Gujarat HC: No Fresh GST ITC Demand Without GSTN Verification if Reversal Done Before SCN

The Gujarat High Court favoured a ruling in the case of Ajay Industries, a partnership firm engaged in the manufacturing and sales of cottonseed oil, in a matter of the refund of unutilized Input Tax Credit (ITC) under the Goods and Services Tax (GST) regime.

The case is concerned with the firm’s claim of a refund of the unused GST ITC gathered due to the inverted duty framework in which the rate of tax on inputs is more than that on outputs. A refund application has been furnished by Ajay Industries and is been rejected by the tax authorities because specific inputs were not being used directly in the process of manufacturing.

This decision was contested by Ajay Industries, and they approached the Gujarat HC claiming that the refusal breaches the Central Goods and Services Tax Act, 2017 provisions. The questioned inputs were contended by the firm and were integral to their manufacturing operations, and the GST refund claim rejection was arbitrary and without accurate justification.

Gujarat HC in its ruling said that the tax authorities had made a mistake in their interpretation of the law. The court outlines that the description of inputs under the GST structure is wider and comprises all goods used in the business operations. No claim supporting evidence that the inputs were not used in the manufacturing process is furnished by the authorities.

The court, refund denial was not just unexplained but also breached the principles of natural justice. Ajay Industries has also not been furnished with an appropriate chance to present their case or answer to the raised objections.

The refund claim rejection order was set aside by the Gujarat High Court and asked the tax authorities to reassess their application under the law. The court asked to finish the reassessment within the said timeframe to ensure timely redressal.