Facts of the Case

The petitioner, M/s Vivo Mobile India Private Limited, a mobile phone manufacturer at Greater Noida, was assessed by an order dated 07.04.2021 passed under Section 74(9) of the CGST Act, 2017, alleging excess availment/utilisation of Input Tax Credit of Rs. 1,10,06,90,100.31 for February to August 2020, on the ground that the ITC availed exceeded the auto-populated GSTR-2A figures beyond the permissible additional buffer under Rule 36(4) of the CGST Rules. With equal penalty and interest, the total demand touched Rs. 235.52 crores. While the writ petition and stay application were pending, the department recovered the entire disputed tax and penalty (Rs. 220.13 crores) in addition to a 10% pre-deposit already made by the petitioner (Rs. 11.00 crores) — effectively recovering over 110% of the disputed amount — prompting the petitioner to also file a Restitution Application seeking refund with interest.

Issues Involved

  1. Whether, by virtue of the first proviso to Rule 36(4) inserted with effect from 03.04.2020, ITC for the tax periods February 2020 to August 2020 had to be reconciled on a cumulative basis (as a single block) against GSTR-2A available up to the return for September 2020, rather than month-to-month.
  2. Whether Circular No. 123/42/2019-GST, insofar as it prescribed month-wise reconciliation as on the date of filing GSTR-1, could override the statutory scheme created by the first proviso to Rule 36(4).
  3. Whether the department's recovery of over 110% of the disputed demand during pendency of the writ petition, despite the petitioner's pre-deposit, was sustainable.

Petitioner's Arguments

  • Rule 36(4)'s first proviso deemed the entire period February to August 2020 as a single, cumulative tax period for reconciliation, to be tested against the position as it stood when the GSTR-3B for September 2020 was filed; on a cumulative basis, the petitioner had unutilised, not excess, ITC of about Rs. 81 crores.
  • The department's month-to-month reconciliation approach rested on a misreading of Circular No. 123/42/2019-GST, which either did not survive the subsequent insertion of the first proviso to Rule 36(4), or could not, as a mere administrative instruction, override the Rule; reliance was placed on Union of India v. Bharti Airtel Ltd. and the Calcutta High Court's Suncraft Energy ruling to argue that GSTR-2A is only a facilitator, not a determinant, of the substantive ITC right under Section 16.
  • The excess recovery of over 110% of the disputed demand during pendency of the writ petition, disregarding the petitioner's own pre-deposit, warranted restitution with interest.

Respondent's Arguments

  • GSTR-3B being a monthly return with a fixed due date, and GSTR-2A being auto-populated strictly from suppliers' GSTR-1 filings, the ITC available for each month remained fixed and could not be recomputed cumulatively across months; only the specific relaxations in Circular No. 136 dated 03.04.2020 (waiver of late fee, extension of certain compliance timelines) were granted, and the due date for GSTR-3B was never itself extended.
  • The reconciliation chart in the impugned order showed an exact, undisputed month-wise comparison; excess ITC utilisation for June and September 2020 alone (net Rs. 110.06 crores) justified the demand, interest and penalty.
  • There being no implied stay of recovery absent a specific court order, the department's recovery during pendency of the writ petition, notwithstanding the pre-deposit, was not erroneous.

Court Order / Findings

  • Analysing Sections 16, 37, 41 and 43A along with Rules 36, 37, 59 and 60, the Court held that ITC is a substantive right created by Section 16, available provisionally even before final reconciliation, and that GSTR-2A functions only as a facilitator (Bharti Airtel, Suncraft Energy) rather than the sole determinant of eligible credit.
  • The Court held that the sole purpose of the first proviso to Rule 36(4) was to dissolve the monthly partitions between February and August 2020 and treat that entire span as one cumulative tax period for computing eligible ITC as on the date of filing the GSTR-3B for September 2020; the department's month-wise reconciliation approach, based on Circular No. 123/42/2019-GST, was therefore erroneous and unsustainable, that Circular having lost enforceability to the extent it conflicted with the later statutory proviso.
  • Since the reconciliation itself, and not any allegation of fraud or fake invoices, formed the basis of the demand, and the petitioner's cumulative-position explanation had not been rebutted, the Court quashed the impugned order in its entirety rather than remitting the matter.
  • On the recovery issue, the Court held there being no automatic stay merely from a pre-deposit in a writ proceeding, the department's recovery during pendency was not per se erroneous; however, recovering the entire disputed amount without adjusting for the pre-deposit already made, resulting in recovery of 110% of the demand, was wholly unacceptable. The Court ordered refund of the entire amount recovered within six weeks, with 6% interest on the excess recovery of Rs. 11,00,69,010, and left it open to the State to recover up to 10% of that interest from erring officers in proportion to their negligence.

Important Clarification

The first proviso to Rule 36(4) of the CGST Rules, inserted with effect from 03.04.2020, requires cumulative (not month-to-month) reconciliation of Input Tax Credit for the specified block of tax periods (February to August 2020) against the GSTR-2A position as it stands on the date of filing the GSTR-3B return for September 2020; an administrative Circular cannot be read to defeat this statutory relaxation, and GSTR-2A remains only a facilitating tool, not the final word, in determining an assessee's substantive right to ITC under Section 16 of the Act.

Sections Involved

  • Section 16, CGST Act, 2017 — creates the substantive, provisional right to avail Input Tax Credit.
  • Section 74, CGST Act, 2017 — governs determination of tax/ITC wrongly availed by fraud or suppression.
  • Rule 36(4), CGST Rules, 2017 — caps additional ITC beyond that reflected in GSTR-2A, with its first proviso permitting cumulative adjustment for February–August 2020.

Decision – In Favour of

In favour of the Assessee — the impugned demand order was quashed in entirety, and the department was directed to refund the entire amount recovered with interest on the excess recovery.

Case Details

  • Court: High Court of Judicature at Allahabad
  • Case Number: WRIT TAX No. 433 of 2021
  • CNR / Citation: Neutral Citation No. 2023:AHC:194323-DB
  • Coram: Hon'ble Saumitra Dayal Singh, J. & Hon'ble Vinod Diwakar, J.
  • Date of Order: 5 September 2023

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