GST orders denying input tax credit and transitional credit quashed for violating natural justice principles

The HC quashed GST orders denying input tax credit and transitional credit to the petitioner, finding violation of natural justice principles. The department failed to issue show cause notice and denied the petitioner's right to cross-examine officers who had taken possession of the factory under SARFAESI Act. The court held that denial of transitional credit could only be justified if the petitioner lacked unutilized credit as of June 30, 2017, which could be verified from VAT returns. The matter was remanded to the department to pass fresh orders within six months after providing proper hearing opportunity and allowing cross-examination of relevant officers.

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Issues Involved:
1. Quashing of Impugned Orders for Assessment Years 2017-2018 & 2018-2019.
2. Compliance with procedural requirements under TNGST and CGST Acts.
3. Denial of Input Tax Credit (ITC) and Transitional Credit.
4. Cross-examination of officers and principles of natural justice.

Summary:

Issue 1: Quashing of Impugned Orders for Assessment Years 2017-2018 & 2018-2019
The petitioner filed W.P. No. 11637 of 2020 to quash the Impugned Orders dated 05.05.2020 for the Assessment Years 2017-2018 & 2018-2019. The Court allowed the petitioner to file a separate writ petition for the Assessment Year 2018-19, leading to W.P. No. 27562 of 2023.

Issue 2: Compliance with procedural requirements under TNGST and CGST Acts
The Impugned Orders followed a Show Cause Notice dated 20.11.2019 under Section 74(1) of the CGST Act, 2017, and TNGST Act, 2017, proposing to reject the entire Input Tax Credit due to the absence of relevant documents. The petitioner challenged the invocation of Section 74(1) of the TNGST Act, arguing that similar provisions under the CGST Act were not invoked, but this objection was overruled as the provisions are pari materia.

Issue 3: Denial of Input Tax Credit (ITC) and Transitional Credit
The Show Cause Notice calculated interest at 24% on the ITC availed without supporting documents and proposed a 100% penalty. The petitioner argued that the business premises were under lock and seal by the second respondent, hindering proper response. The Court noted that denial of transitional credit could only be justified if the petitioner did not have unutilized credit as of 30.06.2017, which could be verified from legacy records.

Issue 4: Cross-examination of officers and principles of natural justice
The petitioner requested to cross-examine the officers who took possession of the factory, but this was denied, violating principles of natural justice. The Court held that the petitioner should have been allowed to cross-examine the officers to establish the validity of the ITC. The Court quashed the impugned orders on this ground and remitted the case back to the first respondent to pass fresh orders after allowing cross-examination and verifying electronic records.

Conclusion:
The Court quashed the impugned orders and remitted the case back to the first respondent to pass fresh orders on merits within six months, allowing the petitioner to cross-examine the concerned officers and verify electronic records. The petitioner was directed to cooperate with the respondents, failing which appropriate orders would be passed based on available records. The writ petitions were allowed by way of remand with no costs.

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