Denial of Input Tax Credit Without Proper Opportunity of Hearing is Unsustainable.

Issue:

Whether the ex-parte disallowance of Input Tax Credit (ITC) without providing the assessee a proper opportunity to present their case and books of accounts is valid, especially when there is no evidence of fraudulent activity.

Facts:

The assessee held a license as a wholesaler in ‘kerosene oil’.
The assessee purchased kerosene oil and sold it at a price fixed by IOCL, collecting GST on outward supply and availing ITC.
The assessee claimed they were never served with the original assessment order, only receiving a phone call from authorities demanding discharge of liability based on an ex-parte assessment order.
The assessee contended that they could have explained the Assessing Authority’s doubts regarding the ITC claim by producing books of accounts, but no such opportunity was given, leading to the disallowance of the entire ITC claim.
The Revenue provided no evidence to suggest that the assessee did not purchase goods from IOCL or did not sell them at government-fixed prices.
There was no allegation of suppression of facts against the assessee.

Decision:

The impugned ex-parte order disallowing the entire ITC claim was set aside. The assessee was granted an opportunity to contest the tax demand.

Key Takeaways:

An assessee must be provided a proper opportunity of hearing, including the chance to present their books of accounts and explain their ITC claims, before any disallowance is made.
Ex-parte orders disallowing ITC without clear evidence of wrongdoing or lack of genuine transactions are generally unsustainable, especially when the assessee operates under government supervision and with a sole supplier.
The Revenue bears the burden of putting forth evidence to support the disallowance of ITC if they dispute the genuineness of the transactions.
If an assessee has not been properly served with an assessment order or given a chance to respond to queries, the order is liable to be set aside and the matter remanded for a fresh assessment with due opportunity to the assessee.

HIGH COURT OF ORISSA

Shree Jagannath Traders

Chief Commissioner GST & Central Excise

HARISH TANDON, CJ.
and MURAHARI SRI RAMAN, J.

WP(C) No.5919 of 2025

MAY 13, 2025

Rudra Prasad Kar, Sr. Adv. and Sriman Arpit Mohanty, Adv. for the Petitioner. Bismay Anand Prusty, Sr. Standing Counsel for the Respondent.

ORDER

Murahari Sri Raman, J. – This is an application under the provisions of Articles 226 and 227 of the Constitution of India, whereby challenge is laid to Order dated 28.08.2024 passed by the Assistant Commissioner, GST & Central Excise, Cuttack-I Division, Cuttack raising a demand comprising tax to the tune of Rs.42,45,522/- (CGST Rs.21,22,761/- + SGST Rs.21,22,761/-) by disallowing input tax credit, interest under Section 50(3) and penalty of Rs.4,24,552/- (Rs.2,12,276/- (CGST) and Rs.2,12,276/- (SGST) under Section 122(2)(a) pertaining to Financial Year 2019-20 in the assessment framed under Section 73 of the Central Goods and Services Tax Act, 2017, with the following prayer(s):

” Under the above circumstances, it is most respectfully prayed that this Hon’ble Court may be graciously pleased to admit this petition, call for and peruse the relevant records and after hearing the petitioner’s counsel, be further pleased to;

(i) Issue a Writ in the nature of Certiorari quashing the impugned order dated 28.08.2024 passed by the opposite party No.2 under Annexure-3.

(ii) Issue appropriate writ by setting aside the impugned Order dated 28.08.2024 and remand the matter to the opposite party No.2 for de-novo assessment in accordance with law by granting an opportunity to the petition for production of books of account.

(iii) Issue a writ in the nature of Certiorarified Mandamus restraining the Opp. Parties from enforcing the demand as made under Annexure-3.

(iv) Issue any appropriate writ(s) / direction (s) / deemed fit in the fact and circumstances of the case.

And for which act of kindness, the petitioner as in duty bound shall ever pray. “

Facts:

2. As adumbrated in the writ petition, it is revealed that the petitioner, proprietorship concern being assigned with Registration No.GSTIN:21AZNPS7502D1ZI under the Central Goods and Services Tax Act, 2017 (for brevity, “CGST Act”), was granted License in Form-B bearing No.4 of 2008-09 under Clause 6(2) of the Odisha Public Distribution System (Control) Order, 2008 for operation as a wholesaler in “Kerosene Oil”, and on renewal of such license from time to time, License in Form-B-I under Clause 6(2) of the Odisha Public Distribution System (Control) Order, 2016 (for short “PDS”) was also granted by the Collector of Cuttack authorizing him to operate as a Wholesaler in Kerosene, a commodity meant for supply under PDS.

2.1. The Government of Odisha in Food Supplies and Consumer Welfare Department vide Letter dated 05.04.2019 issued “work plan for direct distribution of Superior Kerosene Oil by the wholesalers to the Retailers in the State”, whereunder on being recommended by the Oil Marketing Company (“OMC”, abbreviated) the State Government allowed allotment wholesaler-wise/district-wise. Accordingly, the petitioner, one of the wholesalers in Cuttack district, was allotted quota of Kerosene Oil (“SK Oil”, for short) at 288 kilolitre for receiving Kerosene from the Indian Oil Corporation Limited, an OMC for distribution/supply under the PDS.

2.2. The Petitioner-Wholesaler in Kerosene Oil under the PDS purchases and sells the said commodity at the price fixed by the Indian Oil Corporation Limited-OMC and the Government respectively and, accordingly, it collects Goods and Service Tax (GST) on outward supply of Kerosene oil and avails the benefits of input tax credit (“ITC”, be called) as per the price fixed by the Government on sale/supply. The petitioner asserts that having never been served with Order-in-Original dated 28.08.2024, on getting a phone call from an Official of GST and Central Excise, Cuttack requesting him to discharge liability by making payment of tax and penalty as demanded by the said assessment order under Section 73 of the CGST Act, it could come to his knowledge that huge demand comprising tax, interest and penalty has been raised against him by way of an ex parte order. Questioning the same, this writ petition has been filed.

Hearing:

3. On 25.04.2025 this matter was listed and on the consent by the learned counsel appearing for both sides, this matter was reserved for orders at the stage of admission since short point is involved in the matter that whether the authority is justified in rejecting the claim of input tax credit with respect of sale/supply of commodity dealt in by the petitioner, i.e., Kerosene Oil as a wholesale dealer under the PDS, and, thereby the demand of tax, interest and penalty in the assessment under Section 73 of the CGST Act is sustainable.

4. Heard Sri Rudra Prasad Kar, learned Senior Advocate for the petitioner being assisted by Sri Sriman Arpit Mohanty, learned Advocate and Sri Bismay Anand Prusty, learned Senior Standing Counsel appearing for the opposite parties.

Rival contentions and submissions:

5. Sri Rudra Prasad Kar, learned Senior Advocate submitted that the doubt entertained by the Assessing Authority with regard to claim of input tax credit by the petitioner could very well be explained given an opportunity of producing books of accounts including the Stock Register vis-a-vis returns furnished. Since ex parte order was passed, the entire claim of input tax credit has been disallowed and, as a consequence thereof, not only tax has been quantified to be levied, but also interest has been directed to be levied, besides imposition of penalty under Section 122 of the CGST Act.

5.1. Sri Rudra Prasad Kar, learned Senior Counsel submitted that had the Assessing Authority taken little pain to verify the returns and/or claims available on the portal with respect to Indian Oil Corporation Ltd.-OMC, the quantum of ITC claimed by the petitioner could have been easily ascertained. Since the entire demand relates to disallowance of ITC with respect to receipt of kerosene oil for distribution through the PDS, and entire receipt of such commodity is from only one supplier, i.e., Indian Oil Corporation Ltd.-OMC in view of allotment made vide Letter dated 05.04.2019 of the Food Supplies and Consumer Welfare Department, the assessment order is liable to be set aside granting one opportunity to produce relevant documents in order to justify the claim of ITC disclosed in the returns.

5.2. Notwithstanding the fact that the petitioner has disclosed entire material data in its returns, the same should have been accepted as correct and no penal consequences should have been thrusted upon the petitioner. It is not unknown to the department that it has issued registration certificate to deal in only one commodity, which is supposed to be purchased/received from the specified OMC by the Government and supplied/sold/distributed to the consumer(s) under the PDS. The transactions are subject to strict vigilance of the Food Supplies and Consumer Welfare Department.

5.3. Valiant submission made by Sri Rudra Prasad Kar, learned Senior Advocate that since the petitioner has restricted purchases of Superior Kerosene Oil from the Indian Oil Corporation Limited vide Letter No.09561400022016—5981, dated 05.04.2019 issued by the Government of Odisha in Food Supplies and Consumer Welfare Department, the purchase price is fixed by said supplier (IOCL) and the petitioner was not authorized to purchase from any other source as the said commodity is meant for supply through the PDS. There is no dispute and there cannot be any refutal that the sale price cannot be tinkered with as the same is fixed by the Government. Therefore, it is contended that the ITC claimed in the returns ought not to have been disallowed by the Assessing Authority on the specious plea of mismatch in the returns.

5.4. It is with humility submitted by the learned Senior Counsel that though it is claimed by the Assessing Authority that dates were allotted for personal hearing on three occasions, due to circumstances unavoidable neither the Noticee nor could his representative avail such opportunities; but, the Assessing Authority having proceeded to undertake ex parte assessment under Section 73 of the CGST Act, documents available on portal and accessible by him could have been utilised and benefit should have been extended. Record does not reveal that the Assessing Authority has verified the returns with such evidence available on portal.

5.5. He, therefore, submitted that granting one opportunity to produce books of accounts, the petitioner would be in a position to explain the claims made in the returns furnished.

6. Sri Bismay Anand Prusty, learned Senior Standing Counsel while opposing the aforesaid contentions of the learned Senior Counsel, argued that since opportunities granted to the petitioner were not availed by him, the Assessing Authority had no other alternative than to proceed with the assessment ex parte and pass appropriate order, against which the petitioner is not remediless under the statute. With vehemence he urged that when claim of benefit like input tax credit has been made in the returns, onus lies on the taxable person to substantiate his claim by producing books of accounts coupled with necessary evidence to show that the claim as made in the returns were genuine and proper. In absence thereof, the Assessing Authority was justified in raising demand by rejecting the input tax credit.

6.1. Therefore, he fervently insisted not to show any indulgence for indolence demonstrated by the petitioner.

7. Perusal of the assessment order reveals that the showcause notice dated 20.05.2024 as issued by the Assessing Authority to the Noticee-petitioner was relating to excess input tax credit to the tune of Rs.42,45,522/- for the Financial Year 2019-20. Such quantum could be deduced from returns in Form GSTR-3B and Form GSTR-2A. The ex parte assessment order further depicts that the petitioner “has not submitted any documentary evidence whatsoever in their defence”. Thus, it is discernible that the entire demand of tax to the tune of Rs.42,45,522/- was on account of disallowance of ITC on the allegation that the same is “wrongly availed and utilised” by the petitioner.

7.1. Having glance at Letter dated 05.04.2019 (Annexure-2) issued by the Government of Odisha in Food Supplies and Consumer Welfare Department, it could be gathered that the petitioner was allowed to lift the allotted quantity (i.e., 288 kilolitre) of Superior Kerosene Oil from Indian Oil Corporation Limited (Oil Marketing Company) and is supposed to make it available in the Fair Price Shop.

7.2. Scrutiny of assessment order makes it abundantly clear that there is no material on record discussed by the Assessing Authority that the petitioner has at any point of time purchased/received from any other source other than Indian Oil Corporation Limited and sold/supplied/ distributed goods to consumers other than the entitled persons under the PDS. There is no iota of evidence put forth by the Assessing Authority to show that the petitioner-wholesaler had not purchased/received said commodity other than the price fixed by the IOCL and not sold at the price fixed by the Government. When the petitioner receives goods from sole supplier, i.e., IOCL at a price fixed by it and supplies/distributes goods under the supervision of the Food and Supplies Welfare Department under the PDS strictly in accordance with the allotment with price fixed by the Government, it would be onerous for the petitioner to suffer a huge demand of tax besides levy of interest and imposition of penalty, for which he appears to have paid the taxes to the OMC, i.e., IOCL at the time of receiving the Superior Kerosene Oil.

7.3. This Court is not oblivious of conceptual understanding of claim of exemption/benefit qua determination of entitlement by the Assessing Authority as propounded by a Division Bench of this Court in the case of Kiran Stone Crusher v. State of Odisha [2010] 31 VST 45 (Ori) =109 (2010) CLT291. This Court laid down that,

“8. Apart from the above, learned counsel for the petitioner also places reliance on the judgment of the honourable Supreme Court in the case of Commissioner of Income-tax, Delhi Vrs. Mahalaxmi Sugar Mills Co. Ltd., (1986) 160 ITR 920 (SC) =AIR 1986 SC 2111 and in particular, the findings arrived at in paragraph 12 of AIR (at page 928 of ITR) thereof which is quoted hereinbelow:

’12. *** In the second place, there is a duty cast on the Income-tax Officer to apply the relevant provisions of the Indian Income-tax Act for the purpose of determining the true figure of the assessee’s taxable income and the consequential tax liability. Merely because the assessee fails to claim the benefit of a set-off, it cannot relieve the Income-tax Officer of his duty to apply Section 24 in an appropriate case. ‘

10. Once a finding on facts has been arrived at by the statutory authority and the same is not disputed by the Revenue in course of the present proceeding, the aforesaid facts clearly establishes that the cost of transportation is the cost of delivery of materials at the site of the purchaser and therefore, definitely covered under Section 5(2)(A)(a)(iii) of the OST Act.

11. In so far as the objection raised by the Revenue is concerned, in view of the judgments in the case of Giridharlal Parasmal, (1967) 20 STC 64 and in the case of Commissioner of Income-tax, Delhi, (1986) 160 ITR 920 (SC) =AIR 1986 SC 2111, it is well-settled that the statutory authorities are required under law to apply relevant provisions of the OST Act for the purpose of determining the true figure of the assessee’s taxable income and thereafter, the tax liability. Merely because the assessee failed to disclose any particular part of turnover does not amount to relieving the statutory authority from such an obligation. In course of 12(8) assessment, the assessing authority was required to re-determine the gross turnover as well as taxable turnover and in course of such determination, he was statutorily bound to give deduction as admissible in law to the assessee. The assessing authority cannot justify such omission on the ground of the assessee having suppressed any part of his turnover. “

7.4. In the instant case, there is no allegation of suppression. It is the input tax credit claimed in the returns in respect of tax paid under the Central Goods and Services Tax Act, 2017/the Odisha Goods and Services Tax Act, 2017 (collectively be referred to as “GST Act”) on receipt/purchase of Superior Kerosene Oil from IOCL-supplier at the price fixed by the supplier as against sale/supply/distribution thereof under the PDS at the price fixed by the Government has been disallowed in the assessment.

7.5. The purchasing recipient can avail the benefit of ITC on tax paid in respect of purchases whereas a manufacturer can avail the same on purchase of its raw material used for manufacturing or a supplier selling products, which is slated to avoid double taxation and cascading effect. The benefit of concession in form of ITC under the tax statute can be availed only on fulfilment of certain conditions or restrictions as stipulated under the Act. In the event of breach of any of the conditions as enumerated under the Act, no benefit can be conferred to the taxable person. On perusal of Section 16 of the GST Act, it is clear that every registered taxable person can claim the benefit of ITC only on fulfilment of certain conditions as enumerated thereunder. Sub-section (1) of Section 16 deals with the eligibility of a registered person to avail of ITC on any supply of goods, or services or both which are used or intended to be used in the course or furtherance of his business and the said amount is to be credited to the electronic credit ledger of such person.

The conditions enabling such benefit are available in said section. The existence of a tax invoice or debit note issued by the supplier, proof of receipt of goods or services or both and the tax charged in respect of such supply having been actually paid to the Government, either in cash or through utilization of ITC admissible in respect of the said supply. The said conditions are to be satisfied together and not separately or in isolation, and these are the conditions and restrictions which would regulate the availment of ITC. Input tax credit by the very nomenclature contemplates a credit being available for the purchaser-registered person in its credit ledger by way of payment of tax by the supplier to the Government.

7.6. In State of Karnataka v. Ecom Gill Coffee Trading (P.) Ltd GSTL 134 (SC)/(2023) 2 SCR 647 the assessee was saddled with the burden of proving inter alia any claim to ITC under the Act. The registered taxable person who claims input tax credit has to prove beyond doubt, the actual transaction by furnishing the name and address of the supplier, details of the vehicle delivering the goods, payment of freight charges, acknowledgment of taking delivery of goods, tax invoices and payment particulars etc. It was also held that to sustain a claim of input tax credit on purchases, the recipient would have to prove and establish the actual physical movement of the goods and genuineness of transactions, by furnishing the details referred to above and mere production of tax invoices would not be sufficient to claim ITC. Thus, the primary responsibility of claiming the benefit is upon the person claiming the benefit and he is required to lead evidence to prove and establish the actual physical movement of goods, genuineness of transactions, etc. and if such person fails to prove the actual physical movement of goods, the benefit cannot be granted.

7.7. The mechanism for claiming ITC has been introduced in the tax regime, all over the country for the purpose of avoiding the cascading effect of taxes. The benefit of such credit being availed by a registered person who sells/supplies or manufactures goods, using raw materials on which tax has been paid is a benefit or concession conferred under the statute. The condition under which the concession and benefit is given is always to be strictly construed. The GST statute contains self-contained scheme of levy, computation and collection of tax. The time under which a return is to be filed for purpose of assessment of the tax cannot be dependent on the will of a taxable person. [See, ALD Automotive (P.) Ltd. v. Commercial Tax Officer GST 751 (SC)/(2018) 13 SCR 217].

7.8. Be that be, as has already been appreciated that in the case at hand the petitioner-taxable person having been authorised to deal in single commodity, viz., kerosene oil, which was to be lifted by him being allotted under the PDS and it is to receive the goods from only one supplier, i.e., IOCL, an Oil Marketing Company, at fixed price, the ITC appears to have been claimed against supply made to the consumers on the sale price fixed by the Government. Therefore, there can be no difficulty in verifying the genuineness of transactions with respect to input tax credit.

8. Diligent scrutiny of materials available on record indicates that the petitioner did not have proper opportunity to substantiate his claim made in the return vis-a-vis books of accounts. Therefore, this Court is of the considered view that the petitioner is entitled to one opportunity before the Assessing Authority.

9. In such view of the matter, the impugned ex parte assessment order dated 28.08.2024 framed under Section 73 of the GST Act by the Assistant Commissioner, GST & Central Excise, Cuttack-I Division, Cuttack is hereby set aside. In order to avail the opportunity, as discussed above, the petitioner is directed to appear before the said Authority within four weeks from the date of receipt of certified copy of this order. On the appearance of the petitioner, the Assessing Authority may take up the matter forthwith or specify a date convenient to both the petitioner/his representative and the Authority concerned. The Authority shall proceed with the matter in accordance with law.

10. Needless to observe that if the petitioner fails to comply with the aforesaid direction, the impugned assessment order dated 28.08.2024 shall be given effect to.

11. Considering the fact that the petitioner is a wholesaler, authorized to receive kerosene oil (single commodity which he is authorized to deal in) from one supplier, i.e., Indian Oil Corporation Limited-OMC and is required to supply under the PDS, this order is passed in order to grant one opportunity to substantiate its claim of input tax credit made in the returns.

12. With the aforesaid observation and direction, this writ petition stands disposed of.

I agree.