Deletion of Section 42 impacts ITC reversal and prompts remand, with conditional vacation of bank attachment subject to deposits.

The deletion of Section 42 by the Finance Act, 2022 was held to potentially affect the department's authority to sustain demands for excess ITC and ITC reversal, requiring fresh adjudication; accordingly the matter was remitted for reassessment on merits. The court required conditional deposits by the petitioner (partial deposit for disputed ITC reversal, full admitted RCM tax and full late fee) within thirty days and ordered vacation of bank attachment subject to compliance. The respondent must pass a fresh order with revised tax and interest calculations within three months and may recover amounts if conditions are not met.

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Issues: (i) Whether the assessment order confirming demands for tax (RCM liability), excess ITC claim and ITC reversal under Section 42 should be re-determined in view of the deletion of Section 42 by the Finance Act, 2022 and related entitlement to retrospective benefit, and whether interim relief (vacation of bank attachment) should be granted subject to deposits.

Analysis: The Court noted that the petitioner had sought time to contest the excess ITC claim but did not file further challenge and that the petitioner admitted the RCM liability. The Court observed that Section 42 has been deleted by the Finance Act, 2022 effective 01.10.2022, and that the deletion could affect the department's authority to levy the disputed amounts for the period in question; accordingly, the correctness of confirming demands under Section 42 required fresh consideration. Applying the Court's consistent approach in similar cases, the Court directed a remand to the Respondent for fresh adjudication on merits, requiring conditional deposits by the petitioner (25% of disputed tax relating to excess ITC and ITC reversal under Section 42; full disputed tax admitted for RCM liability; and full late fee) within thirty days, and provided that bank attachment would be vacated subject to compliance. The Respondent was directed to pass a fresh order with revised calculations including interest as per law within three months of compliance, and was given liberty to recover amounts if stipulations were not met.

Conclusion: The matter is remitted to the Respondent for fresh adjudication and calculation of tax and interest, and the petitioner is granted conditional relief (vacation of bank attachment) subject to specified deposits; outcome is partly in favour of the petitioner (assessee).

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