GST Demand Orders Set Aside for Ignoring Rectification in Next period GSTR 3B and Violating Natural Justice; Matter Remanded

Issue: Whether GST demand orders are valid when the revenue fails to consider the assessee’s rectification of excess Input Tax Credit (ITC) claims and denies a proper hearing, thereby violating principles of natural justice.

Facts:

The assessee failed to respond to a Form DRC-01 notice regarding excess ITC claims due to the illness of the authorized person.
However, the assessee had already rectified and reversed the excess ITC in subsequent monthly returns and filed GSTR-3B.
Despite this, the revenue passed orders demanding tax and penalty without considering the rectification.
The assessee’s applications explaining the rectification were rejected without proper consideration.

Decision:

The court held that the orders passed without considering the rectification and without granting a hearing to the assessee violated the principles of natural justice.
The impugned orders were set aside, and the matter was remanded for fresh consideration.
The court directed the revenue to provide the assessee with an opportunity to submit a reply and attend a personal hearing before making a decision.

Key Takeaways:

This case emphasizes the importance of considering all relevant facts and circumstances, including rectification measures taken by the assessee, before passing demand orders under the GST Act.
Rejecting an assessee’s explanation without proper application of mind and denying a fair hearing can lead to the setting aside of orders.
The decision reinforces the need for authorities to act fairly and reasonably, ensuring that assessees are given an opportunity to present their case and that decisions are based on a complete understanding of the facts.

HIGH COURT OF MADRAS

Zama & Co.

Deputy State Tax Officer

Krishnan Ramasamy, J.

W.P.No.28309 of 2024
W.M.P.Nos.30855 & 30856 of 2024

SEPTEMBER 30, 2024

S. Ramanan, for the Petitioner. G. Nanmaran, Special Government Pleader (T) for the Respondent.

ORDER

1. With consent, the main Writ Petition is taken up for final disposal at the stage of admission itself.

2. The challenge in this Writ Petition is to the order dated 23.04.2024 passed by the respondent and the consequential rejection orders dated 10.05.2024 and 27.08.2024 respectively passed by the respondent and to quash the same.

3. Mr.S.Ramanan, learned counsel for the petitioner would submit that on receipt of the Form DRC-01 notice, the petitioner could not file reply immediately due to the reason that the Authorized Person, who is taking care of the statutory compliance was not well, therefore, the failure on the part of the petitioner in giving reply was neither wilful nor wanton, but, in the interregnum, the respondent passed the impugned orders. The learned counsel further submitted that the transaction in dispute was already rectified/reversed by the petitioner during the monthly returns filed for the subsequent months, hence, the petitioner filed Applications dated 04.05.2024 and 12.07.2024 setting out such details along with relevant documents, and sought for rectification, however, the respondent rejected the Applications by virtue of the impugned orders dated 10.05.2024 and 27.08.2024 respectively. Hence, the petitioner is constrained to approach this Court seeking for appropriate relief.

3.1 Therefore, the learned counsel would submit that the impugned orders suffers from violation of principles of natural justice as the petitioner has not been heard before passing such orders.

4. Mr.G.Nanmaran, the learned Special Government Pleader (T) for the respondent justified the impugned orders passed by the respondent by contending that initially the petitioner has been issued with Form DRC-01 dated 27.12.2023, pointing out certain discrepancies, which was followed by three reminders, despite the same, the petitioner has not come forward to give reply nor appeared on the date fixed for personal hearing, hence, the impugned orders came to be passed against the petitioner. Hence, the impugned orders calls for no interference.

5. I have given due considerations to the submissions made on either side and perused the materials available on record.

6. The petitioner is an assessee on the files of the respondent. For the tax period April, 2018 to March, 2019, the respondent issued a notice in DRC-01 dated 27.12.2023 on the ground that the petitioner has availed excess ITC. Unfortunately, the petitioner could not file reply immediately to such notice, owing to the fact that the petitioner’s Authorized Person, who is taking care of the statutory compliance was not well. However, the excess ITC availed by the petitioner was already rectified/reversed by the petitioner during the monthly returns filed in the subsequent months and to the extent GSTR-3B was also filed, however, the respondent, without considering the said aspect, as if, the petitioner has availed ITC in entirety, passed the impugned orders towards tax liability as well as equivalent amount towards penalty/interest. Though the petitioner filed Applications dated 04.05.2024 and 12.07.2024 setting out such details along with relevant documents and sought for rectification, the respondent, without any application of mind, rejected the Applications by virtue of the impugned orders dated 10.05.2024 and 27.08.2024 respectively. Therefore, this Court is of the view that the impugned orders are nothing but an outcome of total non application of mind and also suffer from violation of principles of natural justice, as the petitioner has not been heard before passing such orders. Hence, this Court is inclined to set aside the same.

6.1 Accordingly, this Court passes the following orders/directions:-

(i)

The impugned orders dated 23.04.2024 as well as the Rejection Orders dated 10.05.2024 and 27.08.2024 respectively are set aside.

(ii)

Consequently, the matters are remanded to the respondent for fresh consideration.

(iii)

The petitioner is directed to file reply along with supportive documents within a period of three weeks from the date of receipt of a certified copy of this order.

(iv)

Thereupon, the respondent is directed to consider the same and shall issue a clear 14 days notice affording an opportunity of personal hearing to the petitioner, and after hearing the petitioner in full, shall decide the matter in accordance with law.

7. In the result, the Writ Petition is allowed on the aforesaid terms. No costs. Consequently, connected Miscellaneous Petitions are closed.