MEIS Duty Credit Scrip ITC Reversal: GSTAT Kolkata Rules Notification 14/2022 Amendment to Rule 43 Is Not Retrospective — Section 74 Invocation Also Impermissible

The GSTAT Kolkata Bench has delivered a nuanced ruling on one of the more contested questions arising from the 2022 amendment to Rule 43 of the CGST Rules — the exclusion of MEIS (Merchandise Exports from India Scheme) duty credit scrips from the "aggregate value of exempt supplies" for the purpose of computing proportionate ITC reversal — holding that the amendment operates prospectively from 05.07.2022 and cannot be applied retrospectively to assessment years 2017-18 to 2019-20. At the same time, the Tribunal held that Section 74(1) of the CGST Act cannot be invoked in such cases absent material evidence of fraud or wilful suppression, and directed re-determination of liability under Section 75(2) read with Section 73. The judgment, by Judicial Member S.G. Chattopadhyay and Technical Member Bijoy Kumar Kar in APL/62/KLK/2026 and connected matters (decided 05.08.2026), resolves a Revenue appeal against a first appellate order that had granted the amendment retrospective effect.

The background: Power Tech Global Private Limited, an electrical apparatus manufacturer, had sold MEIS duty credit scrips during FY 2017-18 to 2019-20. MEIS scrips became exempt supplies from 13.10.2017 (via Notification No. 35/2017). The Government later — in July 2022 — inserted clause (d) in Explanation 1 to Rule 43 of the CGST Rules, specifically excluding the value of duty credit scrip supply from the "aggregate value of exempt supplies" for ITC apportionment. On the strength of this amendment, the taxpayer argued that it was not required to reverse proportionate ITC on its MEIS scrip sales even for the pre-amendment period. The first appellate authority agreed, applied the amendment retrospectively on the reasoning that it was beneficial and clarificatory in nature, and set aside the adjudication order which had demanded ITC reversal of Rs. 74.75 lakh along with equal penalty. Revenue appealed to the GSTAT.

On the retrospectivity question, the Tribunal set aside the first appellate authority's reasoning comprehensively. The commencement clause of Notification 14/2022 expressly provides that the amendment shall come into force from the date of publication in the Gazette — 05.07.2022. Under Section 164(3) of the CGST Act, the rule-making authority has power to give rules retrospective effect from a date not earlier than the GST commencement date. The rule-framers exercised this power prospectively. The Tribunal applied the cardinal principle in tax law — restated by the Supreme Court in Sedco Forex International Drill Inc. and in Reliance Jute Industries — that the law applicable to assessment is the law in force during the relevant assessment year unless otherwise provided expressly or by necessary implication. The clause (d) insertion was not curative of any ambiguity in the pre-existing rule; it was a substantive addition providing a new benefit. It cannot be presumed to have retrospective effect merely because it is beneficial to the taxpayer.

The Section 74(1) question produces the more taxpayer-friendly portion of the ruling. The Tribunal found that CBIC Instruction No. 05/2023-GST (dated 13.12.2023) — issued pursuant to Supreme Court observations in Northern Operating Systems — explicitly clarifies that Section 74(1) can only be invoked where there is material evidence of fraud, wilful misstatement or suppression of facts to evade tax; it cannot be invoked merely for non-payment of tax. In Power Tech Global's case, the taxpayer had filed all GSTR-3B returns regularly, disclosed its MEIS scrip sales openly, and submitted invoices and auditor reports. The department was never unaware of the MEIS scrip transactions. The Tribunal held that where both parties are aware of the relevant facts, no wilful suppression can be attributed — applying the Supreme Court's principle in Anand Nishikawa Co. Ltd. that suppression must be deliberate and wilful, not merely an omission. The SCN under Section 74(1) was therefore unsustainable. Under Section 75(2) of the CGST Act, where a Section 74 notice is found unsustainable for want of established fraud or suppression, the proper officer must re-determine the tax liability as if the notice had been issued under Section 73. The Tribunal accordingly directed such re-determination with a hearing opportunity.

- 2026-juristway.com-2231-GSTAT(Kolkata)-GST  |  GST Appellate Tribunal (Kolkata Bench) | APL/62/KLK/2026 & connected matters  |  05.08.2026