Taxpayer forced to file writ in high court for none of his faults.

As I was updating myself with the recent pronouncements of various high courts, I came across one case wherein due to the improper understanding of law by the Assistant Commissioner attached to Krishnagiri II Circle, who passed the order in gross violation of CBIC Circular dated 27/12/2022, the taxpayer approached high court for relief from interest as well as 100 % penalty due to wrong invocation of section 74, even though the Assistant Commissioner has not done any audit or inspection but issued show cause notice based on GSTR 2A non -reflection.

Part one: The Story: The dispute pertains to the period from 01/07/2017 till 31/03/2018. As this was initial period, GSTR 2A was not reflecting the transactions in the way it is being reflected as on date in GSTR 2B and this is a known fact. Under these circumstances DRC 01A was issued on 25/03/2023 followed by DRC 03 on 20/06/2023 by wrongly invoking Section 74 as the tax officer failed to act on this issue prior to 30/09/2021. Just to take advantage of extended period as well as to improve collections by huge penalty, section 74 was wrongly invoked despite the fact that there was absolutely no suppression or willful mis-statement or fraud as it is was a system related issue which the CBIC admits.

The OIO was passed on 12/08/2024 imposing interest under section 50 as well as maximum penalty of 100 % as applicable under section 74 even though the taxpayer has paid the ITC which was not reflected in GSTR 2A on 22/07/2024 itself. It is to be noticed that interest is applicable only if any ineligible ITC is availed and utilized and this has to be checked based on records. Imposing section 74 due to the convenience of the assistant commissioner was unwarranted in the instant case as it is not a fraud case.

Part two: The high court has passed orders on 08/06/2026 as reported in M/s. Meenakshi Collections, Represented by its Proprietor M. Suresh Versus The Assistant Commissioner (ST), Krishnagiri. - 2026 (7) TMI 60 - MADRAS HIGH COURT. The high court has rightly quashed the OIO dated 12/08/2024 and passed the orders which reads as '12. Considering the same, the case is remitted back to the respondent to pass a fresh order on merits, after considering the evidence and affording the petitioner an opportunity of being heard, within a period of three months from the date of receipt of a copy of this order.

13. If the petitioner is indeed entitled to the input tax credit, neither interest nor penalty shall be justifiable. However, in case the petitioner has no records to substantiate the actual receipt, or if after receipt they have not paid the supplier for the supplies effected, the amount paid by the petitioner shall stand appropriated, and the petitioner shall also pay interest and penalty.

14. In view thereof, the impugned order is quashed, and this writ petition stands disposed of with the above directions. No costs. Connected miscellaneous petitions are closed'.

Part three. Observations

1. This appears to be a fit case for imposition of cost on the erring tax officer as section 74 was invoked without proper jurisdiction. The taxpayer is a small retailer based at Bargur, a taluk headquarters in Krishnagiri district. As CBIC has issued detailed guidelines on 13/12/2023 itself on invocation of section 74 in the most appropriate manner, the Assistant Commissioner ought to have dropped Section 74 as the OIO was passed only on 12/08/2024. It is not a child's play to approach high court by way of writ as involves cost.
2. During recent times, both Madras High Court as well as Tripura High Court have ruled that any extension in time line for filing the annual return under GST law does not extend time lines already set for issuing SCN as well as for passing the OIO.
3. The author disclaims that he is not against any officer's powers on administering the law in the best interest of the State but must desist from exceeding the jurisdiction.
4. The following table depicts due dates as applicable for the part year ended on 31/03/2018.

Part four: Conclusion.

Section 73 was the most appropriate one in the instant case and even (assuming but without admitting) if 74 is applicable, OIO passed on 12/08/2024 was impermissible.

The idea of writing this article is as GST law is in its 10th year and GSTAT is fully operational, the officers at the level of adjudicating authority may pass well- reasoned orders that stands confirmed by GSTAT or High Court when tested. As in the instant case the OIO has been 'QUASHED' by the jurisdictional high court, all officers while dealing identical issues may exercise extra care to ensure that the ORDERS passed by them are neither set aside nor quashed later by a higher authority later.

It is appealed to all officers to pass orders by invoking only the most appropriate sections and to all tax professionals to insist on imposition of cost when argued before GSTAT in the days to come wherever there is absolutely no fault on the taxpayer.