Fresh demand for reversal of the same ITC is not valid merely because it was reversed beyond the prescribed time

Last updated: 30 May 2025

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The Gujarat High Court has ruled that tax authorities cannot issue a fresh demand for Input Tax Credit (ITC) that has already been reversed, even if the reversal occurred after the prescribed deadline. The court stated that if ITC is reversed before a Show Cause Notice is issued, the authorities should either recredit the ITC retrospectively or only charge interest and penalties for the late reversal. Authorities must verify GSTN data and cannot simply issue a demand based on a previous error.

Court :
Gujarat High Court

Brief :
The Hon'ble Gujarat High Court in Ajay Industries & Anr. v. Union of India & Ors. [SCA No. 2951 of 2025 dated April 16, 2025] held that once Input Tax Credit ("ITC") is reversed prior to issuance of a Show Cause Notice("SCN"), the authorities cannot raise a fresh demand on the same amount without verifying Goods and Services Tax Network("GSTN") data. The Court further emphasized that the proper course was to either recredit the ITC already reversed with retrospective effect or to charge only interest and penalty.

Citation :
SCA No. 2951 of 2025 dated April 16, 2025

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Attached File : 671907_5856_ajay_industries.pdf

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Judgement posted by

Bimal Jain

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FCA, FCS LLB with21 Yrs of Experience inTaxation Indirect and Direct: Education Qualification: B.Com (Hons) Chartered Accountants Company Secretary LLB Qualified SAP FI/CO Consultants Professional Membership: Chairmanof Indirect Tax Committee of PHD Chamber of Commerce Member of Indirec ... Read more

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