High Court Rules on Reversal of ITC for Financial Credit Notes: Tvl. Shivam Steels vs. Assistant Commissioner (ST)(FAC)

Case Details

• Case Title: Tvl. Shivam Steels Versus Assistant Commissioner (ST)(FAC)
• Case No.: W.P.No .15335 of 2024 and W.M.P.Nos.16659 & 16661 of 2024

Facts of the Case

• Show Cause Notice: Tvl. Shivam Steels, the petitioner, received a show cause notice regarding the reversal of input tax credit (ITC) linked to credit notes issued by their supplier.
• Petitioner's Argument: The petitioner argued that the credit notes in question were financial credit notes, not fulfilling the criteria specified in sub-section (3) of Section 15 of the GST statutes. According to the petitioner, these statutes allow for a reduction in the value of supply only by discounts that are either recorded in the invoice or established through an agreement at the time of supply.
• Misinterpretation of Discount: The assessee contended that the discount was erroneously interpreted as a service provided by the purchaser to the supplier, resulting in an unjust reversal of ITC.

Court's Decision

• Order Set Aside: The Madras High Court set aside the order related to the reversal of ITC for the value of the credit notes issued by the supplier.
• Ruling on Financial Credit Notes: The court ruled that financial credit notes should not lead to the reversal of ITC as they do not meet the conditions outlined in Section 15(3) of the GST statutes.
• Clarification on Services: This decision clarifies that financial credit notes are not to be treated as services provided by the purchaser, thereby ensuring that the ITC is not unjustly reversed.

Conclusion

The ruling by the Madras High Court provides crucial clarity on the treatment of financial credit notes under GST law. It confirms that financial credit notes, which do not meet the specific conditions of Section 15(3), should not result in the reversal of ITC. This decision protects businesses from unjust ITC reversals due to misinterpretation of financial credit notes as services.

This case is a significant reference for businesses and legal professionals dealing with GST compliance and disputes related to input tax credit.