The Goods and Services Tax Appellate Tribunal (GSTAT), Kolkata Bench, has set aside a tax demand against an information technology consultancy company after the West Bengal GST Department admitted that the taxpayer had reversed the entire excess input tax credit (ITC), along with applicable interest, before the initiation of adjudication proceedings.
The Division Bench comprising S.G. Chattopadhyay (Judicial Member) and Bijoy Kumar Kar (Technical Member) allowed the taxpayer’s appeal after the department acknowledged that its claim of prior reversal was genuine.
The bench observed that the Revenue had expressly admitted in its cross-objections that the disputed ITC was reversed through the GSTR-3B return for December 2020, filed on January 20, 2021—well before the demand-cum-show cause notice was issued.
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The appellant/assessee is engaged in providing IT consultation and support services in Kolkata. The GST authorities issued a demand notice dated March 21, 2024 under Section 73 of the Central Goods and Services Tax Act, 2017 and the corresponding provisions of the West Bengal Goods and Services Tax Act, 2017.
The Department alleged that the taxpayer had availed excess ITC and was required to reverse it together with interest and penalty.
The demand notice quantified the disputed ITC at ₹7,51,134 each under the CGST and SGST heads, aggregating to ₹15,02,268. It additionally demanded interest of ₹6,32,573 under each tax head and imposed penalties of ₹75,113.40 each.
Accordingly, the aggregate demand towards tax, interest and penalty was approximately ₹29.18 lakh.
The adjudicating authority confirmed the demand through an order dated July 10, 2024.
Challenging the adjudication order before the first appellate authority, the taxpayer submitted that the excess ITC had been availed inadvertently. Upon discovering the mistake, it voluntarily reversed the entire credit and paid the applicable interest before the show cause notice was issued.
The taxpayer argued that, since the tax and interest had already been paid before the issuance of the notice, no penalty could be imposed under Section 73 of the CGST Act.
The first appellate authority, however, declined to interfere with the adjudication order. It held that interest liability arose automatically when tax was not paid within the prescribed period and continued until the date of payment.
On the question of penalty, the appellate authority referred to Section 73(8), which provides that no penalty is payable when the person concerned pays the tax and interest within 30 days of the show cause notice.
The authority concluded that the taxpayer had failed to pay the tax and interest within 30 days from the issuance of the notice and therefore upheld the penalty under Section 73(9).
Before the GSTAT, the taxpayer contended that the first appellate authority had failed to consider the self-assessment reflected in its GSTR-3B return for December 2020.
It argued that the impugned order was arbitrary and did not provide proper reasons for rejecting the appeal. The authority had allegedly imposed the penalty without considering that the disputed ITC and interest had been discharged much before the commencement of proceedings.
The taxpayer also submitted that the GST law did not prohibit voluntary reversal of excess ITC.
The decisive development before the Tribunal was the admission made by the Revenue in its cross-objections.
The Department acknowledged that the taxpayer had reversed CGST credit of ₹7,51,134 and SGST credit of ₹7,51,134 in Table 4(B)(2) of its GSTR-3B return for December 2020. The return was filed on January 20, 2021.
The Revenue further admitted that the taxpayer had paid interest of ₹91,865 each under the CGST and SGST heads in the same return.
Thus, the records showed that the taxpayer had reversed the exact amount of disputed ITC and paid the applicable interest more than three years before the demand notice dated March 21, 2024.
During the hearing, the Additional Commissioner representing the West Bengal GST Department informed the Tribunal that the departmental records had been scrutinised and the taxpayer’s claim was found to be genuine.
The department fairly accepted that the entire excess ITC, along with applicable interest, had been reversed before the issuance of the demand-cum-show cause notice.
Taking note of the Department’s unequivocal admission, the Tribunal allowed the taxpayer’s appeal and set aside the first appellate authority’s order.
“In view of the fact that the case of the appellant-taxpayer has been admitted by the revenue, the present appeal stands allowed on admission by setting aside the impugned order of the first appellate authority,” the Tribunal held.
The Bench directed that an appropriation order, if required, must be issued by the proper officer within one month from the date on which the Tribunal’s order is communicated.
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