The Sikkim High Court has set aside orders seeking to recover ₹37,93,159 in alleged excess budgetary support from the assessee company and held that the authorities had not properly examined the company’s explanation and documents concerning input tax credit (ITC) reflected in GSTR-2A before concluding that it had received more support than it was entitled to.

The bench of Chief Justice A. Muhamed Mustaque directed the authorities to reconsider the matter after giving the assessee an effective opportunity of hearing. The company must produce documents explaining why the ITC shown in GSTR-2A was unavailable for utilisation. The authorities must address each explanation and its supporting documents, with reasons, in their fresh order. The Court directed that this exercise be completed within two months.

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The dispute concerns support claimed by the assessee under the Budgetary Support Scheme notified on October 5, 2017, for the period from July 2017 to March 2018. Under the scheme, eligible goods manufactured by the company attracted support equivalent to 58% of Central Tax and 29% of Integrated Tax paid through its cash ledger after utilisation of eligible ITC.

The assessee claimed ₹12,63,99,662 and was granted ₹12,48,27,999. The authorities later alleged that part of the amount granted was excessive and initially sought to recover ₹41,64,578.

After an earlier round of proceedings before the High Court, the authorities examined additional documents and revised the alleged excess amount to ₹37,93,159. An Order-in-Original dated January 7, 2025, confirmed recovery of that sum with interest at 15% per annum. A subsequent order dated March 10, 2025, adjusted ₹75,40,592 from a refund otherwise payable to the assessee for April to June 2024. The assessee challenged both orders.

The assessee’s case was that it had inadvertently disclosed an amount in Table 8C of GSTR-9 and that the disclosure was later used to conclude that it had received excess budgetary support.

The High Court identified the central question as whether the ITC reflected in GSTR-2A was legally available and capable of being utilised by the assessee. That question mattered because the scheme calculated support with reference to tax paid in cash after eligible ITC had been used.

The Court said assessee had to explain the discrepancy through reconciliation statements, invoices and relevant account details. If those materials showed that the ITC appearing in GSTR-2A was not actually eligible or available for use, the authorities had to consider the explanation and give reasons for accepting or rejecting it.

The High Court found that the required examination had not been properly undertaken. It therefore set aside the challenged orders and gave assessee a further opportunity to substantiate its position.

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