2025 (6) TMI 435 - HC - GST

Challenge to SCN and the consequent order - challenge to the vires of N/N. 9/2023-Central Tax dated 31st March 2023 N/N. 56/2023- Central Tax dated 28th December 2023 and N/N. 56/2023-State Tax dated 11th July 2024 - extension of time limits for adjudication - HELD THAT - Considering the fact that the present petition involves a legal issue regarding the non-availability of the utility for submission of IGST at the relevant point in time this Court is of the opinion that the Petitioner ought to be given an opportunity for fresh adjudication as the said issue has not been considered while passing the impugned order. Further this Court in Charu Overseas Pvt. Ltd. v. Pr. Commissioner of Delhi Goods and Service Tax Ors. 2025 (5) TMI 1259 - DELHI HIGH COURT and in Rahul Singhal Proprietor Shivalik Enterprises v. The Commissioner Central Tax Delhi West Engg. India Ltd. Ors. 2025 (5) TMI 1269 - DELHI HIGH COURT has while deciding upon similar issue relegated the Petitioner to the adjudicating authority for fresh adjudication. The impugned order is set aside and the matter is relegated to the Adjudicating Authority to be heard on merits - Petition disposed off by way of remand.

Summary

The core legal questions considered in this judgment include:

1. Whether the impugned show cause notice dated 28th May 2024 and the consequent adjudication order dated 27th August 2024 are legally sustainable.

2. The vires and validity of Notification No. 9/2023-Central Tax dated 31st March 2023, Notification No. 56/2023-Central Tax dated 28th December 2023, and Notification No. 56/2023-State Tax dated 11th July 2024 (collectively, the impugned notifications) issued under Section 168A of the Central Goods and Services Tax Act, 2017 (GST Act).

3. Whether the extension of time limits for adjudication under Section 73 of the GST Act and the corresponding State GST Act for the financial year 2019-20 could be validly effected by the impugned notifications.

4. The legality of denial of Input Tax Credit (ITC) of Integrated GST (IGST) based on alleged mismatch between GSTR-2A and GSTR-3B returns, particularly in the context of absence of a provision under Rule 60 of the Central GST Rules for auto-upload of IGST credit during the relevant period.

Issue-wise Detailed Analysis

Validity of the Impugned Notifications under Section 168A of the GST Act

Relevant Legal Framework and Precedents: Section 168A of the GST Act mandates that any extension of time limits for adjudication of show cause notices and passing of orders requires prior recommendation from the GST Council. The impugned notifications purportedly extended deadlines for adjudication for the financial year 2019-20.

Several High Courts have delivered divergent opinions on the validity of these notifications. The Allahabad High Court upheld Notification No. 9/2023 (Central Tax), the Patna High Court upheld Notification No. 56/2023 (Central Tax), while the Guwahati High Court quashed Notification No. 56/2023 (Central Tax). The Telangana High Court raised observations on the invalidity of Notification No. 56/2023 (Central Tax) without delving deeply into the issue.

The Supreme Court has taken cognizance of the conflicting High Court decisions and issued notices in the Special Leave Petition (SLP) No. 4240/2025 titled 'M/s HCC-SEW-MEIL-AAG JV v. Assistant Commissioner of State Tax & Ors.' The Supreme Court's order dated 21st February 2025 framed the core issue as whether the time limit for adjudication under Section 73 of the GST Act and corresponding State GST Acts could be extended via the impugned notifications under Section 168A.

Court's Interpretation and Reasoning: The present Court noted the ongoing litigation and conflicting judicial opinions on the validity of the impugned notifications. It acknowledged that the matter is sub judice before the Supreme Court and that the final determination on the validity of these notifications is pending. The Court observed that the notifications' issuance process, particularly the timing of the GST Council's recommendation relative to the notifications, was a critical point of contention.

Treatment of Competing Arguments: The petitioners challenged the notifications on procedural grounds, alleging non-compliance with Section 168A's requirement of prior GST Council recommendation and expiry of limitation periods. The respondents defended the notifications' validity, relying on the GST Council's recommendations and prior judicial precedents upholding the notifications. The Court refrained from expressing a definitive opinion on the validity of the notifications, deferring to the Supreme Court's impending decision.

Conclusions: The Court disposed of several petitions in the batch, subject to the outcome of the Supreme Court's decision in the SLP. For challenges to parallel State notifications, the Court retained jurisdiction for consideration. It emphasized that all orders passed would be subject to the Supreme Court's final ruling.

Denial of Input Tax Credit of IGST on Grounds of Mismatch Between GSTR-2A and GSTR-3B

Relevant Legal Framework and Precedents: The denial of ITC was premised on alleged discrepancies between the GSTR-2A and GSTR-3B returns filed by the petitioner for the financial year 2019-20. The petitioner contended that during the relevant period, Rule 60 of the Central GST Rules did not provide for auto-uploading of IGST credit in GSTR-2A against imports, making such mismatch-based denial inappropriate.

Precedents from this Court in W.P.(C) 9546/2024 (Charu Overseas Pvt. Ltd.) and W.P.(C) 16072/2024 (Rahul Singhal Proprietor Shivalik Enterprises) had similarly addressed the issue, directing fresh adjudication in cases involving denial of ITC on similar grounds.

Court's Interpretation and Reasoning: The Court found merit in the petitioner's contention that the adjudicating authority had not considered the absence of the relevant ITC auto-upload mechanism under Rule 60 during the financial year 2019-20. The Court noted that the impugned order relied on an ex-parte adjudication based on alleged mismatches without affording the petitioner a proper opportunity to be heard or to file replies.

Key Evidence and Findings: The Court examined the attachment to the Demand and Recovery Certificate (DRC 07), which indicated under-declared IGST liability of Rs. 2,59,61,106. The petitioner had filed annual returns (GSTR-09) and other GST returns, but the adjudicating authority found discrepancies. However, the Court observed that the technical limitations of the GST portal and procedural rules during the relevant period were not taken into account.

Application of Law to Facts: Given the procedural lacuna and the absence of a mechanism for auto-upload of IGST credits in GSTR-2A during the relevant period, the Court held that the petitioner ought to be given an opportunity for fresh adjudication on merits. The Court directed the adjudicating authority to allow the petitioner to file a reply to the show cause notice and to provide a personal hearing before passing any fresh order.

Treatment of Competing Arguments: The petitioner argued for setting aside the impugned order due to procedural unfairness and technical impossibility of matching ITC data. The respondent authorities relied on the statutory framework and the returns filed to justify the denial. The Court balanced these arguments by emphasizing the need for procedural fairness and opportunity to be heard.

Conclusions: The Court set aside the impugned order denying ITC and remanded the matter to the adjudicating authority for fresh adjudication. The petitioner was permitted to file a reply by 10th July 2025, and a personal hearing was to be granted. The Court also ensured access to the GST portal and related documents for the petitioner.

Impact of Pending Supreme Court Proceedings and Interim Orders

The Court recognized the judicial discipline principle and deferred to the Supreme Court's decision in the SLP concerning the validity of the impugned notifications. It noted that various High Courts had either upheld or quashed the notifications, resulting in a cleavage of judicial opinion. Interim orders passed by other High Courts, such as the Punjab and Haryana High Court, were also acknowledged, which stayed proceedings pending Supreme Court adjudication.

The Court disposed of petitions with the caveat that the final outcome would be governed by the Supreme Court's ruling. It left open all rights and remedies of the parties and clarified that the fresh adjudication and orders would be subject to the Supreme Court's decision.

Significant Holdings

"Considering the fact that the present petition involves a legal issue regarding the non-availability of the utility for submission of IGST at the relevant point in time, this Court is of the opinion that the Petitioner ought to be given an opportunity for fresh adjudication as the said issue has not been considered while passing the impugned order."

"The reply filed by the Petitioner to the SCN along with the submissions made in the personal hearing proceedings shall be duly considered by the Adjudicating Authority and fresh order with respect to the SCN shall be passed accordingly."

"All the rights and remedies of the parties are left open. Access to the GST Portal, if not already available, shall be ensured to be provided to the Petitioner to enable filing of reply and access to the notices and related documents."

"However, it is again made clear that the issue in respect of the validity of the impugned notifications is left open and the order of the Adjudicating Authority shall be subject to the outcome of the decision of the Supreme Court in S.L.P No 4240/2025."

Core principles established include the necessity of procedural fairness in GST adjudication, particularly the right to file replies and avail personal hearings before orders are passed. The judgment underscores that technical or procedural limitations in GST return filing mechanisms at the relevant time must be taken into account before denying ITC. Additionally, it affirms judicial restraint and adherence to hierarchy by deferring the question of validity of statutory notifications to the Supreme Court when conflicting High Court decisions exist.

Final determinations include setting aside the impugned order denying IGST credit and directing fresh adjudication with opportunity for the petitioner to be heard. The Court refrained from deciding on the validity of the impugned notifications, leaving that issue open pending Supreme Court adjudication.