Ajay Industries & Anr. Vs Union of India & Ors. (Gujarat High Court)
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.
Facts:
M/s. Ajay Industries (“the Petitioner”), a partnership firm engaged in the manufacture and sale of cotton seed oil, and is registered under the Central Goods and Services Tax Act, 2017 (“the CGST Act”) regime. Initially, the Petitioner was under the belief that although the cotton seed oil is taxable, its by-product- cotton oil cake, is exempt, hence they availed full ITC and filed Returns for FY 2017-18 accordingly. However, subsequently, upon being advised, the Petitioner reversed proportionate ITC under Section 17(2) of the CGST Act to the extent of ratio of turnover exempt supplies vis-a-vis total turnover. This reversal for FY 2017-18 and 2018-19 was reflected in the FORM GSTR-3B return for March 2020
