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

ITC carried forward: opening balance reversal challenged, refund sought after erroneous GST-rule application under audit direction.
Audit officials applied Rule 42 to an opening balance of Input Tax Credit carried forward from earlier years and directed reversal via Form DRC-03, but such carry-forward ITC is a vested right not subject to Rule 42 reversal applicable to current-year credit. The refund filed for the erroneous reversal was rejected without reasons, rendering the order non-speaking; the reversal was effected under audit coercion and precedential authority supports treating transition/carry-forward ITC as substantive rights entitling the taxpayer to seek refund and judicial relief.