Reclaim of ITC (through TRAN-1) after reversal - redrafted issue id 121043

[Raam Srinivasan Swaminathan Kalpathi]

Dear experts

One of the client had on account of a technical glitch in the portal while filing TRAN-1 reversed the eligible ITC in the books of account in 2018. Subsequently, when the GST department provided one more chance to avail the lapsed ITC the client had successfully filed the same in 2022 through TRAN-1 and an acceptance letter was also received from the department.

The reversed ITC was reclaimed in the books of account by way of credit to the statement of profit and loss account. Now, department has issued notice claiming GST on this ITC reclaim as the same was credited to the statement of profit and loss. One point is this amount does not amount to supply and outside the purview of the GST department. Is there any other legal issue which I am overlooking? Experts please advise. Thanks

AI Summary

Transitional ITC restoration through TRAN-1 does not become taxable merely because accounting treatment credits it as other income.
Restoration of eligible transitional ITC through accepted TRAN-1 filing, after an earlier book reversal caused by a technical glitch, may be credited to the Statement of Profit and Loss as reinstatement of a previously written-off asset. Its presentation as "Other Income" can produce a GSTR-9C reconciliation difference but does not itself make the amount taxable turnover. GST liability requires a taxable supply; the accounting restoration, absent goods or services, consideration, or deemed supply, is characterised as an accounting adjustment. Separate allegations concerning wrongful availment or excess utilisation require independent examination.