2025 (5) TMI 726 - HC - GST

Reversal of Input Tax Credit (ITC) based on discrepancies between the petitioner s GSTR-3B returns and the auto-populated GSTR-2A - impugned order passed without considering the various contentions urged in the reply submitted by the petitioner - violation of principles of natural justice - HELD THAT - As can be seen from the judgment in M/S. OASYS CYBERNETICS PRIVATE LIMITED VS. STATE TAX OFFICER 2024 (4) TMI 770 - MADRAS HIGH COURT non consideration/non appreciation of the credit note has been held to be a circumstance by the Madras High Court to set aside the order impugned therein and remit the matter back to the respondent therein for reconsideration afresh in accordance with law. In the instant case a perusal of the material on record in particular the observation No.2 contained in the show cause notice and the reply submitted by the petitioner to the same is sufficient to come to the conclusion that various contentions as well as documents in particular the credit note produced by the petitioner has not been considered and appreciated in proper perspective by respondent No. 1 and in the light of the judgment of the Madras High Court referred it is deemed just and appropriate to set aside the impugned order and remit the matter back to respondent No. 1 for reconsideration afresh in accordance with law. Conclusion - Various contentions as well as documents in particular the credit note produced by the petitioner has not been considered and appreciated in proper perspective by respondent No. 1 the impugned order deserves to be set aside. Matter is remitted back to respondent No. 1 for reconsideration afresh in accordance with law - petition allowed by way of remand.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court include:

- Whether the impugned order dated 26.12.2024, which confirmed reversal of Input Tax Credit (ITC) based on discrepancies between the petitioner's GSTR-3B returns and the auto-populated GSTR-2A, was passed without proper consideration of the petitioner's reply and supporting documents, including credit notes.

- Whether the failure of the assessing authority to appreciate the petitioner's submissions and documentary evidence, particularly credit notes and Chartered Accountant certificates, amounted to a jurisdictional error warranting quashing of the impugned order.

- Whether the principles laid down by the Madras High Court in a similar case concerning non-consideration of credit notes and Chartered Accountant certificates apply to the present case, thereby necessitating interference with the impugned order.

- Whether the petitioner was denied a fair opportunity of hearing and proper adjudication in violation of principles of natural justice.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the Impugned Order in Light of Petitioner's Reply and Credit Notes

Relevant Legal Framework and Precedents:

The GST framework mandates reconciliation between GSTR-3B and GSTR-2A returns. Discrepancies must be addressed with due regard to documentary evidence submitted by the taxpayer. The Madras High Court judgment in a case involving M/S. OASYS CYBERNETICS PRIVATE LIMITED (W.P. No. 9624/2024) is pivotal, where the Court held that failure to consider credit notes and Chartered Accountant certificates in assessing ITC discrepancies was a ground for interference.

Court's Interpretation and Reasoning:

The Court observed that the petitioner had submitted a detailed reply to the show cause notice dated 26.11.2024, including specific responses to observation No. 2 regarding inward supplies as per GSTR-2A. The petitioner also produced credit notes and other documents to substantiate the claim that the ITC reversal was erroneous.

However, the impugned order dated 26.12.2024 did not consider these submissions or documents. The Court noted that the assessing authority merely confirmed the ITC reversal on the ground that credit notes were not reflected in GSTR-1 or GSTR-2A, without examining whether the value of credit notes matched the ITC claimed or whether there was any actual revenue loss.

Key Evidence and Findings:

The petitioner's reply dated 24.12.2024 and attached credit notes were critical evidence. The Madras High Court judgment highlighted that credit notes were erroneously reported under B2C instead of the appropriate heading in GSTR-1, but this did not result in revenue loss. The impugned order in the present case similarly failed to assess such nuances.

Application of Law to Facts:

The Court applied the principle that an order passed without proper consideration of relevant submissions and documents is liable to be set aside. The petitioner's explanation and documentary proof should have been examined to determine the correctness of the ITC reversal.

Treatment of Competing Arguments:

The respondent contended that the petitioner's failure to report credit notes correctly in GSTR-1 justified the ITC reversal. However, the Court found this argument insufficient because the assessing authority did not analyze whether the discrepancy caused actual revenue loss or whether the petitioner's explanation was plausible.

Conclusion:

The Court concluded that the impugned order was passed without due appreciation of the petitioner's reply and documents, rendering it unsustainable.

Issue 2: Rejection of Chartered Accountant's Certificate Without Reasons

Relevant Legal Framework and Precedents:

Under GST procedural law, certificates issued by Chartered Accountants explaining discrepancies are admissible and must be considered unless cogent reasons are recorded for rejection.

Court's Interpretation and Reasoning:

The impugned order rejected the Chartered Accountant's certificate submitted by the petitioner without assigning any reasons. The Court observed that such rejection without explanation violates principles of reasoned decision-making and natural justice.

Key Evidence and Findings:

The petitioner produced a Chartered Accountant certificate dated 24.12.2024 explaining the discrepancy amounting to approximately Rs. 53,18,913/-. The impugned order merely stated the certificate was not accepted, without elaboration.

Application of Law to Facts:

The Court emphasized that the assessing authority must provide reasons for rejecting such evidence to enable meaningful judicial review. The absence of reasons rendered the rejection arbitrary.

Treatment of Competing Arguments:

The respondent did not provide substantive justification for rejecting the certificate. The Court found this lack of reasoning untenable.

Conclusion:

The Court held that the rejection of the Chartered Accountant's certificate without reasons was improper and contributed to the necessity of setting aside the impugned order.

Issue 3: Applicability of Madras High Court Precedent and Remand for Reconsideration

Relevant Legal Framework and Precedents:

The Madras High Court's judgment in M/S. OASYS CYBERNETICS PRIVATE LIMITED vs. STATE TAX OFFICER was considered authoritative on the issue of non-consideration of credit notes and Chartered Accountant certificates leading to erroneous ITC reversals.

Court's Interpretation and Reasoning:

The Court found the facts in the present case analogous to the Madras High Court case. In both instances, the assessing authority failed to appreciate the petitioner's submissions and documents, particularly credit notes, leading to confirmation of tax demand without adequate scrutiny.

Key Evidence and Findings:

The Court noted the similarity in procedural lapses and lack of reasoned consideration in both cases.

Application of Law to Facts:

Relying on the precedent, the Court determined that the impugned order must be set aside and the matter remanded for fresh consideration in accordance with law, ensuring that the petitioner's contentions and evidence are duly considered.

Treatment of Competing Arguments:

The respondent's submission that the petitioner's failure to report credit notes correctly justified the order was rejected due to absence of detailed examination and reasoned findings.

Conclusion:

The Court remanded the matter to the assessing authority with directions to provide the petitioner a reasonable opportunity, including personal hearing, and to pass a fresh order after considering all contentions and documents.

Issue 4: Fair Opportunity and Procedural Compliance

Relevant Legal Framework and Precedents:

Principles of natural justice require that a party be given a fair opportunity to present its case and that the authority must consider all relevant submissions before passing an order.

Court's Interpretation and Reasoning:

The Court found that the petitioner was not afforded a proper opportunity as the impugned order ignored the detailed reply and documents submitted. The petitioner was also directed to appear on a specified date without awaiting further notice, ensuring procedural compliance going forward.

Key Evidence and Findings:

The petitioner's reply and supporting documents were evidence of the attempt to engage with the process. The absence of their consideration indicated procedural infirmity.

Application of Law to Facts:

The Court emphasized the need for the assessing authority to provide reasonable opportunity and to consider additional pleadings or documents filed by the petitioner.

Treatment of Competing Arguments:

No substantial counter-argument was accepted against the petitioner's claim of procedural lapse.

Conclusion:

The Court mandated fresh proceedings with full opportunity to the petitioner, ensuring compliance with natural justice.

3. SIGNIFICANT HOLDINGS

- "The explanation of the petitioner was not duly examined from the perspective of ascertaining whether the amount reflected as ITC tallies with the value of credit notes issued by the petitioner. If such exercise had been carried out, it would become clear as to whether there was revenue loss by way of excess availment of ITC. Since such exercise was not carried out and findings were recorded confirming the tax demand merely because credit notes were not duly reported in GSTR-1 or in the auto populated GSTR 2A, the impugned order calls for interference on this issue."

- "The impugned order merely records that the certificate issued by the Chartered Accountant and the petitioner's reply are not accepted. It is unclear as to why the certificate was rejected because no reasons are discernible from the impugned order."

- "Non consideration/non appreciation of the credit note has been held to be a circumstance... to set aside the order impugned therein and remit the matter back to the respondent therein for reconsideration afresh in accordance with law."

- The impugned orders dated 26.12.2024 are set aside and the matter remanded for fresh consideration with directions to provide reasonable opportunity, including personal hearing, and to consider additional pleadings or documents.

- The petitioner is directed to appear before the respondent authority on a specified date without awaiting notice, and liberty is reserved to file additional documents.