GST demand order for GSTR 3B vs. 2A reconciliation set aside and remanded

I. GST demand order for wrongly claimed ITC set aside and remanded due to non-consideration of reply.

II. GST demand order for GSTR 3B vs. 2A reconciliation set aside and remanded due to non-availability of utility for IGST on imports/SEZ supplies.

III. Challenge to GST limitation extension notifications is stayed pending Supreme Court’s decision.

I. GST Demand Order for Wrongly Claimed ITC Set Aside Due to Non-Consideration of Reply.

Issue:

Whether a GST demand order passed under Section 73 of the Central Goods and Services Tax Act, 2017 (CGST Act, 2017), for wrongly claiming Input Tax Credit (ITC), should be set aside and the matter remanded if the assessee’s timely reply to the show cause notice (SCN) was not duly considered.

Facts:

• A show cause notice (SCN) was issued to the assessee, proposing a demand for wrongly claiming ITC.
• The assessee filed a timely reply to the SCN.
• Thereafter, an impugned order was passed under Section 73.
• The assessee’s grievance was that although a reply to the SCN was filed, it was “not duly considered” by the adjudicating authority.

Decision I:

The court held in favor of the assessee. Considering the facts and circumstances of the case, the impugned order was set aside, and the matter was remanded to enable the assessee to be heard on merits and for the adjudicating authority to pass a detailed order.

Key Takeaways I:

• Duty to Consider Reply: A fundamental principle of natural justice requires that any reply submitted by an assessee in response to a show cause notice must be genuinely considered by the adjudicating authority before a final order is passed.
• “Duly Considered” vs. Mere Acknowledgement: The court implies that a superficial acknowledgment of a reply is insufficient. The order must reflect that the arguments and evidence presented in the reply were properly evaluated.
• Violation of Natural Justice: Failure to consider a timely reply constitutes a violation of the assessee’s right to be heard (audi alteram partem).
• Remedy of Remand for Merits: The typical remedy for such procedural violations is to set aside the order and remand the matter back to the original authority for fresh adjudication, ensuring a detailed order is passed after a proper hearing on merits.

II. GST Demand Order for GSTR 3B vs. 2A Reconciliation Set Aside Due to Non-Availability of Utility for IGST on Imports/SEZ Supplies.

Issue:

Whether a GST demand order passed under Section 73 of the CGST Act, 2017, based on a special audit’s reconciliation between GSTR 3B and GSTR 2A, should be set aside if, at the relevant time (Assessment Year 2018-19), there was no provision/utility available on the GST portal for submitting details of IGST in respect of imports or SEZ supplies, and this utility was only introduced later.

Facts II:

• A show cause notice (SCN) was issued to the assessee regarding a reconciliation between GSTR 3B (summary return of outward and inward supplies) and GSTR 2A (auto-drafted statement of inward supplies) data, based on a special audit.
• Thereafter, an impugned order was passed under Section 73.
• The assessee’s grievance was that the SCN related to Assessment Year 2018-19. At that relevant time, there was no provision/utility available on the GST portal for submitting details of IGST in respect of imports or SEZ supplies.
• This utility only got resolved after the insertion of Rule 60(6) of the CGST Rules, 2017, with effect from January 1, 2021.

Decision II:

The court held in favor of the assessee. Considering the fact that the issue had been raised with regard to the non-availability of a utility for the submission of IGST at the relevant time, the impugned order was set aside, and the matter was remanded to enable the assessee to be heard on merits and for the Adjudicating Authority to pass a detailed order.

Key Takeaways II:

• Systemic Gaps and Taxpayer Compliance: Taxpayers cannot be penalized for non-compliance with procedural requirements (like reconciliation through a specific utility) if the necessary technological infrastructure or utility was not available on the official portal at the relevant time.
• Practical Difficulties in Reconciliation: The GSTR 2A reconciliation process has historically presented challenges, especially concerning details like imports and SEZ supplies, for which data might not have been auto-populated or easily visible in 2A in the initial years of GST.
• Reliance on Government’s Own System/Circulars: The court implicitly acknowledges that if the government’s own system or rules (like the introduction of Rule 60(6) later) indicate a prior lack of utility, then the assessee’s inability to reconcile through that utility cannot be held against them.
• Violation of Natural Justice (Implicit): Demanding reconciliation without providing the means to reconcile or account for all legitimate ITC (like for imports/SEZ supplies) can be seen as a denial of a proper opportunity to explain or justify discrepancies.
• Remand for Merits and Detailed Order: The matter is remanded to allow the assessee to explain the discrepancies based on the ground of utility non-availability, and for the adjudicating authority to pass a reasoned order after considering these practical difficulties.

III. Challenge to GST Limitation Extension Notifications Stayed Pending Supreme Court Decision.

Issue:

Whether a High Court should proceed with a challenge to the validity of Notification No. 9/2023-Central Tax, dated March 31, 2023, and Notification No. 56/2023-Central Tax, dated December 28, 2023 (issued by the Central Board of Indirect Taxes and Customs (CBIC) for extending limitation periods), when the same legal question is already pending consideration before the Supreme Court.

Facts III:

• The assessee challenged the validity of two Central Tax Notifications:
  • Notification No. 9/2023-Central Tax, dated March 31, 2023.
  • Notification No. 56/2023-Central Tax, dated December 28, 2023.
• These notifications were issued under Section 168A (Error in provided text, should be Section 168A, not 68A) of the CGST Act, 2017, and extended various limitation periods.
• It was brought to the court’s attention that the matter concerning the validity of these notifications was pending consideration before the Supreme Court in S.L.P. No. 4240/2025, dated February 21, 2025.

Decision III:

The court held that the challenge made by the assessee to the notification in the present proceedings would be subject to the outcome of the decision of the Supreme Court, as the matter was pending before the apex court. This implies a stay on this particular aspect of the writ petition.

Key Takeaways III:

• Judicial Comity: High Courts consistently defer to the Supreme Court on questions of law that are already under its consideration. This ensures uniformity in legal interpretation and efficient use of judicial resources.
• Significance of Limitation Extensions: The extension of time limits for passing assessment orders is a crucial procedural aspect in tax law, directly impacting the finality of assessments. Challenges to such extensions often involve fundamental legal questions.
• “Subject to Outcome”: This means the High Court did not dismiss the assessee’s challenge to the notification outright but rather kept it alive, making its resolution contingent upon the Supreme Court’s ruling. This is a procedural relief for the assessee.
• Impact of Supreme Court Decision: The Supreme Court’s verdict on the validity of such notifications will have a binding effect on all courts and tax authorities, determining the validity of assessment orders passed within these extended periods.
• “Partly in favour of assessee/Matter stayed”: While the outcome of the stay is a procedural win for the assessee (as their challenge is not dismissed), it’s important to note that it’s not a definitive ruling on the merits of the notification’s validity.