2026 (2) TMI 1258 - HC - GST

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 ... Remand for fresh consideration - pre-deposit condition for adjudication - effect of repeal of a statutory provision on past liabilities - reverse charge mechanism liability - input tax credit reversal - assessment to be re-determined on merits - bank attachment to be vacated on compliance - HELD THAT:- It is noticed that as far as excess claim on ITC is concerned, the Petitioner had sought time by filing a reply dated 17.01.2025 for a period of thirty days. However, the Petitioner failed to challenged the same and therefore the demand has been confirmed on 24.02.2025. As far as the tax due on RCM liability is concerned, the Petitioner has admitted to the liability and undertaken to pay the amount. As far as ITC reversal under Section 42 is concerned, the demand has been confirmed. Although it appears that Section 42 has been deleted by the Finance Act, 2022 with effect from 01.10.2022, this aspect also ought to have been considered as to whether the operation of the above provisions would have entitled the Department to levy tax under Section 42 or whether the Petitioner was entitled for retrospective benefit for the period in dispute. It is made clear that bank attachment shall be lifted subject to the Petitioner depositing the tax liability as ordered above and the Petitioner not being in arrears of any other amount for any other tax period barring the amount demanded under the impugned Order. In case the Petitioner fails to comply with any of the stipulations, the Respondent is at liberty to proceed against the Petitioner to recover the tax in accordance with law as if this Writ Petition was dismissed in limine today. Writ Petition stands disposed of with the above observations. 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).