Facts of the Case

The petitioner, M/s Gajraj Singh Ranawat (Proprietor: Gajraj Singh Ranawat), a firm engaged in road-construction work and registered under GSTIN 08AEKPR5279J1ZQ, filed this writ petition before the High Court of Judicature for Rajasthan at Jodhpur. The petitioner had procured construction material from a supplier who had duly paid GST on the supply. Despite this, the Deputy Commissioner, AC/CTO Ward Circle, Pratapgarh (respondent no. 2), passed an order dated 27.12.2021 reversing/directing return of the Input Tax Credit (ITC) claimed by the petitioner under the Central Goods and Services Tax Act, 2017. The petitioner challenged this order and also initially sought a declaration that Section 16(2)(aa), Section 16(2)(c) of the CGST Act, 2017 and Rule 36(4) of the CGST Rules, 2017 were unconstitutional.

Issues Involved

  1. Whether the order dated 27.12.2021 reversing the petitioner's ITC was sustainable when the supplier had already paid GST on the supply.
  2. Whether Section 16(2)(aa), Section 16(2)(c) of the CGST Act, 2017 and Rule 36(4) of the CGST Rules, 2017 are unconstitutional (raised but ultimately not pressed).

Petitioner's Arguments

  • The petitioner-firm procures construction material for road-building and had requested its supplier to supply GST-paid material.
  • The supplier had already paid GST on the supplied items, yet the respondent, ignoring this fact, passed an order directing return/reversal of the ITC claimed by the petitioner.
  • At the hearing, the petitioner did not press the challenge to the constitutional validity of Section 16(2)(aa), 16(2)(c) of the CGST Act and Rule 36(4) of the CGST Rules, and instead sought only quashing of the impugned order with a direction for fresh adjudication after hearing.

Respondent's Arguments

  • Counsel for respondent no. 2 frankly admitted that the impugned order dated 27.12.2021 was passed ignoring the fact that GST on the supplied items had already been paid by the supplier.
  • The respondent submitted that the matter may be remanded for fresh adjudication after taking the supplier's GST payment into account.

Court Order / Findings

  • Since the petitioner did not press the constitutional challenge to Section 16(2)(aa), 16(2)(c) of the CGST Act, 2017 and Rule 36(4) of the CGST Rules, 2017, the Court did not examine that issue.
  • The Court held that an order reversing ITC while ignoring the fact that GST on the underlying supply had already been paid by the supplier cannot be sustained, particularly where the respondent's own counsel conceded the lapse.
  • The impugned order dated 27.12.2021 was quashed and set aside, and the respondent was directed to pass a fresh order after affording the petitioner an opportunity of hearing.
  • The writ petition and the connected stay petition were disposed of accordingly.

Important Clarification

Where a taxpayer's ITC is sought to be denied or reversed on the ground of default by a supplier, the adjudicating authority must first verify and record whether the supplier has, in fact, discharged GST on the underlying supply. An order that reverses ITC without engaging with this fact is liable to be quashed on judicial review, even without a decision on the constitutional validity of Section 16(2) conditions or Rule 36(4).

Sections Involved

  • Section 16(2)(aa), Central Goods and Services Tax Act, 2017 – restricts ITC to invoices/debit notes whose details have been furnished by the supplier and communicated to the recipient.
  • Section 16(2)(c), Central Goods and Services Tax Act, 2017 – requires that the tax charged on the supply has actually been paid to the Government before ITC can be availed.
  • Rule 36(4), Central Goods and Services Tax Rules, 2017 – caps the ITC a recipient may avail in respect of invoices not uploaded by the supplier.

Decision – In Favour of

The matter was disposed of with directions and remand, without a ruling on the constitutional questions (not pressed) or a final merits finding – in effect favourable to the Assessee, since the reversal order was quashed and a fresh, reasoned adjudication after hearing was directed.

Case Details

Court: High Court of Judicature for Rajasthan at Jodhpur
Case No.: D.B. Civil Writ Petition No. 5141/2023 (CW-5141/2023)
Neutral Citation: 2023/RJJD/013025
Coram: Hon'ble Mr. Justice Vijay Bishnoi and Hon'ble Mr. Justice Yogendra Kumar Purohit
Date of Order: 02.05.2023

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