HC Quashes Fraud Proceedings in ITC Mismatch; Orders Reassessment Under Section 73

The current petition (W.P. No. 16474 of 2024) is being filed by a firm named M/s. JIT Auto Comp (petitioner) against the Assistant Commissioner (respondent) in the Madras High Court, under Article 226 of the Constitution of India. Through this petition, the company is requesting the High Court to review the matter deeply and quash the order dated 18.03.2024 [OIO No. 02/2024 GST (AC)].

The petitioner argued that the initial show cause notice (SCN) was issued to them under Section 74 of the CGST Act, 2017, for the discrepancies discovered in the GSTR-3A and GSTR-3B. According to the department, the company claimed excess Input Tax Credit (ITC) in GSTR-3B without matching purchase data in GSTR-2A.  On this, the company argued that they did not intentionally try to perform any fraud or false representation. The supplier from whom they bought goods had gone into liquidation, so they could not initially get a Chartered Accountant’s (CA) Certificate confirming the genuineness of transactions. However, later they managed to get a certificate from their own CA, which confirmed that the supply of goods actually took place, payment was made, and GST was paid by the company.

The company submitted a reply to the SCN on 22.12.2022 along with all relevant documents; however, the GST officer did not accept their documents and issued the final GST assessment order dated 18.03.2024 (Order-in-Original No. 02/2024 GST (AC)). They requested the court to quash the order and send the matter back to the GST officer for fresh reconsideration under Section 73, which applies when there is no fraud or suppression involved.

The GST department (respondent) argued that the company did not provide sufficient documents to explain the differences in returns, even after reminders. As a result, the department presumed fraudulent ITC claims and hence invoked Section 74. The department alleged the company falsely claimed ITC on purchases without receiving goods or services, and this was discovered during an audit by the Salem Audit Circle. Moreover, it highlighted that the company was anticipated to file returns faithfully under the self-assessment system, and failure to do so justifies penalties under Section 122. The company said it is ready to deposit the Rs. 8,112,876 disputed tax amount if the court remands the case to the GST officer for fresh consideration.

When the court analysed both sides, it set aside the GST assessment order dated 18.03.2024 and remanded the case to the Assistant Commissioner for fresh consideration. This time, the case should be treated under Section 73, not 74, because there was no fraud or willful misrepresentation. However, this order will only take effect if the petitioner deposits the full disputed tax amount of Rs. 81,12,876. The company must pay this amount within two weeks from the date it receives a copy of the court order.