2023 (9) TMI 1357 - HC - GST

Input Tax Credit rejection overturned due to procedural violations and inadequate evidence consideration despite ex parte proceedings

Calcutta HC set aside an order rejecting Input Tax Credit due to procedural violations and inadequate consideration of documentary evidence. Despite ... Audi alteram partem - ex parte disposal - duty to decide appeals on available records - reconciliation of Input Tax Credit between FORM GSTR-3B and FORM GSTR-2A - departmental obligation to verify portal records - application of Circular No. 183/15/2022-GST dated 27-12-2022 - remand for fresh adjudication upon deposit of disputed taxAudi alteram partem - ex parte disposal - Whether the impugned ex parte order violated the principles of natural justice - HELD THAT: - The Court found that the petitioner had been given repeated notices of personal hearing and multiple opportunities to appear before the Appellate Authority but chose not to be represented. In these circumstances the Appellate Authority was entitled to proceed ex parte. The principle of fairness does not require the authority to await the assessee's presence where repeated opportunities have been afforded and the assessee deliberately abstains. Accordingly, the contention of violation of the rule of fair hearing was rejected.The challenge to the impugned order on the ground of violation of natural justice is dismissed.Reconciliation of Input Tax Credit between FORM GSTR-3B and FORM GSTR-2A - duty to decide appeals on available records - departmental obligation to verify portal records - application of Circular No. 183/15/2022-GST dated 27-12-2022 - remand for fresh adjudication upon deposit of disputed tax - Whether the impugned order was sustainable on merits having regard to the failure to reconcile alleged mismatches and to consider the departmental Circular - HELD THAT: - Although the Appellate Authority was justified in disposing the appeal ex parte, it remained obliged to examine and decide the appeal on the basis of available records. The Court held that the Appellate Authority did not make adequate attempts to reconcile the alleged mismatch between ITC claimed in FORM GSTR-3B and entries in FORM GSTR-2A, including verification from departmental/online records. The authority also failed to consider Circular No.183/15/2022-GST dated 27-12-2022 which prescribes the departmental approach where suppliers have misreported supplies (e.g., B2B reported as B2C or wrong GSTIN declared). For these reasons the impugned order was held unsustainable and was set aside, with the matter remanded for fresh consideration on merits.Impugned order set aside; appeal to be heard afresh in accordance with law after compliance with deposit condition.Final Conclusion: Writ petition allowed; impugned appellate order quashed because the Appellate Authority failed to reconcile records and consider the relevant Circular; matter remanded for fresh hearing and disposal on merits upon deposit of twenty per cent of the disputed tax together with amounts already paid under sub section (6) of section 107 within seven days, to be completed within eight weeks. ISSUES PRESENTED AND CONSIDERED 1. Whether dismissal of an appeal ex parte for non-appearance of the appellant violated the principles of natural justice, specifically audi alteram partem. 2. Whether the Appellate Authority was obliged, even in an ex parte disposal, to examine documentary evidence and reconcile mismatches in Input Tax Credit (ITC) claims using departmental records and online portals. 3. Whether the Appellate Authority was bound to consider and apply departmental clarification in Circular dated 27 December, 2022 when alleged supplier reporting errors (wrong GSTIN, B2C vs B2B reporting) caused non-reflection of ITC in FORM GSTR-2A. 4. Appropriate remedy where ex parte order is found deficient for failure to consider records and relevant circular - including conditions for remand and interim directions (deposit requirement and time-limits). ISSUE-WISE DETAILED ANALYSIS Issue 1: Ex parte dismissal and principles of natural justice (audi alteram partem) Legal framework: The rule of audi alteram partem and the obligation to afford notice of hearing are fundamental components of natural justice applicable to adjudicatory processes under the GST Act and associated rules; fairness requires meaningful opportunity to be heard but no fixed formula applies to every case. Precedent Treatment: The petitioner relied on decisions supportive of ITC claims; the Court emphasised established natural justice principles without expressly adopting or overruling any specific prior decision cited by parties. Interpretation and reasoning: The Court held that notice of personal hearing and repeated adjournments are minimally required; where notice is given and multiple opportunities are afforded, the Authority may proceed ex parte if the appellant elects not to appear. Fairness is reciprocal; an assessee who wilfully abstains from appearing cannot thereafter complain of breach of natural justice. The sequence of issued hearing notices and adjournments (enumerated dates) demonstrated adequate opportunity. Ratio vs. Obiter: Ratio - an authority may validly dispose ex parte when adequate notice and repeated opportunities to be heard were given and the appellant deliberately abstained. Obiter - remarks on the non-existence of a rigid formula for fair hearing (general principle). Conclusions: No violation of natural justice was found on the facts because the appellant was given notice and repeated chances to be heard but chose non-appearance, thereby justifying ex parte disposal in principle. Issue 2: Duty to examine records and reconcile ITC mismatch in ex parte disposal Legal framework: Even when passing an ex parte order, the Appellate Authority remains obliged to decide the appeal on merits based on available records and to reason its conclusions; reconciliation of ITC entries must, where possible, be attempted using departmental records and the online portal. Precedent Treatment: The Court required the Authority to follow statutory and administrative processes for reconciliation; while specific authorities cited by the parties were noted, the Court's holding rests on statutory adjudicatory obligations rather than reliance on any single precedent. Interpretation and reasoning: The Court found the Appellate Authority failed to attempt reconciliation of claimed ITC with departmental records and online returns; the mere finding of mismatch in GSTR-3B vs GSTR-2A without trying to verify records or reconciling supplier errors was prima facie untenable. The Authority was required to consider documentary evidence on file and to consult its portals/records to ascertain whether the mismatch was rectifiable. Ratio vs. Obiter: Ratio - ex parte disposal does not absolve the Authority from the duty to consider and reconcile evidence on record; absence of such attempt renders the order unsustainable. Obiter - observations on the methods of reconciliation (practical steps) are illustrative. Conclusions: The impugned order was unsustainable because the Appellate Authority did not discharge the obligation to reconcile ITC discrepancies from available departmental records and to consider documentary proofs furnished by the appellant. Issue 3: Obligation to apply departmental Circular dated 27 December, 2022 concerning supplier reporting errors Legal framework: Administrative circulars and departmental clarifications addressing how to treat supplier reporting errors (e.g., misreporting as B2C instead of B2B; wrong recipient GSTIN in FORM GSTR-1) guide the departmental approach and must be taken into account by adjudicating authorities when relevant to the facts. Precedent Treatment: The petitioner relied on case law favourable to ITC acceptance where ministerial or clerical errors occurred; the Court emphasised that the departmental Circular's clarifications are relevant and should inform adjudication, without purporting to overrule or adopt other case law. Interpretation and reasoning: The Court observed that the Circular specifically contemplates supplier mistakes that prevent reflection of supplies in FORM GSTR-2A and prescribes an approach for the Department. The Appellate Authority's failure to advert to and apply that Circular was a material omission, particularly where invoices and documentary evidence suggested inadvertent errors by suppliers (incorrect/omitted GSTIN; misclassification of B2B/B2C). Ratio vs. Obiter: Ratio - where departmental clarification directly addresses the factual cause of non-reflection of ITC (supplier reporting errors), the Appellate Authority must consider and apply such guidance. Obiter - commentary that certain supplier errors (printing errors, inadvertent omissions) do not ipso facto disentitle an assessee to ITC is illustrative of the Court's view. Conclusions: The impugned order was flawed for not considering the Circular and for failing to evaluate whether supplier reporting errors could be remedied in accordance with the departmental guidance. Issue 4: Remedy, remand, interim deposit, and time-limits Legal framework: Where an appellate order is set aside for procedural or inadequate consideration, the Court may remit the matter for fresh adjudication subject to conditions (including deposit) to balance interim rights and revenue interest; courts may prescribe timelines to ensure expeditious disposal. Precedent Treatment: The Court exercised discretionary remedial powers consistent with principles of finality and fairness; no express displacement of any precedent was made. Interpretation and reasoning: Given that (a) the ex parte order failed to engage with records and Circular, but (b) the appellant had earlier defaulted in appearing, the Court directed conditional remand: deposit of a percentage of the disputed tax (in addition to amounts already paid) to enable re-hearing on merits. This balances the appellant's right to fresh adjudication and the revenue's interest, while incentivising prosecution of the appeal by the appellant. Ratio vs. Obiter: Ratio - remand with a reasonable conditional deposit and fixed timelines is an appropriate remedy where appellate determination is vitiated by failure to consider material records or departmental guidance but the appellant had available opportunities to be heard. Obiter - statements that appellate authority may consider merits afresh without being influenced by prima facie observations. Conclusions: The impugned order was set aside and remitted for fresh hearing; the appellant must deposit a prescribed percentage of the tax in dispute within a short period, failing which recovery may proceed; the Appellate Authority must hear afresh and dispose within a fixed time, and may re-examine merits without being bound by the Court's prima facie observations.