2024 (12) TMI 139 - HC - GST

Reversal of ITC - violation of Article 265 of the Constitution of India - contrary to the provisions of Section 16 read with Section 41 and Section 73/74 of the CGST Act - HELD THAT - It appears that the petitioner claimed the ITC for the month of July, 2021 in the return filed in the Form GSTR-3B on the basis of the ITC reflected in Form GSTR-2A pertaining to the transfer of leasehold rights and accordingly, filed the refund claim on 03.01.2023 as the petitioner was engaged in the business of exports and petitioner was therefore entitled to the refund of the ITC available in the Electronic Credit Ledger as per the provisions of Section 54 (3) (b) of the CGST Act read with Section 16 (3) (a) of the IGST Act. It appears from the material on record as well as the pleadings of the petitioner that the petitioner was compelled to reverse the ITC by the respondent No. 4 during the course of the summons proceedings on 12.01.2023 and 13.01.2023 and accordingly, the petitioner reversed the ITC of Rs. 9,83,53,032/-. This Court is not going into the merits as to whether the petitioner is entitled to refund of the ITC under the provisions of the CGST and IGST Acts as the matter is sub-judice before the Appellate Authority. However, in the facts of the case, it is apparent that as per Rule 89 of the Rules when the petitioner filed the refund application, the Electronic Credit Ledger was again debited by the amount of the ITC which was claimed in the refund application. Thus, there are two debits in the Electronic Credit Ledger of the same amount once on 13.01.2023, when the petitioner was compelled to reverse the ITC during the summons proceedings by the respondent No. 4 and second time, by virtue of the operation of the provisions of the Rules at the time of filing of the refund application on 30th June, 2023. In the facts of the case, the ITC which was reversed by the petitioner on 13.01.2023 during the summons proceedings without there being any adjudication process, is required to be restored. The petition therefore succeeds to that extent only - the respondents are directed to restore the ITC of Rs. 9,83,53,032/- in the Electronic Credit Ledger of the petitioner within a period of four weeks from the date of receipt of copy of this order - petition allowed in part.

Issues Involved:
1. Legitimacy of the reversal of Input Tax Credit (ITC) by the petitioner.
2. Double deduction of ITC in the Electronic Credit Ledger.
3. Compulsion to reverse ITC without adjudication.
4. Entitlement to ITC refund under the provisions of the CGST and IGST Acts.

Detailed Analysis:

1. Legitimacy of the Reversal of ITC by the Petitioner:

The petitioner, engaged in manufacturing and exporting goods, availed ITC on tax invoices related to the transfer of leasehold rights. The petitioner claimed this ITC in July 2021, which was reflected in Form GSTR-2A. However, during an inspection by the Senior Intelligence Officer of the Directorate General of GST Intelligence, the petitioner was compelled to reverse this ITC on 13th January 2023, amidst ongoing summons proceedings. The petitioner argued that this reversal was done under duress and without any formal adjudication process determining the ineligibility of the ITC under Section 17(5) of the CGST Act. The court acknowledged the petitioner's claim that the reversal was compelled without adjudication, leading to the conclusion that the reversal was not legitimate.

2. Double Deduction of ITC in the Electronic Credit Ledger:

The petitioner filed a refund claim on 30th June 2023, which led to a second debit of the same ITC amount from the Electronic Credit Ledger due to the operation of Rule 89 of the CGST Rules. The court noted that the same ITC amount was debited twice: once during the compelled reversal on 13th January 2023 and again upon filing the refund claim. The court opined that such double deduction was improper, as the same ITC should not be debited twice, especially when the initial reversal was under compulsion and without adjudication.

3. Compulsion to Reverse ITC Without Adjudication:

The petitioner contended that the reversal of ITC was compelled by the respondent authorities without any adjudication process under Sections 73 or 74 of the CGST Act. The court found merit in this argument, observing that the petitioner was forced to reverse the ITC during summons proceedings without a formal determination of ITC eligibility. The court emphasized that ITC should not be reversed without due process, and in this case, the reversal was compelled without any adjudication, necessitating the restoration of ITC.

4. Entitlement to ITC Refund Under the Provisions of the CGST and IGST Acts:

While the court did not delve into the merits of the petitioner's entitlement to the ITC refund under the provisions of the CGST and IGST Acts, it acknowledged that the matter was sub-judice before the Appellate Authority. The court clarified that its decision to restore the ITC was based on the procedural impropriety of the compelled reversal and double deduction, rather than the substantive eligibility of the ITC claim itself.

Conclusion:

The court partially allowed the petition, directing the respondents to restore the ITC of Rs. 9,83,53,032 in the petitioner's Electronic Credit Ledger within four weeks. The court made it clear that it did not address the merits of the petitioner's eligibility for the ITC refund or the claim itself, leaving those issues to be adjudicated through the appropriate legal processes.

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