Opportunity of hearing to be granted before denying ITC where sufficient documents are available to show genuineness of the transactions

The Hon'ble Calcutta High Court in Vishal Kumar Arya v. Assistant Commissioner, State Tax, Ultadanga Charge & Ors. [M.A.T. No.2004 of 2022 with I.A. No. CAN 1 of 2022 dated January 20, 2023] directed the assessee, to treat the demand order as Show Cause Notice ("SCN") and submit a reply along with all supporting documents, wherein, the assessee had sufficient documents to show genuineness of the transactions, in a matter denying Input Tax Credit ("ITC") to the assessee on the ground that, the Goods and Services Tax ("GST") Registration of the other end dealer was cancelled. Held that, opportunity should be granted to the assessee and decision should be taken on merits after considering the documents placed.

Facts

This intra court appeal has been filed by Vishal Kumar Arya ("the Appellant") challenging the order dated November 21, 2022 in W.P.A. No. 21605 of 2022 ("the Impugned Order") which was filed challenging Order-in-Original dated June 21, 2022 ("the OIO") passed by the Revenue Department ("the Respondent") under Section 74(9) of the Central Goods and Services Tax Act, 2017 ("the CGST Act"). 

Initially, an SCN was issued by the Respondent to which the Appellant submitted its reply and the date of personal hearing was fixed to be June 20, 2022 however, the Appellant did not appear for the same. The Appellant on June 21, 2022 submitted a representation tendering unconditional apology. However, the OIO was passed denying the Appellant to claim ITC on the ground that the GST Registration of the other end dealer was cancelled.

The Appellant submitted that there were sufficient documents to show that the transactions done by them are genuine. 

Issue

Whether the Appellant can be allowed to claim ITC despite the fact that the GST Registration of other end dealer was cancelled?

Held

The Hon'ble Calcutta High Court in M.A.T. No.2004 of 2022 with I.A. No. CAN 1 of 2022 held as under:

• Noted that, the Appellant was denied to claim ITC on the ground that the GST Registration of the other end dealer was cancelled, although according to the Appellant, there were sufficient documents to show that the transactions done by them are genuine.
• Stated that, one more opportunity should be granted by the Respondent and decision should be taken on merits after considering the documents that may be placed by the Appellant.
• Remanded the matter back to the Respondent.
• Directed the Appellant to treat the OIO as SCN and submit a reply before February 10, 2023 along with all supporting documents in support of the contentions raised by the Appellant.
• Further directed the Respondent to fix the date for personal hearing and consider the explanations offered and the documents submitted by the Appellant and pass a speaking order on merits and in accordance with law.

Relevant Provisions

Section 74 of the CGST Act

"Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts-

(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice.

(2) The proper officer shall issue the notice under sub-section (1) at least six months prior to the time limit specified in sub-section (10) for issuance of order.

(3) Where a notice has been issued for any period under sub-section (1), the proper officer may serve a statement, containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for such periods other than those covered under sub-section (1), on the person chargeable with tax.

(4) The service of statement under sub-section (3) shall be deemed to be service of notice under sub-section (1) of section 73, subject to the condition that the grounds relied upon in the said statement, except the ground of fraud, or any wilful-misstatement or suppression of facts to evade tax, for periods other than those covered under sub-section (1) are the same as are mentioned in the earlier notice.

(5) The person chargeable with tax may, before service of notice under sub-section (1), pay the amount of tax along with interest payable under section 50 and a penalty equivalent to fifteen per cent. of such tax on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment.

(6) The proper officer, on receipt of such information, shall not serve any notice under sub-section (1), in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder.

(7) Where the proper officer is of the opinion that the amount paid under sub-section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub-section (1) in respect of such amount which falls short of the amount actually payable.

(8) Where any person chargeable with tax under sub-section (1) pays the said tax along with interest payable under section 50 and a penalty equivalent to twenty five per cent. of such tax within thirty days of issue of the notice, all proceedings in respect of the said notice shall be deemed to be concluded.

(9) The proper officer shall, after considering the representation, if any, made by the person chargeable with tax, determine the amount of tax, interest and penalty due from such person and issue an order.

(10) The proper officer shall issue the order under sub-section (9) within a period of five years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within five years from the date of erroneous refund.

(11) Where any person served with an order issued under sub-section (9) pays the tax along with interest payable thereon under section 50 and a penalty equivalent to fifty per cent. of such tax within thirty days of communication of the order, all proceedings in respect of the said notice shall be deemed to be concluded.

Explanation 1.- For the purposes of section 73 and this section, -

(i) the expression "all proceedings in respect of the said notice" shall not include proceedings under section 132;

(ii) where the notice under the same proceedings is issued to the main person liable to pay tax and some other persons, and such proceedings against the main person have been concluded under section 73 or section 74, the proceedings against all the persons liable to pay penalty under sections 122, 125, 129 and 130 are deemed to be concluded.

Explanation 2- For the purposes of this Act, the expression "suppression" shall mean non-declaration of facts or information which a taxable person is required to declare in the return, statement, report or any other document furnished under this Act or the rules made thereunder, or failure to furnish any information on being asked for, in writing, by the proper officer."