2025 (7) TMI 269 - HC - GST

Challenge to impugned order which preceded the SCN - HELD THAT - The impugned order is set aside and the case is remitted back to the respondent to pass fresh orders on merits after considering the order that came be passed on 12.02.2025 pursuant to the Show Cause Notice dated 15.03.2024. Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

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

(a) Whether the impugned order dated 18.02.2025, which confirmed the demand raised in the Show Cause Notice dated 25.11.2024 regarding excess Input Tax Credit (ITC) availed on reverse charge, was valid and sustainable.

(b) Whether the demand confirmed in the impugned order, particularly with respect to the excess ITC claimed under SGST, CGST, and IGST heads, was justified given that an earlier order dated 12.02.2025 had dropped the demand for the same item (item No.9 in the scrutiny table).

(c) Whether the respondent authority ought to have reconsidered the matter in light of the earlier order dated 12.02.2025 before confirming the demand in the impugned order.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Validity of the impugned order confirming demand on excess ITC availed on reverse charge

The legal framework governing this issue is the GST law, including provisions relating to Input Tax Credit, its availing, reversal, and scrutiny by tax authorities. The relevant procedural safeguards include issuance of Show Cause Notices and opportunity to be heard before confirming any demand.

The Court noted that the impugned order dated 18.02.2025 confirmed the demand raised in the Show Cause Notice dated 25.11.2024, which scrutinized the ITC availed on reverse charge and found excess ITC claimed amounting to Rs. 16,796 (SGST and CGST combined) and further excess ITC usage amounting to Rs. 11,25,092 across SGST, CGST, and IGST heads.

The petitioner challenged the impugned order primarily on the ground that the demand relating to item No.9 (net excess ITC used) had already been dropped by an earlier order dated 12.02.2025, which was not considered before confirming the demand in the impugned order.

The Court observed that the impugned order failed to take into account the earlier order dated 12.02.2025, which had dropped the demand for the same item, thereby causing a procedural irregularity and error of law.

The Court emphasized the principle that a demand once dropped cannot be confirmed without fresh consideration and proper reasoning. The failure to consider the earlier order amounted to non-application of mind and procedural unfairness.

Consequently, the Court held that the impugned order confirming the demand was not sustainable in law.

(b) Justification of the demand for excess ITC claimed and used

The scrutiny tables annexed to the petition and impugned order detailed the computation of ITC availed, ITC used, and the alleged excess claimed or used. The petitioner contended that the excess ITC claimed on reverse charge and excess ITC usage were either not established correctly or had been addressed in earlier proceedings.

The Court noted that the demand for SGST and CGST was consistent in both the Show Cause Notice and the impugned order, but there was a discrepancy in the IGST demand amount: Rs. 7,53,017 in the Show Cause Notice versus Rs. 8,25,134 in the impugned order.

This inconsistency raised questions about the accuracy of the demand computation. The Court underscored the importance of precise calculation and clarity in demand notices to uphold the principles of natural justice.

Since the petitioner had raised these issues and the matter was remitted for fresh consideration, the Court implicitly recognized the need for a thorough re-examination of the facts and figures underpinning the demand.

(c) Requirement to reconsider the matter in light of the earlier order

The petitioner submitted that the demand relating to item No.9 had been dropped by an order dated 12.02.2025, which was not considered by the authority before passing the impugned order on 18.02.2025.

The Court agreed that the respondent authority ought to have taken the earlier order into account before confirming the demand. The failure to do so was a procedural lapse that vitiated the impugned order.

Accordingly, the Court set aside the impugned order and remitted the matter back to the respondent for fresh adjudication on merits, directing that the earlier order dated 12.02.2025 be considered in the fresh proceedings.

The Court mandated that the fresh exercise be completed expeditiously, preferably within three months from the date of receipt of the judgment.

3. SIGNIFICANT HOLDINGS

The Court held: "Considering the same, the impugned order is set aside and the case is remitted back to the respondent to pass fresh orders on merits, after considering the order, that came be passed on 12.02.2025, pursuant to the Show Cause Notice, dated 15.03.2024."

The core principles established include:

• The necessity for tax authorities to consider all relevant prior orders and proceedings before confirming any demand to avoid procedural unfairness.
• The requirement that demand notices and orders must be based on accurate and consistent computation of tax liabilities to uphold natural justice.
• The principle that a demand once dropped cannot be revived without fresh consideration and proper application of mind.

On the issues raised, the Court finally determined that the impugned order confirming the demand was liable to be set aside due to non-consideration of the earlier order and procedural irregularities, and directed fresh adjudication within a stipulated timeframe.