Facts of the Case

Petitioner, Veer Prabhu Marketing Ltd., a company based in Basni, Jodhpur, was proceeded against by the CGST authorities for recovery/reversal of input tax credit amounting to Rs.25 lakh, initiated vide Form GST DRC-03 dated 22.12.2020. The demand arose because the Petitioner's supplier, M/s Universal Auto Components, had failed to file its GSTR-3B returns for the relevant years, resulting in a mismatch that led the department to seek reversal of the corresponding ITC availed by the Petitioner. The Petitioner challenged this action before the Rajasthan High Court, Jodhpur Bench, under Article 226.

Issues Involved

  1. Whether the Petitioner's input tax credit could be reversed on the ground that its supplier had failed to file GSTR-3B returns.
  2. Whether the writ petition survived for adjudication once the supplier subsequently filed its pending returns and the Petitioner became entitled to avail the credit.

Petitioner's Arguments

  • The recorded order shows the Petitioner's counsel as 'None present' at the final hearing; no separate arguments beyond the challenge to the DRC-03 demand raised in the writ petition itself are captured in this order.

Respondent's Arguments

  • Counsel for the respondents submitted that proceedings had been initiated against the Petitioner to recover/reverse Rs.25 lakh vide DRC-03 dated 22.12.2020, because the supplier, M/s Universal Auto Components, had failed to file its GSTR-3B returns for the relevant years.
  • It was further submitted that the supplier had since filed all pending GSTR-3B returns, following which the Petitioner became entitled to avail the ITC and had, in fact, applied for and availed the credit in March 2021.
  • An additional affidavit recording these subsequent developments was placed on record on behalf of the respondents, to which the Petitioner filed no counter.

Court Order/Findings

  • In view of the subsequent development that the supplier had filed its pending GSTR-3B returns and the Petitioner had duly availed the ITC in March 2021, the Court held that no further order was required to be passed in the petition.
  • The writ petition, along with the stay application and all other pending applications, was disposed of accordingly.

Important Clarification

  • Where a taxpayer's ITC is sought to be reversed solely because a supplier defaulted in filing GSTR-3B returns, the demand becomes infructuous once the supplier files the pending returns and the recipient's entitlement to the credit is restored — courts will close such proceedings without recording any finding on the legality of the original demand.
  • This order does not decide the broader legal question of whether ITC can be denied to a bona fide recipient purely for a supplier's return-filing default; it is disposed of on the specific facts once the default was cured.

Sections Involved

  • Form GST DRC-03 under the Central Goods and Services Tax Rules, 2017 — used for voluntary or department-initiated payment/reversal of tax and ITC.
  • Section 16 of the Central Goods and Services Tax Act, 2017 — governs conditions for eligibility to avail input tax credit, including matching with the supplier's returns.
  • Article 226 of the Constitution of India, 1950 — invoked for the writ remedy.

Decision – In Favour of

Disposed of with directions and no finding on merits — effectively favourable to the Assessee on facts, since the underlying ITC reversal demand became infructuous once the supplier's default was cured, but the Court recorded no ruling on the legal question of supplier-default-based ITC reversal.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: High Court of Judicature for Rajasthan at Jodhpur
  • Case No.: D.B. Civil Writ Petition No. 732/2021
  • CNR: Not available
  • Coram: Justice Vijay Bishnoi and Dr. Justice Nupur Bhati
  • Decision Date: 20-12-2023
  • Disposal Nature: Disposed of (no further order required; ITC dispute resolved after supplier filed pending returns)

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