GST Assessment Order for ITC Reversal Set Aside; Opportunity Granted to Assessee with Conditions of 25% Payment

Issue: Whether an assessment order reversing Input Tax Credit (ITC) availed by the assessee based on invoices from a supplier under investigation for bill trading is valid, and whether the assessee should be given an opportunity to respond despite failing to participate in earlier proceedings.

Facts:

The assessee’s supplier was under investigation for bill trading without actual supply of goods.
The revenue sought to reverse the ITC availed by the assessee based on invoices from this supplier.
The assessee did not respond to notices or attend hearings related to the ITC reversal.
The revenue passed an assessment order reversing the ITC.
The assessee filed a writ petition challenging the order and offered to deposit 25% of the disputed tax in exchange for an opportunity to file objections.

Decision:

The court set aside the assessment order, subject to the assessee depositing 25% of the disputed tax within four weeks and filing objections within a stipulated time.
If the assessee complies with these conditions, the impugned order will be treated as a show cause notice, and the respondent will pass fresh orders after considering the assessee’s objections.
If the assessee fails to comply, the original assessment order will be restored.

Key Takeaways:

This case demonstrates the court’s willingness to grant a second chance to the assessee despite their initial non-response, upholding the principles of natural justice.
The decision emphasizes the importance of providing taxpayers a fair opportunity to present their case and defend themselves against allegations of wrongful ITC availment.
The requirement to deposit 25% of the disputed tax amount protects the revenue’s interest while allowing the assessee to participate in the proceedings.
This approach balances the need for efficient tax administration with the principles of natural justice and fairness.

HIGH COURT OF MADRAS

Tvl. Arumugasamy Alloy Metal Suppliers

Deputy State Tax Officer-2

Mohammed Shaffiq, J.

W.P.No.37144 of 2024
W.M.P.Nos.40146 and 40149 of 2024

DECEMBER 12, 2024

Adithya Reddy for the Petitioner. G. Nanmaran, Special Govt. Pleader, for the Respondent.

ORDER

1. The present Writ Petition is filed challenging the impugned order passed by the respondent dated 30.04.2024 relating to the assessment year 2018-19.

2. The petitioner is engaged in the business of trading of metals and is a registered dealer under Goods and Services Act, 2017. During the relevant period, the petitioner had filed its return and paid appropriate taxes. An investigation was launched against one Jaya Trading Company by the CGST and Central Excise Department. During the course of investigation, it was allegedly found that the said Jaya Trading Company has been fraudulently passing on input tax credit without actual supply of goods in contravention of the GST Act, in other words, they have engaged in bill trading, without actual supply of goods. On scrutiny of the GSTR 1 filed by the said Jaya Trading Company, it was noticed that the petitioner is one of the recipients. In view thereof, the credit which has been availed by the petitioner on the strength of the invoices, issued by the said Jaya Trading company was sought to be reversed.

2.1. Pursuant thereto, a notice in DRC-01A was issued to the petitioner on 24.05.2023, followed by a show cause notice in DRC-01 on 12.09.2023. Further, personal hearing cum reminder were offered to the petitioner on 16.10.2023, 27.10.2023 and 17.11.2023. However, the petitioner had neither filed its reply nor availed the opportunities of personal hearings. Hence, the impugned order came to be passed, confirming the proposal.

3. The learned counsel for the petitioner would place reliance upon the recent judgment of this Court in the case of M/s.K.Balakrishnan, Balu Cables v. O/o. the Assistant Commissioner of GST & Central Excise in W.P.(MD) No.11924 of 2024 dated 10.06.2024. It was further submitted that the petitioner is ready and willing to pay 25% of the disputed tax and that he may be granted one final opportunity before the adjudicating authority to put forth their objections to the proposal, to which, the learned Special Government Pleader appearing for the respondent does not have any serious objection.

4. By consent of parties, the writ petition stands disposed of on the following terms:

(a)

The impugned order dated 30.04.2024 is set aside

(b)

The petitioner shall deposit 25% of the disputed taxes as admitted by the learned counsel for the petitioner and the respondent, within a period of four weeks from the date of receipt of a copy of this order.

(c)

If any amount has been recovered or paid out of the disputed taxes, including by way of pre-deposit in appeal, the same would be reduced/adjusted, from/towards the 25% of disputed taxes directed to be paid. The assessing authority shall then intimate the balance amount out of 25 % of disputed taxes to be paid, if any, within a period of one week from the date of receipt of a copy of this order. The petitioner shall deposit such remaining sum within a period of three weeks from such intimation.

(d)

The entire exercise of verification of payment, if any, intimation of the balance sums, if any, to be paid for compliance with the direction of payment of 25% of the disputed taxes, after deducting the sums already paid and payment by the petitioner of the balance amount, if any, on intimation in compliance of the above direction, shall be completed within a period of four weeks from the date of receipt of copy of this order.

(e)

Failure to comply with the above condition viz., payment of 25% of disputed taxes within the stipulated period i.e., four weeks from the date of receipt of a copy of this order shall result in restoration of the impugned order.

(f)

If there is any recovery by way of attachment of Bank account or garnishee proceedings, the same shall be lifted /withdrawn on complying with the above condition viz., payment of 25 % of the disputed taxes.

(g)

On complying with the above condition, the impugned order of assessment shall be treated as show cause notice and the petitioner shall submit its objections within a period of four (4) weeks from the date of receipt of a copy of this order along with supporting documents/material. If any such objections are filed, the same shall be considered by the respondent and orders shall be passed in accordance with law after affording a reasonable opportunity of hearing to the petitioner. It is made clear that if the above conditions viz., 25% of disputed taxes is not complied or objections are not filed within the stipulated period, four weeks respectively from the date of receipt of a copy of this order, the impugned order of assessment shall stand restored.

5. There shall be no order as to costs. Consequently, connected miscellaneous petitions are closed.