2025 (7) TMI 784 - HC - GST

Reversal of ITC which has been wrongly availed - principles of natural justice - HELD THAT - There appears to be a factual dispute which needs to be sorted out and that can be done if the assessee is given one more opportunity to reconcile the defect which has been pointed out. If the assessee have already reversed the ITC then the matter becomes revenue neutral and the question of making any pre-deposit would not arise. That apart we note that the adjudicating authority did not levy interest on the appellants which would go to show that the ITC has been reversed. In any event these are all factual matters which needs to be adjudicated before the authority. The writ petition as well as the intra-Court appeal are allowed. The order passed by the appellate authority dated 4th October 2024 is set aside and the matter stands remanded to the original authority viz. Assistant Commissioner Central Goods and Service Tax and Central Excise Dinajpur Division Raiganj Uttar Dinajpur.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

(a) Whether the appellants have reversed the Input Tax Credit (ITC) that was allegedly wrongly availed by them;

(b) Whether the appellants were duly served and given an opportunity to respond to the show-cause notice issued by the adjudicating authority;

(c) Whether the interim order directing the appellants to deposit 10% of the disputed tax was justified;

(d) Whether the factual disputes raised regarding the reversal of ITC require remand for fresh adjudication;

(e) The procedural propriety of the ex-parte order passed by the adjudicating authority due to non-response by the appellants;

(f) The correctness of the appellate authority's dismissal of the appellants' appeal without allowing reconciliation of the alleged defects;

(g) The implications of the absence of interest levied by the adjudicating authority on the appellants in respect of the disputed ITC.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (g): Whether the appellants have reversed the ITC wrongly availed and the significance of non-levy of interest

The relevant legal framework involves the provisions under the Central Goods and Services Tax Act relating to availing and reversal of ITC. The Court examined the submissions of the appellants who claimed to have filed GSTR-3B returns and produced a tabulated statement demonstrating the reversal of the wrongly availed ITC for the financial year 2017-18.

The appellate authority, however, found that the appellants failed to submit the GSTR-3B return for August 2017, which was necessary to incorporate the facts related to reversal. This created a factual dispute as to whether the reversal was indeed effected.

The Court noted that the adjudicating authority did not levy interest on the appellants, which is indicative that the ITC may have been reversed, since interest would typically be imposed if ITC was wrongly availed and not reversed. This absence of interest was taken as a significant factor suggesting that the matter might be revenue neutral if reversal had indeed taken place.

The Court emphasized that these are factual questions requiring adjudication based on documentary evidence and submissions by the appellants.

Issue (b) and (e): Service of show-cause notice and procedural propriety of ex-parte order

The show-cause notice was served upon the appellants by e-mail. However, the appellants did not respond, leading to an ex-parte order dated 14th December 2023 by the Assistant Commissioner. The Court recognized that non-response to the notice resulted in the ex-parte order.

Nonetheless, the Court observed that procedural fairness requires that the appellants be given an opportunity to respond and reconcile any defects, especially since the appellants claim to have reversed the ITC.

The Court thus treated the original order as a show-cause notice and directed the appellants to submit a detailed reply with supporting documents within 15 days of receiving the judgment copy.

Issue (c) and (f): Interim order directing 10% deposit and appellate authority's dismissal

The interim order dated 13th June 2025 directed the appellants to deposit 10% of the tax in dispute while granting stay. The appellants challenged this order in the intra-Court appeal.

The Court found that since the factual dispute regarding reversal of ITC could render the matter revenue neutral, the condition of pre-deposit may not be justified without proper adjudication.

The appellate authority had dismissed the appellants' appeal without allowing them to reconcile the defect pointed out (non-submission of GSTR-3B for August 2017). The Court held that the appellants should be given an opportunity to cure this defect.

Accordingly, the Court set aside the appellate authority's order and remanded the matter to the original adjudicating authority for fresh adjudication on merits after hearing the appellants.

Issue (d): Necessity of remand for fresh adjudication

The Court recognized the existence of factual disputes that cannot be resolved on the limited record before it. Since the appellants claim to have reversed the ITC, and the appellate authority's order was based on incomplete submissions, a remand was necessary.

The Court directed the adjudicating authority to treat the original order as a show-cause notice, consider the appellants' detailed reply and documents, provide a personal hearing, and pass a fresh order on merits and in accordance with law.

3. SIGNIFICANT HOLDINGS

The Court held:

"If the assessee have already reversed the ITC then the matter becomes revenue neutral and the question of making any pre-deposit would not arise."

"These are all factual matters, which needs to be adjudicated before the authority."

"The appellants are directed to treat the order in original dated 14th December, 2023 as a show-cause notice and submit their detailed reply along with all documents to the adjudicating authority within a period of 15 days from the date of receipt of server copy of this judgment and order."

"On receipt of the same, the adjudicating authority shall afford an opportunity of personal hearing to the authorised representative of the appellants, consider all the documents and the submissions that may be made by the appellants and pass a fresh order on merits and in accordance with law."

The Court established the principle that factual disputes concerning reversal of ITC and related procedural compliance must be resolved through proper adjudication rather than summary dismissal or ex-parte orders.

The final determination was to set aside the appellate order, remand the matter for fresh adjudication, and allow the appellants an opportunity to respond and reconcile the alleged defects, thereby ensuring procedural fairness and adherence to statutory provisions.