ITC demand unsustainable where credit was reversed and correctly re-claimed prior to show cause notice.

The Petitioner, a Hindu Undivided Family (HUF), was issued a Show Cause Notice (SCN) dated 03.01.2024 under Section 73 of the Central Goods and Services Tax (CGST) Act, 2017, for the Financial Year 2018-2019

The SCN proposed a demand of ₹45,81,000/- based on an alleged excess Input Tax Credit (ITC) of ₹41,41,731/- claimed in GSTR-3B compared to GSTR-2A

The Respondent No. 2 passed an Order-in-Original on 24.04.2024, upholding the demand, disallowing the ITC, and imposing penalties

On appeal, the Additional Commissioner (Appeals) passed an Order-in-Appeal dated 17.01.2025, which only partially waived a minor tax liability of ₹5,606/- but upheld the ITC disallowance, citing a lack of documentary evidence for the Petitioner’s claim that the credit had been previously reversed and corrected

The Petitioner subsequently filed this writ petition challenging the orders and the validity of Notifications 9/2023 and 56/2023

1. Whether Notification No. 9/2023-Central Tax and Notification No. 56/2023-Central Tax are ultra vires the provisions of the CGST Act, 2017

2. Whether the Order-in-Original and Order-in-Appeal confirming the ITC demand were legally sustainable in light of the Petitioner's submission that the relevant credit was reversed and correctly claimed prior to the issuance of the SCN

Section 73 of the Central Goods and Services Tax Act, 2017, which governs the determination of tax not paid or short paid or input tax credit wrongly availed or utilized for reasons other than fraud or willful misstatement

Article 226 of the Constitution of India

The Court’s reasoning primarily rested on a factual concession made by the Respondents.

The Petitioner argued that the disputed ITC had been reversed and claimed under the proper head before the SCN was even issued.

the Counsel for the Respondents, upon verification, "candidly confirmed the veracity" of the Petitioner’s submission.

The Court held that since the factual basis for the ITC disallowance was now admitted by the Revenue to be incorrect, the impugned orders could not stand.

Consequently, the Court found it unnecessary to delve into the merits of the challenge against the notifications at this stage and focused on the procedural necessity of a fresh adjudication based on the corrected facts.

The Court remanded the matter back to the relevant adjudicatory authority for fresh consideration in light of the Respondent's admission regarding the prior reversal of credit. The Petitioner was directed to appear before the authority on 06.04.2026, and the authority was ordered to decide the matter expeditiously within 12 weeks thereafter.

The Court clarified that it expressed no opinion on the merits of the case.