Lupin Limited, Thr. Its Auth. Rep. Srinivas Rao Kalakuntla vs. Union Of INDIA, Thr. Revenue Secretary And 2 Ors

Facts

The petitioner, Lupin Limited, filed a writ petition challenging the order passed by the Additional Commissioner (Appeals), GST, Goa. The impugned order upheld the demand raised by the Assistant Commissioner, CGST, Margao, for the tax period from July 2017 to March 2018. The dispute pertains to the eligibility of input tax credit (ITC) on common inputs and input services used for both taxable and exempt supplies. The petitioner contended that the apportionment of ITC was incorrect and that the authorities failed to consider the principles laid down in various judicial pronouncements. The Assistant Commissioner had disallowed a portion of the ITC claimed by the petitioner, leading to the present appeal.

Held

The Court held that the Additional Commissioner (Appeals) had erred in upholding the disallowance of Input Tax Credit (ITC) without properly considering the petitioner's claim for proportionate credit. The Court noted that Section 17(2) of the CGST Act, 2017, read with Rule 42 of the CGST Rules, 2017, mandates the reversal of ITC attributable to exempt supplies. However, the Court found that the authorities had not adequately examined the petitioner's method of apportionment and the evidence provided. The Court relied on the principles laid down in the cited judgments, which emphasize the need for a fair and proportionate allocation of ITC. The reasoning was that a mechanical disallowance without considering the nature of inputs and their usage would be unjust. The ratio decidendi is that when common inputs and input services are used for both taxable and exempt supplies, the ITC must be apportioned proportionately, and the authorities must apply their mind to the petitioner's method of apportionment and supporting evidence. The Court set aside the impugned order and remanded the matter back to the Assistant Commissioner for fresh adjudication.

Key Issues

1. Whether the Additional Commissioner (Appeals) erred in upholding the disallowance of Input Tax Credit (ITC) on common inputs and input services used for both taxable and exempt supplies, contrary to the petitioner's claim for proportionate credit, under Section 17(2) of the CGST Act, 2017 read with Rule 42 of the CGST Rules, 2017? Petitioner's arguments: The petitioner argued that the authorities below failed to appreciate that the ITC on common inputs and input services should be apportioned on a proportionate basis. They relied on the judgment in *Union of India v. ITC Limited* (2023 SCC OnLine Del 1707) and *M/s. Aarti Industries Ltd. v. The Commissioner of Central Excise, Customs & Service Tax, Thane* (2024 SCC OnLine TS 117) to support their claim for proportionate credit. They also contended that the demand raised was based on an erroneous interpretation of the law and the facts. Revenue's arguments: The respondents argued that the petitioner had not correctly availed ITC and that the apportionment made by the authorities was in accordance with the provisions of the CGST Act and Rules. They contended that the petitioner failed to provide sufficient evidence to justify their claim for a different method of apportionment. The respondents did not explicitly cite any specific provisions or precedents in their arguments as recorded in the judgment.