The Gujarat High Court addressed a case involving Shree Ambica Auto Sales and Service, where the petitioner availed Input Tax Credit (ITC) on invoices from Tata Motors Ltd. Subsequently, Tata Motors issued credit notes for post-sale discounts, and the petitioner issued corresponding debit notes, paying GST and reflecting these in their GSTR-1 and GSTR-3B returns. However, incorrect reporting of debit notes led to a mismatch in GSTR-2A, prompting departmental action. The petitioner argued that under Section 15(3)(b) and Section 43 of the Central Goods and Services Tax (CGST) Act, there is no requirement for compulsory ITC reversal due to credit note issuance.
During an inspection, the petitioner was forced to reverse ITC and deposit ₹10.99 crore, which was later denied appropriation despite the tax paid exceeding the proposed ITC reversal. The issue was whether the department's refusal to allow rectification of GST returns was justified, given the revenue-neutral nature of the transaction and the excess tax paid.
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The Court noted that the tax paid was higher than the ITC proposed for reversal, and no effective demand remained. It was determined that the error was a bona fide reporting mistake, with no loss of revenue to the exchequer. The Court, citing precedents from various High Courts, ruled that procedural errors in GST returns should be rectifiable, especially in revenue-neutral situations. Consequently, the impugned order was quashed, the Show Cause Notice deemed unsustainable, and the department was directed to permit the rectification of GSTR-1 and GSTR-3B returns.
Parties: Shree Ambica Auto Sales and Service & Anr. v. Union Bank of India & Ors.
Order Date: 08 January 2026
Facts
- The petitioner availed ITC on invoices issued by Tata Motors Ltd.; subsequently, the vendor issued credit notes for post-sale discounts.
- The petitioner issued corresponding debit notes, paid GST thereon, and reflected the liability in GSTR-1 and GSTR-3B, thereby effectively neutralising the ITC.
- Due to incorrect reporting of debit notes, a mismatch appeared in GSTR-2A, leading to departmental action.
- Petitioner contended under Section 15(3)(b) and Section 43 of the CGST Act, there is no statutory mandate requiring compulsory ITC reversal by the buyer merely due to issuance of credit notes.
- During inspection, the petitioner was coerced to reverse ITC and deposit ₹10.99 crore via DRC-03, followed by an order dated 26.12.2023 denying appropriation despite tax paid exceeding proposed ITC reversal.
Issue
- Whether the department was justified in denying appropriation/refund and refusing rectification of GST returns despite the transaction being revenue-neutral and tax paid exceeding the ITC proposed to be reversed.
Observations
- The Court observed that the tax paid by the petitioner was higher than the ITC proposed to be reversed in the Show Cause Notice and, therefore, no effective demand survived.
- It was noted that the dispute arose from a bona fide reporting error, and the respondents failed to establish any loss of revenue to the exchequer and therefore rectification ought to be permitted.
- Relying on consistent precedents of various High Courts, the Court held that procedural or inadvertent errors in GST returns must be allowed to be rectified, particularly in revenue-neutral situations.
- The impugned order was quashed, the SCN was held unsustainable, and the department was directed to allow rectification of GSTR-1 and GSTR-3B, electronically or manually.
