Gauhati High Court Clarifies Reversal of Input Tax Credit Under AVAT Act Not Permissible If Credit Not Utilized Under Repealed Act

Background and Context
The petitioner, a registered dealer under the Assam Value Added Tax Act, 2003 (AVAT Act), challenged an order dated 20-07-2022 issued by the Superintendent of Taxes, Guwahati, which reversed input tax credit (ITC) claimed by the petitioner and demanded recovery of tax and interest totaling Rs. 47,15,051/-. The dispute arose after the AVAT Act was repealed with the introduction of the Assam Goods & Service Tax Act, 2017 (GST Act), except for certain specified items.

Petitioner’s Submissions
The petitioner contended that the ITC claimed in its June 2017 return was not utilized to meet any liability under the AVAT Act. Instead, the ITC was carried forward and used to meet liabilities under the GST Act after its enactment. The petitioner argued that since the ITC was not availed under the AVAT Act, the reversal and recovery under Section 14(9) of the AVAT Act was not justified. The petitioner further submitted that any proceedings regarding the utilization of ITC post-GST should be initiated under the GST Act, not the repealed AVAT Act.

Respondent’s Submissions
The State respondents argued that the ITC claimed by the petitioner pertained to items listed in Schedule-IV of the AVAT Act, for which ITC was not admissible. They maintained that the reversal and recovery were proper under Section 14(9) of the AVAT Act, as the ITC was impermissibly claimed and subsequently utilized.

Court’s Reasoning and Findings
The Court examined Section 14(8) and (9) of the AVAT Act, which provide for reversal of ITC if it is availed and utilized for meeting tax liabilities under the Act. The Court found that the petitioner had not utilized the ITC under the AVAT Act before its repeal. Instead, the ITC was used to meet liabilities under the GST Act after 01-07-2017. The Court held that reversal and recovery under the repealed AVAT Act could only be invoked if the ITC was actually utilized to meet liabilities under that Act.

The Court further clarified that if the ITC was utilized under the GST Act, any proceedings for reversal or recovery must be initiated under the GST Act by the competent authority, provided such proceedings are permissible under the GST Act.

Decision and Directions
The Gauhati High Court set aside the notice dated 06-05-2022, the order dated 20-07-2022, and the demand notice dated 27-07-2022 issued under the AVAT Act. The Court observed that the competent authority under the GST Act would be at liberty to initiate appropriate proceedings for reversal of excess ITC utilized under the GST regime, if permissible.

With these observations, the writ petition was disposed of, providing clarity on the jurisdictional limits for reversal and recovery of ITC following the transition from the AVAT Act to the GST Act.