The Goods and Services Tax Appellate Tribunal (GSTAT), Kolkata Bench, has set aside an appellate order allowing re-credit of excess tax to a taxpayer after finding that the relief was granted without recording any reasons or examining whether the statutory requirements for refund and re-credit had been satisfied.
The bench of S.G. Chattopadhyay (Judicial Member) and Bijoy Kumar Kar (Technical Member) found that the first appellate authority had reduced the taxpayer’s GST liability to ₹8.72 lakh without explaining the basis of the computation.
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The Bench remanded the matter to the first appellate authority for a fresh decision. It directed the authority to determine the tax liability using the taxpayer’s self-assessed returns, auto-generated returns and audit reports.
The fresh proceedings must be completed within six months after giving both the taxpayer and the Revenue an opportunity of hearing.
The taxpayer is the proprietor engaged in trading computer stationery, machinery, and parts and accessories of printing presses in Kolkata.
The GST department issued a show-cause-cum-demand notice alleging several discrepancies in the taxpayer’s returns for the relevant financial years.
The notice alleged that the GST paid through GSTR-3B was lower than the tax liability declared in GSTR-1, resulting in a difference of ₹10.22 lakh.
It further alleged that the taxpayer had failed to reverse ineligible input tax credit of ₹6,867 attributable to exempt, nil-rated and non-GST supplies.
The department also proposed recovery of ₹47.32 lakh as allegedly excess ITC on the ground that the corresponding invoices were not reflected in GSTR-2A. Another amount of ₹5.90 lakh was proposed on account of an ITC mismatch between GSTR-3B and GSTR-9 for the 2018-19 financial year.
Interest and penalties were also proposed under the Central Goods and Services Tax Act, 2017.
In response to the show-cause notice, the taxpayer stated that the discrepancies had arisen because of a lack of familiarity with the newly introduced GST law and incorrect advice from consultants.
According to the taxpayer, the discrepancies were subsequently identified during an internal audit and the excess ITC was reversed through several DRC-03 payments.
The taxpayer claimed to have reversed ITC of approximately ₹47.47 lakh for 2017-18 and ₹35.20 lakh for 2018-19. It was argued that the reversal had been completed before receipt of the demand notice and that the proceedings should consequently be closed.
The adjudicating authority passed an order on November 10, 2023, confirming the demands under Section 73 of the CGST Act.
It confirmed a tax demand of ₹9.31 lakh on account of the difference between GSTR-1 and GSTR-3B. After appropriating ₹9.12 lakh already paid through DRC-03, the authority directed the taxpayer to pay the remaining IGST and compensation cess.
A demand of ₹6,867 relating to ITC attributable to exempt and nil-rated supplies was also confirmed.
The authority further confirmed ₹47.08 lakh as inadmissible ITC and appropriated ₹34.97 lakh already paid by the taxpayer. It also confirmed another ITC demand of ₹5.90 lakh for 2018-19.
Interest under Section 50 and penalties under Sections 122(2)(a) and 122(3)(e) were imposed.
The taxpayer challenged the adjudication order before the first appellate authority.
By an order dated July 24, 2025, the appellate authority modified the original order and directed the taxpayer to pay ₹8,72,691 as IGST and ₹11,000 as compensation cess, along with applicable interest and penalty.
The authority also ordered the proper officer to allow the taxpayer to re-credit the excess tax paid in the respective electronic credit ledger.
The penalty imposed under Section 122(3)(e) was not sustained. The appellate authority observed that the provision related to failure to issue or account for invoices, but the department had not produced evidence establishing such a failure.
The department approached the GSTAT contending that the direction permitting re-credit was not supported by law.
It also argued that the appellate authority’s findings concerning the reversal of ITC were not based on adequate documentary evidence.
The taxpayer opposed the Revenue’s appeal and relied upon Rule 86(4A) of the CGST Rules. It was argued that tax paid wrongly or in excess through the electronic credit ledger could be re-credited by the proper officer if the amount was found admissible.
Reliance was also placed on CBIC Circular No. 135/05/2020-GST dated March 31, 2020. The taxpayer maintained that the appellate order was based on a reconciliation of the GST returns and audited accounts and therefore did not require interference.
The GSTAT noted that the taxpayer had not claimed a refund in its reply to the demand notice. No refund claim had been made either before the adjudicating authority or the first appellate authority.
The Tribunal observed that refund of tax, interest or any other amount is governed by Section 54 of the CGST Act. A person seeking a refund is required to file an application in the prescribed form and manner within two years from the relevant date.
In the present case, the taxpayer’s original contention was that the excess ITC had already been reversed before the show-cause notice was issued. The claim for refund or re-credit was pursued only after the Revenue filed its appeal before the GSTAT.
The Tribunal acknowledged that refund and re-credit are recognised under the GST law. Rule 86(4A) provides for re-credit to the electronic credit ledger where a refund of tax paid wrongly or in excess through that ledger is found admissible.
However, such re-credit must follow the procedure prescribed under the Act and Rules.
The GSTAT found that the first appellate authority had not recorded any reason for permitting the taxpayer to re-credit the excess amount.
It observed that the appellate authority had “jumped to this decision out of context” without first examining whether the taxpayer was legally entitled to the relief.
The Tribunal also questioned the reduction of the taxpayer’s liability to ₹8.72 lakh. It noted that the adjudicating authority had confirmed a much higher demand, but the appellate authority did not explain how it arrived at the substantially reduced figure.
Since the order contained no valid reasoning either for the re-credit or for the revised computation, the GSTAT held that it was difficult to agree with the view taken by the first appellate authority.
The Tribunal set aside the appellate order and remanded the proceedings for fresh consideration.
On the issue of re-credit, the appellate authority was directed to reconsider the taxpayer’s entitlement in accordance with the GST law, CBIC Circular No. 135/05/2020-GST dated March 31, 2020, and Circular No. 173/05/2022-GST dated July 6, 2022.
It must pass a speaking order clearly explaining whether the taxpayer is entitled to re-credit.
For determining the tax liability, the authority must undertake a fresh computation based on information contained in the self-assessed and auto-generated GST returns. It must also consider the audit reports already on record and specifically refer to the relevant returns and reports while recording its conclusions.
The entire exercise must be completed within six months from the date on which the certified copy of the GSTAT order is received.
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