Wrongly Availed GST ITC Reversed before SCN was Issued: Delhi HC Quashes Demand Orders and Remands Matter [Read Order]

The Delhi HighCourt recently quashed Goods and Services Tax (GST) demand orders raised against an assessee for wrongly availing Input Tax Credit (ITC) in their GSTR-3B in comparison to ITC available as per GSTR-2A. The High Court noted that the disputed ITC had already been reversed prior to the issuance of the show cause notice (SCN).

Harsh Khanna and Sons HUF filed a writ petition challenging an Order-in-Original and Order-in-Appeal passed against them by the Revenue department under the Central Goods and Services Tax Act, 2017. The petitioner also challenged the validity of Notifications 9/2023-central tax and 56/2023-central tax as arbitrary, unreasonable and ultra vires the CGST Act.

The petitioner was subject to SCN under Section 73 of the CGST Act, 2017 proposing a total demand of ₹45,81,000 for the Financial Year 2018-19 for allegedly availing excess ITC of ₹41,41,731, claimed in GSTR-3B as compared to the ITC available in GSTR-2A.

Subsequently, Order-in-Original confirming the demand and directing recovery of the disallowed ITC of ₹41,41,731 was passed, along with an additional demand of ₹5,606 towards tax difference, as well as penalties of ₹4,14,173 and ₹20,000 with applicable interest.

In appeal, the appellate authority granted relief by forgoing the additional demand of ₹5,606 while sustaining the rest of the demand.

Before the High Court, Akhil Krishan Maggu submitted that the petitioner had reversed the entire ITC in question and correctly claimed under the appropriate head prior to the issuance of the SCN itself. Upon the direction of the Bench, the Department Counsel Pranay Mohan Govil verified and confirmed that the petitioner’s submission regarding prior reversal of ITC was factually correct.

The Division Bench of Justice Nitin Wasudeo Sambre and Justice Ajay Digpaul noted that this contention had been raised before the appellate authority but was rejected earlier for want of documentary evidence. However, following the Revenue’s confirmation before the High Court, the reversal of ITC stood confirmed.

Accordingly, the High Court quashed and set aside the impugned Order-in-Original and the Order-in-Appeal and remanded the matter back to the adjudicating authority for fresh consideration, directing that the issue be re-examined in light of the confirmed position regarding prior reversal of ITC.

The Court however clarified that it had not expressed any opinion on the merits of the case.

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