2025 (5) TMI 2073 - HC - GST

Invocation of extended period of limitation - wrongful availment of ITC - the impugned order has been passed without bearing in mind the directions given by this Court - violation of principles of natural justice - HELD THAT - Directions given by this Court in INFINITI RETAIL LIMITED VERSUS UNION OF INDIA ORS. 2024 (9) TMI 1008 - DELHI HIGH COURT ought to have been complied with by the Adjudicating Authority both in letter and spirit. The manner in which the impugned order has been framed would show that it primarily relies on the SCN. The reply filed by the Petitioner has been summarised in the impugned order and the oral submissions made by the Chartered Accountant appearing for the tax payer i.e. Petitioner have also been set out. However in the findings portion of the impugned order the manner in which the said reply has been afforded due consideration by finalising the demand is unclear. The question however is whether the matter deserves to be remanded. In the opinion of this Court no useful purpose would be served in sending the matter back to the Adjudicating Authority as the reasons that were to be given by the said AA have been spelt out though not in a fully satisfactory manner. In the opinion of this Court the impugned order being an appealable order under Section 107 of the Central Goods and Service Tax Act 2017 various facts and documents would be required to be gone into to ascertain as to whether any of the demands are justified or not. The same would be beyond the scope of writ jurisdiction which this Court is presently exercising - the Petitioner is relegated to avail of its appellate remedy under Section 107 of the Central Goods and Service Tax Act 2017 in accordance with law. The Appellate Authority would consider all the facts and determine whether the ITC is wrongly availed of and whether the Order-in-Original is liable to be interfered with. The Petitioner shall be bound by the said determination subject to any remedies it may avail of - Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

(a) Whether the Adjudicating Authority complied with the directions of the Court in the earlier writ petition by independently considering the Petitioner's replies to the Show Cause Notice (SCN) without implicitly relying on the audit memo or audit report.

(b) Whether the demand for recovery of wrongly availed Input Tax Credit (ITC) under CGST and SGST, instead of IGST, is justified under Section 16(2)(b) and Section 74 of the CGST Act, 2017.

(c) Whether the imposition of interest and penalty under Sections 50, 74, and 122 of the CGST Act, 2017 and corresponding provisions of the Delhi GST Act, 2017 and IGST Act, 2017, is appropriate.

(d) Whether the writ jurisdiction is appropriate for adjudicating the factual disputes arising from the impugned order or whether the remedy of appeal under Section 107 of the CGST Act, 2017 is the proper course.

(e) Whether the Petitioner is entitled to waiver of pre-deposit for the appeal under Section 107 in respect of the ITC demand raised under paragraph 34(l) of the impugned order.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Compliance with Directions to Independently Consider Petitioner's Reply

Relevant legal framework and precedents: The Court's prior directions in W.P.(C) 12459/2024 mandated that the Adjudicating Authority should not implicitly rely on the audit memo or audit report but should independently evaluate the Petitioner's response to the SCN. The Petitioner was entitled to file all necessary documents and contest the demands uninfluenced by audit observations.

Court's interpretation and reasoning: The Court observed that the impugned order primarily relied on the SCN and audit report, with only a summary of the Petitioner's reply and oral submissions. The findings portion did not clearly demonstrate that the Petitioner's responses received serious and independent consideration. This indicated non-compliance with the Court's earlier directions.

Key evidence and findings: The impugned order reproduced the Petitioner's reply but did not explicitly address or analyze the submissions in the adjudication. The Court noted the absence of a clear rationale showing that the replies influenced the demand finalization.

Application of law to facts: The Court held that the Adjudicating Authority was bound to comply with the earlier directions both in letter and spirit. Mere reproduction of replies without reasoned consideration was insufficient.

Treatment of competing arguments: The Petitioner argued that its replies were disregarded; the Respondents relied on audit findings. The Court sided with the Petitioner, emphasizing independent adjudication.

Conclusions: The impugned order failed to comply fully with the Court's directions to independently assess the Petitioner's replies, rendering the adjudication flawed in this respect.

(b) Legitimacy of Demand for ITC Availment under CGST/SGST Instead of IGST

Relevant legal framework: Section 16(2)(b) of the CGST Act, 2017 provides that ITC is available only if the recipient has received goods or services and the tax is correctly paid by the supplier. The place of supply determines whether CGST/SGST or IGST is applicable. Section 74 of the CGST Act authorizes demand and recovery in cases of tax evasion.

Court's interpretation and reasoning: The Court noted that the Petitioner availed ITC of CGST and SGST on invoices issued by suppliers registered outside Delhi, indicating the place of supply was outside Delhi. Consequently, IGST should have been charged, not CGST/SGST. Hence, the demand for recovery of Rs. 77,36,28,252/- was made for wrongly availed ITC.

Key evidence and findings: The impugned order's paragraph 34(l) detailed the amounts involved and the tax periods. The Court observed that the Petitioner's returns and invoices substantiated the factual basis for the demand.

Application of law to facts: The Court accepted that the ITC was availed incorrectly under CGST/SGST instead of IGST, constituting contravention of Section 16(2)(b) and justifying demand under Section 74.

Treatment of competing arguments: The Petitioner contended entitlement to ITC, but the Court recognized that the issue was whether the ITC was availed under the correct tax head (IGST vs CGST/SGST), not whether ITC was availed at all.

Conclusions: The demand for recovery of wrongly availed ITC under CGST/SGST instead of IGST was prima facie justified, subject to further factual examination.

(c) Imposition of Interest and Penalty

Relevant legal framework: Section 50 of the CGST Act mandates interest on delayed payment of tax. Section 74(1) read with Section 74(9) authorizes demand and recovery for tax evasion, including interest and penalty under Section 122.

Court's interpretation and reasoning: The impugned order confirmed the demand of interest and penalty corresponding to the tax and ITC demands. The Court observed that these are statutory consequences of confirmed tax demands.

Key evidence and findings: The SCN and impugned order detailed the applicable interest and penalty calculations. The Court noted no challenge to the quantum of interest and penalty beyond contesting the foundational tax demand.

Application of law to facts: Given the confirmation of tax demand, imposition of interest and penalty followed as per statutory provisions.

Treatment of competing arguments: The Petitioner challenged the tax demand basis; the Respondents justified interest and penalty as statutory. The Court deferred detailed factual scrutiny to appellate proceedings.

Conclusions: Interest and penalty imposition was legally appropriate, contingent on validation of the underlying tax demand.

(d) Appropriateness of Writ Jurisdiction Versus Appellate Remedy

Relevant legal framework: Section 107 of the CGST Act provides for appellate remedy against orders passed under the Act, with mandatory pre-deposit requirements.

Court's interpretation and reasoning: The Court held that the impugned order involves complex factual and documentary analysis, beyond the scope of writ jurisdiction. The proper remedy is appeal under Section 107.

Key evidence and findings: The impugned order is appealable, and factual disputes regarding ITC availment and tax liability require detailed examination by the Appellate Authority.

Application of law to facts: The Court relegated the Petitioner to the appellate remedy, preserving rights to contest the demands fully before the Appellate Authority.

Treatment of competing arguments: The Petitioner sought writ relief, but the Court emphasized statutory appellate mechanism as the appropriate forum.

Conclusions: Writ jurisdiction is inappropriate for adjudicating detailed factual disputes in this case; appeal under Section 107 is the proper course.

(e) Waiver of Pre-deposit for Appeal in Respect of ITC Demand

Relevant legal framework: Section 107 mandates a pre-deposit of 10% of the tax, interest, or penalty demanded before filing appeal, subject to waiver in exceptional cases.

Court's interpretation and reasoning: The Court observed that the entitlement to avail ITC itself was not in dispute, only the classification between IGST and CGST/SGST. Under these peculiar circumstances, the Court waived the pre-deposit for the ITC demand of Rs. 77,36,28,252/- under paragraph 34(l) of the impugned order.

Key evidence and findings: The Court relied on the impugned order's own admission that ITC was availed, and the dispute was only about the correct tax head.

Application of law to facts: The waiver was granted to avoid undue hardship and to enable full adjudication on merits in appeal.

Treatment of competing arguments: The Respondents did not oppose the waiver; the Petitioner sought relief from the pre-deposit burden.

Conclusions: Pre-deposit was waived for the ITC demand under paragraph 34(l), while remaining demands require compliance with statutory pre-deposit provisions.

3. SIGNIFICANT HOLDINGS

"The adjudicating authority shall not implicitly rely on the observations made in the audit memo or audit report. The adjudicating authority shall examine the petitioner's response/reply to the impugned SCN and independently take the decision in regard to the proposed demand."

"The noticee had taken ITC of CGST and SGST on the basis of invoices, which were issued by suppliers who were registered outside Delhi, which means that the place of supply in respect of such supplies was out of Delhi... ITC of Rs. 77,36,28,252/-... is liable to be demanded and recovered from the noticee under Section 74 of the CGST Act, 2017 alongwith applicable Interest under Section 50 (3) of the Act."

"The impugned order is an appealable order under Section 107 of the Central Goods and Service Tax Act, 2017... various facts and documents would be required to be gone into to ascertain as to whether any of the demands are justified or not. The same would be beyond the scope of writ jurisdiction which this Court is presently exercising."

"In so far as the pre-deposit qua paragraph 34 (l) of the impugned order, in respect of availment of ITC is concerned, the same is waived as the entitlement to avail ITC appears to be not in doubt."

Core principles established include the necessity for independent adjudication uninfluenced by audit reports, the proper classification of ITC under the correct tax head based on place of supply, the statutory imposition of interest and penalty following confirmed tax demands, the primacy of appellate remedy over writ jurisdiction for factual disputes under GST laws, and the discretionary waiver of pre-deposit in exceptional circumstances where entitlement to ITC is undisputed.

Final determinations on each issue are that the impugned order is to be challenged through appeal under Section 107, with pre-deposit waived only in respect of the ITC demand under paragraph 34(l). The Petitioner's replies must be independently considered by the Adjudicating Authority or Appellate Authority, and the factual disputes regarding ITC classification and tax liability are to be resolved in the appellate proceedings.