High Court Quashes GST Order Against Pidilite for Non-Furnishing of Verification Reports

Pidilite Industries Limited challenged an Order-in-Original dated 05.02.2025 passed by the Additional Commissioner of CGST & C.Ex., Mumbai South, disallowing transitional input tax credit under Section 140 of the CGST Act. The order directed reversal of Rs. 15.34 crore (TRAN-1) and Rs. 68.54 lakh (TRAN-2) with interest and imposed penalty of Rs. 16.02 crore.

The petitioner had filed TRAN-1 and TRAN-2 to transition CENVAT credit into GST. A show-cause notice dated 09.12.2021 proposed recovery of over Rs. 22 crore. During adjudication, departmental officers conducted verification and prepared reports, but copies of these reports were not furnished despite repeated requests. A personal hearing was granted on 04.02.2025, and the order was passed the next day, noting incomplete verification and alleged non-production of documents. Aggrieved, the petitioner approached the Hon’ble High Court under Article 226.

Main Issue: Whether disallowance of transitional ITC is sustainable when verification reports relied upon in adjudication were not furnished to the assessee, thereby violating principles of natural justice.

HC’s Decision: The Hon’ble Court held that the order suffered from clear breach of natural justice. Once the adjudicating authority relied upon verification reports to reach adverse findings, it was mandatory to furnish copies and allow the petitioner to respond. Conclusions based on undisclosed material amounted to deciding the matter behind the assessee’s back.

The Court also noted that verification was admittedly incomplete and certain invoices and stock records were not fully examined. The petitioner should have been given an opportunity to rectify TRAN column errors and explain discrepancies after receiving the reports.

The Court quashed the Order-in-Original  and remanded the matter for de novo consideration. The authority was directed to furnish the reports, grant a full hearing, permit necessary explanations/rectifications, and pass a fresh order within two months.

To Read Full Judgment, Download PDF Given Below