Seeking Refund against the ITC reversal with the direction of the GST audit wing

[THYAGARAJAN KALYANASUNDARAM]

Dear Experts,

One of my clients was audited by the Audit Officials under Section 65 of the GST Act, 2017. While determining the ITC reversal under Rule 42 of the CGST Rules, 2017, the Audit Officials erroneously included not only the ITC availed during the relevant financial year but also the opening balance of ITC carried forward from the previous year. Based on this incorrect computation, and under coercion, my client reversed the amount from the excess ITC available in the Electronic Credit Ledger through Form DRC-03.

Subsequently, during the statutory audit, it was discovered that the reversal had been wrongly computed by including the opening balance of ITC. Accordingly, my client filed a refund application for the erroneous reversal. However, the said refund application was rejected without assigning any reasons.

In these circumstances, kindly advise whether there are judicial precedents (citations) supporting the proposition that ITC reversal cannot be demanded on opening balances carried forward, and whether a writ petition can be filed before the High Court seeking a direction to refund the amount erroneously reversed under the directions of the Audit Officials.  

Thanks in Advance

AI Summary

Taxpayer forced to reverse opening ITC under Rule 42 despite Section 65 audit; refund rejected without reasons A taxpayer audited under Section 65 was directed to reverse ITC under Rule 42, but officials included opening balances carried forward from prior years; the taxpayer reversed funds via DRC-03 under pressure and later sought a refund, which was rejected without reasons. Forum responses contend Rule 42 applies only to current-year common credit and cannot claw back vested opening balances, citing higher-court precedents and procedural unfairness in a non-speaking rejection; one respondent noted reversal could be applied in the current year if not earlier. Advisers recommend considering a High Court writ if the amount justifies litigation.