ITC Order Quashed for Lack of Natural Justice, Remanded for Denovo Consideration

The Bombay High Court quashed and set aside an order disallowing Input Tax Credit (ITC) for the petitioner, citing a breach of natural justice due to lack of proper hearing and notice. The court remanded the matter for denovo consideration by a different officer, directing the Investigation Branch to provide findings to the petitioner for response. The petitioner was granted opportunities for personal hearing, written submissions, and a well-reasoned assessment order. No observations on merits were made, and disciplinary action against the responsible officer was recommended, emphasizing adherence to principles of natural justice and procedural fairness.

---

---

Issues: Impugning order disallowing Input Tax Credit (ITC) - Principles of natural justice - Proper hearing and notice to the petitioner - Breach of natural justice - Quashing and setting aside the impugned order - Remanding for denovo consideration - Providing findings to the petitioner - Personal hearing and written submissions - Well-reasoned order - Clarification on not making observations on merits - Consideration of disciplinary proceedings against the officer.

The judgment by the Bombay High Court revolves around the impugning of an order disallowing Input Tax Credit (ITC) by the petitioner for the Financial Year 2013-2014. The petitioner contested the disallowance of ITC amounting to Rs.21,54,235 from purchases made from a specific entity, claiming it to be arbitrary, especially since it was reflected in the Mahavikas system. The court noted that the impugned order lacked details regarding the information received from the Investigation Branch and failed to provide the petitioner with an opportunity to explain or defend against the findings, thereby violating the principles of natural justice. The court referred to an internal circular highlighting the department's issues with adjudicating authorities not passing orders judiciously, emphasizing the importance of providing reasons for disallowances and ensuring proper hearings for dealers. The court concluded that the petitioner was not accorded a proper hearing, leading to a breach of natural justice, and subsequently quashed and set aside the impugned order, remanding the matter for denovo consideration to be conducted by an officer other than the one who passed the initial order.

Furthermore, the court directed the Investigation Branch to provide the petitioner with the findings within a week, allowing for redaction of irrelevant portions. The petitioner was granted the opportunity to file additional submissions within two weeks of receiving the findings, with a mandate for a personal hearing to be conducted with at least seven days' notice. Following the personal hearing, the petitioner could submit written submissions within three days, and the subsequent assessment order was required to be well-reasoned, addressing all submissions made by the petitioner. The court clarified that no observations were made on the merits of the case. Additionally, in line with the internal circular's provisions, the court instructed the concerned authority to consider initiating disciplinary proceedings or taking action under the MVAT Act against the officer responsible for the initial order. The court ultimately disposed of the petition, ensuring adherence to principles of natural justice and procedural fairness in the matter.

---