Tax Authority Must Reconsider Input Tax Credit Claims After Procedural Flaws in Show Cause Notice Invalidate Ex-Parte Demand Order

HC found the Show Cause Notice defective due to inadequate consideration of the petitioner's reply regarding Input Tax Credit claims. The court set aside the ex-parte demand order and directed the tax authority to re-evaluate the case, provide specific document requirements, conduct a personal hearing, and issue a fresh reasoned order with proper assessment of the petitioner's submissions.

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Issues involved:
The judgment involves the disposal of an impugned Show Cause Notice dated 23.09.2023, proposing a demand against the petitioner under Section 73 of the Central Goods and Services Tax Act, 2017.

Detailed Summary:

Issue 1: Consideration of Petitioner's Reply
The petitioner challenged the order dated 28.12.2023, claiming that their detailed reply to the Show Cause Notice was not considered adequately. The Department had categorized the issues under different headings such as excess claim Input Tax Credit, under declaration of ineligible ITC, and ITC claim from canceled dealers, return defaulters, and tax non-payers. Despite the petitioner providing full disclosures under each heading, the impugned order dismissed the reply as unsatisfactory without proper consideration.

Issue 2: Lack of Proper Assessment
The impugned order concluded that the petitioner's reply was unsatisfactory without providing specific reasons or seeking further clarification. The court noted that the Proper Officer did not assess the reply on its merits and failed to request additional details if deemed necessary. This lack of proper assessment led to the decision to create a demand ex-parte, which was deemed unjustified.

Issue 3: Remittal for Re-adjudication
Due to the deficiencies in the assessment process, the court set aside the impugned order and remitted the matter to the Proper Officer for re-adjudication. The Proper Officer was directed to communicate the specific details/documents required from the petitioner, who would then have the opportunity to provide explanations and documents. The re-adjudication process was to include a personal hearing and the issuance of a fresh speaking order in accordance with the law.

Additional Notes:
The judgment clarified that the court did not delve into the merits of the parties' contentions and reserved all rights and contentions. Furthermore, the challenge to Notification No. 9 of 2023 regarding the initial extension of time was left open. Ultimately, the petition was disposed of in the terms outlined above.

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