No Fresh GST Demand For Same Amount Without Credit For Reversed ITC: Orissa HC Sets Aside Tax Demand

The Orissa High Court has set aside GST proceedings against an individual taxpayer, holding that once input tax credit (ITC) is reversed, the tax department cannot demand the same amount again without giving due credit for such reversal.

“Once it is conceded by the Revenue that the amount of input tax credit for a sum of Rs.4,39,970/- has been reversed, raising demand to the same without giving due credit to such reversal is unethical and without authority of law. In such an event, since net tax effect would be 'zero', thereby no penalty would be imposable. This Court, therefore, would show indulgence in the matter as the Adjudicating Authority has traversed his jurisdiction by acting at his whims and fancies,” the Court said.

A Bench of Chief Justice Harish Tandon and Justice Murahari Sri Raman held that such action would result in penal consequences twice for the same transaction and cannot be sustained in law.

The case concerned Manoja Kumar Nayak, who was proceeded against on allegations of wrongful availment of ITC based on invoices issued by a non-existent supplier.

After being alerted by the authorities, Nayak reversed the ITC amount of ₹4,39,970 in his returns. He contended that since the credit had already been reversed and no benefit was retained, raising demand on the same amount would amount to recovery of the same amount again.

Despite this, the department issued a show-cause notice invoking provisions relating to fraud and suppression, and proceeded to confirm demand, interest, and penalty.

Nayak argued that he had voluntarily reversed the ITC even before issuance of the notice and that there was no material to establish any intent to evade tax. He further submitted that once the reversal was reflected in returns, no additional documents were required to justify the claim.

Accepting these submissions, the Court noted that the reversal of ITC was not disputed by the Revenue, though its correlation with the disputed credit was questioned, and found that there was no evidence of fraud, wilful misstatement or suppression.

It further held that once the credit stood reversed, insisting on production of additional documents to justify the original claim was unnecessary.

“The petitioner has voluntarily reversed input tax credit of Rs.4,39,970/-; and the Adjudicating Authority in the Order-in-Original demanded input tax credit (IGST) of Rs.4,39,970/-. This apart, he imposed penalty of Rs.4,39,970/-. In such event the petitioner is subjected to penalty twice for the self-same transaction,” the Court observed.

The bench also found fault with the invocation of the extended limitation period, holding that such provisions cannot be applied mechanically in the absence of material showing fraud or intent to evade tax.

Accordingly, the High Court set aside the proceedings, holding that the demand raised without giving due credit for the reversed ITC was legally untenable.

For Petitioner: Senior Advocate Rudra Prasad Kar, assisted by Advocates Aditya Narayan Ray, Asit Kumar Dash and Abhishek Dash,

For Respondent: Senior Standing Counsel Sujan Kumar Roy Choudhury, Mukesh Agarwal, Senior Standing Counsel, Goods and Services Tax, Central Excise and Customs