GST: No Hearing, No Demand; HC Sets Aside ITC Liability Over Natural Justice Violation

The Calcutta High Court quashed an order raising a demand on the taxpayer on the ground of alleged incorrect availment of ITC (Input Tax Credit).

The petitioner was issued a show cause notice (SCN) dated June 3, 2022, raising allegations of wrongly availing input tax credit (ITC) worth Rs 3.06 lakh regarding supplies of goods from an entity that, when investigated, was found to be non-existent and also registered using fake documents. Additionally, the GST registration for the supplier had already been found to be cancelled retrospectively.

Despite the petitioner having responded to the SCN, no opportunity for a hearing was granted to the petitioner. The Adjudicating Authority issued a final order dated March 27, 2023, imposing a tax, interest, and penalty of Rs. 3.06 lakh, Rs. 2.47 lakh, and Rs. 3.06 lakh, respectively, on the petitioner.

When the court analysed the facts of the case, it held that denying a personal hearing at the initial adjudication stage reflects a contravention of the provisions of Section 75(4) of the Act and principles of natural justice. Further highlighted that such a defect cannot be corrected during the appeal, as it goes to the root of the matter. The Court relied on judicial precedents to support this view.

In conclusion to the aforementioned findings, the court quashed both the initial and appellate orders. The case is sent back to the Adjudicating Authority for fresh consideration. This time tax authorities have been directed to grant the petitioner a fair opportunity of hearing and complete the process within 30 days, and any amount deposited by the petitioner has been instructed to be refunded within two weeks. Allowed the petitioner’s writ petition.