The Goods and Services Tax Appellate Tribunal (GSTAT), Chennai Bench, has held that a dispute over the identification of common input tax credit and its reversal involves a question of law when its resolution requires interpretation and application of statutory provisions. 

The bench of Praveen Kumar Jain (Judicial Member) and Shaik Khader Rahman (Technical Member) observed that checking numerical entries in GST returns alone cannot resolve a controversy concerning the legal requirements governing credit attribution and reversal.

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The proceedings arose from a dispute concerning reversal of input tax credit under Rules 42 and 43 of the Tamil Nadu Goods and Services Tax Rules, 2017, read with Section 17(2) of the TNGST Act, 2017.

The first Appellate Authority had granted relief to the taxpayer in relation to the reversal. The Deputy Commissioner (ST), Central-II, and other departmental appellants challenged that relief before the tribunal.

Since the disputed amount was below ₹50 lakh, the tribunal took up the appeal to determine whether it involved a question of law within the meaning of Section 109(8) of the CGST Act, 2017. The bench also referred to Principal Bench Office Order No. 3/GSTAT/PB/2026 dated May 14, 2026.

In written submissions filed on August 24, 2026, the department maintained that the dispute was purely factual.

According to the department, the issue related to verification of the taxpayer’s returns and the reversal already made. It therefore argued that no question of law arose in the appeal.

In its cross-objections dated September 12, 2026, the taxpayer questioned the method adopted by the adjudicating authority to calculate the reversal.

It contended that the authority had treated the entire input tax credit figure appearing in Table 8B of Form GSTR-9 as common credit without first determining the relevant components, identified as T1, T2, T3 and T4 under Rule 42(1).

The taxpayer further alleged that the authority had failed to account for ineligible credit separately reported in Table 8Fand had not applied the invoice-level attribution contemplated by the proviso to Rule 42(1).

Relying on its maintenance of separate accounts for taxable pharmacy supplies and exempt healthcare services, the taxpayer raised questions concerning the applicability of Section 17(2), the computation and attribution mechanism under Rule 42, and the adequacy of reasons in the assessment order.

The taxpayer also referred to the first Appellate Authority’s findings that separate accounts were maintained and that the adjudicating authority had not identified the different categories of turnover and inputs required for applying Rule 42.

The tribunal explained that its task at this stage was neither to determine whether the department’s grounds would ultimately succeed nor to establish the correctness of the taxpayer’s factual assertions.

The relevant issue was whether the appeal could be decided solely through appreciation or verification of facts, or whether its adjudication necessarily required interpretation or application of statutory provisions.

The bench held that determining whether credit should be treated as common credit, identifying the components required before applying the Rule 42 formula, and examining the legal consequences of separately identified and attributed inputs or input services required consideration of the statutory scheme.

These issues, it observed, could not be resolved merely by checking numerical entries in returns without first deciding the governing legal requirements. LIFELINE PHARMACY

The tribunal rejected the proposition that a controversy becomes purely factual simply because application of a statutory formula requires examination of accounts, returns or other evidence.

It held that a question of law arises where the parties dispute the meaning, requirements or legal operation of the provisions governing computation and reversal of credit.

In the present case, the taxpayer’s submissions disclosed such statutory issues, which directly affected the determination of the disputed reversal.

The bench noted that the CGST Act does not define “question of law” for the purposes of Section 109(8). For this limited determination, it considered a question requiring interpretation or application of statutory provisions—as distinct from a dispute confined to appreciation of evidence—sufficient to constitute a question of law.

In that decision, it had considered the approach stated in M/s. Atria Convergence Technologies Ltd. v. Deputy Commissioner of Commercial Tax, 2025 (2) TMI 883. As described in the present order, that approach recognises that an issue ordinarily constitutes a question of law where its answer must be found by reference to legal principles and statutory provisions, and where statutory interpretation affects the outcome.

Applying that reasoning, the tribunal held that the present appeal required examination of whether the first Appellate Authority’s order complied with the law and whether its findings were legally sustainable.

The tribunal rejected the department’s submission that the appeal involved only a question of fact and accepted the taxpayer’s position that a question of law arose.

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