Supreme Court Dismisses UP Govt.'s Appeal Against Allahabad HC Order Quashing Demand Of Rs. 235.52 Crores Against VIVO

On Thursday(January 4), the Supreme Court dismissed a Special Leave Petition filed by the State of Uttar Pradesh against the order of the Allahabad High Court quashing the demand of Rs. 235.52 Crores raised against Vivo Mobile India Private Limited raised by GST Authorities vide order under Section 74(9) of the Goods and Service Tax Act 2017.

In the peculiar facts of the case, the bench comprising of Justice B.V. Nagarathna and Justice Augustine George Masih refused to interfere with the order of the Allahabad High Court.

“The reason why we are saying so is that although the scheme was between March, 2020 to August, 2020, in the instant case, the respondents had sought benefit or extension of the scheme only by one month, that is, September, 2020.”

Vivo Mobile had computed Input Tax Credit cumulatively for the months of February 2020 to August 2020 as on the date of filing their GSTR-3B returns for the month of September 2020. However, a demand was raised by the GST Authorities alleging that petitioner had claimed excess Input Tax Credit of Rs. 110 Crores. Authority placed reliance on Circular No. 113 dated 11.11.2019 issued by the Central Board of Indirect Taxes and Customs to contend that cumulative adjustment could have only been made upto the date of filing of GSTR-1 declaration by their suppliers. Based on the Circular, tax demand along with penalty and interest totaling to Rs. 235.52 Crores was raised under Section 74(9) of the GST Act.

Vivo had deposited around Rs. 11 Crores while filing the writ petition before the High Court. Since there was no interim protection granted to Vivo, the GST Authorities proceeded to recover Rs. 220.15 Crores from the bank accounts of Vivo Mobile during the pendency of the writ petition before the High Court.

While granting relief to Vivo, the Allahabad High Court had held that Input Tax Credit is a substantive right granted to the assesee under Section 16 of the GST Act. It had also held that circular cannot be enforced contrary to the provisions of the statute.

The High Court had held that legislature through the word "cumulatively" in proviso to Rule 36(4) of the Goods and Service Tax Rules, 2017 created a deeming fiction in law to relax the condition of month-to-month reconciliation of the eligible ITC availed to a much longer period such that it allowed that period of one month to be practically enlarged to eight months. The intent of the legislature was to facilitate the taxpayers as well as the revenue during the period of COIVD-19.

Allowing the writ petition filed by Vivo, the High Court directed the respondents to return the entire amount along with interest @ 6% on the amount of excess recovery of Rs. 11,00,69,010/- from the date of that excess recovery to the date of its actual refund.

Regarding the direction of interest by the High Court, the Supreme Court observed that though the Additional Solicitor general pleaded that no excess recovery was made, the same shall remain subject to verification. The Court directed that in case excess recovery was made, “the direction of the High Court shall prevail.”

Accordingly, the special leave petition filed by the state was dismissed.

Case Title: State of Uttar Pradesh and Anr. v. M/s Vivo Mobile India Private Ltd. & Ors. [Petition(s) for Special Leave to Appeal (C) No(s). 27106/2023]

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Also Read | GST | Circular Does Not Override Statutory Provisions: Allahabad High Court Quashes Demand Of Rs. 235 Crores Against Vivo Mobile