The Delhi High Court Establishes a Precedent on Refund of Reversed Input Tax Credit: A Landmark Decision

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In a landmark judgment, the Delhi High Court has delivered a pivotal verdict in the case of Pedersen Consultants India Pvt. Ltd. v. Union of India and Ors. [W.P. (C) 1039/2024 dated March 19, 2024], which promises to have far-reaching implications in the realm of tax law and GST compliance. The court’s decision addresses a nuanced yet critical aspect of the Goods and Services Tax (GST) framework—specifically, the entitlement to a refund of the Input Tax Credit (ITC) that has been reversed when a supplier subsequently files returns and pays the due taxes.

The crux of the dispute revolved around the procedural intricacies of the GST regime, particularly the mechanism of ITC reversal and its subsequent refund. Under the GST law, businesses are entitled to claim ITC as a credit against the taxes paid on inputs, which can be utilized for payment of taxes on output supplies. However, complexities arise when the input tax credit is reversed due to non-compliance by the supplier, such as failure to pay taxes or file returns, and later, the supplier rectifies these defaults.

Pedersen Consultants India Pvt. Ltd., the petitioner in this case, found itself ensnared in this procedural quagmire when it reversed its claimed ITC, adhering to the statutory compliance requirements, due to its supplier’s initial failure to discharge tax liabilities. The scenario took a favorable turn when the supplier eventually fulfilled its tax obligations, prompting the petitioner to seek a refund of the reversed ITC.

The Delhi High Court’s adjudication of this matter has set a significant precedent. The court disposed of the writ petition, granting the petitioner the right to apply for a refund of the ITC that had been reversed, contingent upon the condition that the supplier has subsequently filed returns and paid the relevant taxes. This ruling underscores the principle of fairness and equity in the tax system, ensuring that businesses are not unduly penalized for lapses on the part of their suppliers.

Moreover, this judgment elucidates the interpretative challenges within the GST framework, particularly regarding the reconciliation of tax credits and liabilities. It highlights the need for a balanced approach that safeguards the fiscal interests of the state while ensuring that businesses are not subjected to undue financial strain due to procedural lapses beyond their control.

The implications of this judgment are manifold. First, it offers clarity and reassurance to businesses concerning the recoverability of reversed ITC, thereby enhancing the liquidity and financial health of businesses that operate within the purview of the GST regime. Secondly, it sets a jurisprudential benchmark that may influence the adjudication of similar disputes in the future, potentially leading to more streamlined and taxpayer-friendly interpretations of the GST law.

The Delhi High Court’s decision in Pedersen Consultants India Pvt. Ltd. v. Union of India and Ors. represents a crucial development in GST jurisprudence. By allowing the refund of reversed ITC upon compliance by the supplier, the court has affirmed the principle of equity in the tax system and provided a measure of relief to businesses grappling with the complexities of GST compliance. This judgment is poised to contribute significantly to the evolving landscape of tax law in India, ensuring that the GST regime operates in a manner that is both efficient and just.


(The author is Naveen Panwar, and the views expressed in this article are his own)