2025 (6) TMI 996 - HC - GST

Challenge to assessment order - denial of Input Tax Credit - It is specific case of the petitioner that Input Tax Credit has been denied as the supplier has collected the tax from the petitioner and failed to remit the same to the credit of the Government - invocation of extended period of limitation u/s 74 of the respective GST enactments - HELD THAT - The argument of the petitioner that there has no case made out for invoking extended period of limitation under Section 74 of the respective GST enactments cannot be countenanced as Input Tax Credit that was availed was provisional. The law is settled on this aspect. In fact the Hon ble Supreme Court in the State of Karnataka vs. M/s.Ecom Gill Coffee Trading Private Limited 2023 (3) TMI 533 - SUPREME COURT has held the genuineness of the transaction has to be proved as the burden to prove the genuineness of transaction as per section 70 of the KVAT Act 2003 would be upon the purchasing dealer. Conclusion - i) The writ petition challenging the assessment order under Section 74 was dismissed for lack of merit. ii) The denial of Input Tax Credit was upheld as per statutory provisions governing provisional credit and reversal. There is no merits in the present Writ Petition and this Writ Petition is liable to be dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

• Whether the invocation of the extended period of limitation under Section 74 of the respective GST enactments is justified in the absence of any finding of fraud, wilful misstatement, or suppression of facts by the petitioner;
• Whether the denial of Input Tax Credit (ITC) on the ground that the supplier collected tax but failed to remit the same to the Government is legally sustainable;
• The procedural validity of the assessment and related notices, including whether non-service of notices ASMT 10 and DRC 01A on the petitioner affects the jurisdiction or validity of the assessment;
• The applicability and interpretation of the provisions relating to provisional Input Tax Credit under the TNGST Act, 2017 and CGST Act, 2017, particularly Section 41 and its amendments;
• Whether the petitioner's remedy lies in approaching the Court by way of writ petition or through statutory appeal under Section 107 of the TNGST Act, 2017;
• The extent to which principles of natural justice have been complied with in the assessment proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification for invoking extended period of limitation under Section 74 of the GST Act in absence of fraud or suppression

Legal framework and precedents: Section 74 of the GST Act empowers authorities to initiate proceedings beyond the normal limitation period only if evasion of tax is due to fraud, wilful misstatement, or suppression of facts. The Court referred to a prior decision of the same High Court where the absence of any finding or allegation of fraud or suppression led to setting aside an assessment order passed under Section 74.

Court's interpretation and reasoning: The Court observed that the petitioner's case did not involve any finding or even an allegation of fraud, wilful misstatement, or suppression of facts. The impugned assessment order invoked Section 74 without establishing these requisite conditions, rendering the invocation without jurisdiction.

Application of law to facts: Since the assessment order did not demonstrate any fraud or suppression, the Court held that the extended period under Section 74 was not applicable.

Treatment of competing arguments: The petitioner relied heavily on the precedent holding that Section 74 cannot be invoked without fraud or suppression. The respondent contended that the petitioner had alternate remedies and that no procedural or natural justice violations occurred, but did not dispute the absence of fraud findings.

Conclusion: The Court found no merit in invoking Section 74 in the absence of fraud or suppression and referenced previous rulings to that effect.

Issue 2: Denial of Input Tax Credit due to supplier's failure to remit tax

Legal framework: Section 41 of the TNGST Act, 2017 (as applicable during 2017-18) provided that Input Tax Credit was provisional and subject to conditions. The provision was later amended (effective 01.10.2022) to explicitly require reversal of ITC if the supplier fails to pay the tax, with a provision for re-availment if the supplier subsequently pays.

Court's interpretation and reasoning: The Court emphasized that during the assessment year in question, ITC availed was provisional. The denial of ITC on the ground that the supplier did not remit tax is consistent with the statutory framework. The Court noted that the petitioner's argument that no case was made out for invoking Section 74 was untenable because the ITC was provisional and subject to reversal.

Key evidence and findings: The petitioner admitted that the supplier collected tax but failed to remit it. The Court relied on statutory provisions rather than factual disputes.

Application of law to facts: The Court applied the statutory provisions to hold that the denial of ITC was legally valid since the supplier's failure to remit tax triggers reversal of ITC.

Treatment of competing arguments: The petitioner argued that since tax was collected from them, ITC should not be denied. The Court rejected this, relying on the settled principle that ITC is provisional and contingent on supplier's compliance.

Conclusion: The denial of ITC was upheld as per the statutory provisions governing provisional credit and its reversal.

Issue 3: Procedural validity of assessment and notices

Legal framework: Procedural fairness and service of notices are essential for valid assessments. The petitioner raised non-service of ASMT 10 and DRC 01A notices as a procedural infirmity.

Court's interpretation and reasoning: The Court noted the petitioner's contention but declined to delve into this aspect, indicating no interference on procedural grounds.

Application of law to facts: Although procedural compliance is important, the Court chose not to examine this issue in the present writ petition.

Treatment of competing arguments: The respondent submitted that principles of natural justice were not violated, and the petitioner had adequate opportunity to be heard.

Conclusion: The Court did not find procedural infirmities sufficient to warrant interference.

Issue 4: Availability of alternate remedy under Section 107 of the TNGST Act, 2017Legal framework:

Section 107 provides for statutory appeals against orders passed under the GST enactments.

Court's interpretation and reasoning: The Court observed that the petitioner had an alternate statutory remedy by way of appeal before the Appellate Authority under Section 107. It emphasized that writ jurisdiction should not be exercised where alternate remedies exist unless exceptional circumstances arise.

Application of law to facts: The Court granted liberty to the petitioner to file statutory appeal within 30 days, subject to compliance with procedural requirements.

Treatment of competing arguments: The respondent urged dismissal on this ground, which the Court accepted.

Conclusion: The Court dismissed the writ petition but allowed the petitioner to pursue statutory appeal.

Issue 5: Compliance with principles of natural justice

The respondent contended that there was no violation of natural justice warranting judicial interference. The Court found no evidence or submissions indicating breach of natural justice in the assessment process.

Therefore, no relief was granted on this ground.

3. SIGNIFICANT HOLDINGS

"The impugned order of assessment invoking Section 74 of the Act itself is without jurisdiction on the absence of a finding that the evasion of taxes was due to or by reason of fraud, misstatement or suppression of fact."

"During the period in dispute i.e., 2017-18, the Input Tax Credit availed by the recipients was provisional."

"The credit of input tax availed by a registered person in respect of such supplies, the tax payable whereon has not been paid by the supplier, shall be reversed along with applicable interest."

"Mere production of the invoices or the payment made by cheques is not enough and cannot be said to be discharging the burden of proof cast under Section 70 of the KVAT Act, 2003... the genuineness of the transaction has to be proved."

Core principles established include:

• The extended period under Section 74 of the GST Act requires a finding of fraud, wilful misstatement, or suppression of facts; absent such finding, invocation is without jurisdiction.
• Input Tax Credit availed during the relevant period is provisional and liable to be reversed if the supplier fails to remit tax.
• The petitioner must prove the genuineness of transactions to claim ITC.
• Availability of statutory appeal under Section 107 precludes writ jurisdiction except in exceptional cases.

Final determinations:

• The writ petition challenging the assessment order under Section 74 was dismissed for lack of merit.
• The denial of Input Tax Credit was upheld as per statutory provisions governing provisional credit and reversal.
• The petitioner was granted liberty to file statutory appeal within 30 days.
• No procedural or natural justice violations were found to warrant interference.