule 89 of the CGST Rules. The court noted that the same ITC amount was debited twice: once during the compelled reversal on 13th January 2023 and again upon filing the refund claim. The court opined that such double deduction was improper, as the same ITC should not be debited twice, especially when the initial reversal was under compulsion and without adjudication.

3. Compulsion to Reverse ITC Without Adjudication:

The petitioner contended that the reversal of ITC was compelled by the respondent authorities without any adjudication process under Sections 73 or 74 of the CGST Act. The court found merit in this argument, observing that the petitioner was forced to reverse the ITC during summons proceedings without a formal determination of ITC eligibility. The court emphasized that ITC should not be reversed without due process, and in this case, the reversal was compelled without any adjudication, necessitating the restoration of ITC.

4. Entitlement to ITC Refund Under the Provisions of the CGST and IGST Acts:

While the court did not delve into the merits of the petitioner's entitlement to the ITC refund under the provisions of the CGST and IGST Acts, it acknowledged that the matter was sub-judice before the Appellate Authority. The court clarified that its decision to restore the ITC was based on the procedural impropriety of the compelled reversal and double deduction, rather than the substantive eligibility of the ITC claim itself.

Conclusion:

The court partially allowed the petition, directing the respondents to restore the ITC of Rs. 9,83,53,032 in the petitioner's Electronic Credit Ledger within four weeks. The court made it clear that it did not address the merits of the petitioner's eligibility for the ITC refund or the claim itself, leaving those issues to be adjudicated through the appropriate legal processes.

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