2023 (9) TMI 1357 - HC - GST

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

M/s. Makhan Lal Sarkar And Anr. Versus The Assistant Commissioner Of Revenue, State Tax B.I. And Ors.

Calcutta HC set aside an order rejecting Input Tax Credit due to procedural violations and inadequate consideration of documentary evidence. Despite ... Rejection of benefit of Input Tax Credit (ITC) - petitioner assails the impugned order primarily on the ground that the same has been passed in violation of the principles of natural justice - an inadvertent error of one of the suppliers in not mentioning the GSTIN number of the petitioner in the invoice - Mismatch of credit in Form GSTR-3B and the same was not reflected in FORM GSTR-2A. - HELD THAT:- Notice of personal hearing of the appeal was issued several times, but petition failed to appeal before the appellate authorities - Being left with no option, the respondent no.2 [Commissioner (Appeals)] proceeded to dispose of the appeal ex parte on the basis of the available records. One of the facets of the principle of natural justice is the concept of audi alteram partem or the rule of fair hearing. There can be no precise definition or strait-jacket formula which is to be followed in all cases. Notice of hearing is regarded as the minimum obligatory condition in such cases. The underlying principle which is to be followed in such cases is one of fairness. The petitioner had been given notice of personal hearing and repeated opportunities i.e. on 11 August, 2022, 1 September, 2022, 19 October, 2022 and 9 November, 2022 respectively. However, the petitioner chose not to appear leaving the respondent no.2 with no other option but to pass an ex parte order. The reconciliation process which the respondent no.2 has failed to do on the grounds of documentary evidence not being available is prima facie not tenable. Any mismatch ought to have been attempted to be ascertained from the records of the respondent authorities and their online portal. Moreover, the respondent authorities have not even adverted to the Circular dated 27 December, 2022 which inter alia clarify the approach to be followed by the Department in cases where the supplier had wrongly reported the said supply as B2C instead of B2B in FORM GSTR-1 due to which the relevant supply was not get reflected. Similarly, the declaration of the wrong GSTIN of the recipient in the FORM GSTR-1 ought to have been dealt with in terms of the said Circular. There is also absence of reasons in the impugned order in rejecting the contentions raised by the appellant. The impugned order is unsustainable and set aside - appellant is directed to deposit twenty (20) per cent of the tax in dispute in addition to the amount paid under sub-section (6) of section 107 of the Act. Upon such payment being made within 7 days from the date of passing of this order - Matter restored back for fresh adjudication. 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.