2024 (7) TMI 407 - HC - GST

Tax Credit Dispute: Insufficient Show Cause Notice Invalidates Demand, Requires Detailed Explanation and Fair Hearing

M/s. Alpha City Chennai IT Park Projects Private Limited Versus State Tax Officer, Chennai

HC ruled that the show cause notice for denying transitional tax credit was insufficient. The court directed the tax authority to provide clear reasons ... Denial of transitional credit - absence of necessary particulars in the SCN - violation of principles of natural justice - HELD THAT:- It is unclear as to the reason for issuing such show cause notice with regard to the allegedly ineligible ITC of about Rs.14,05,211/-. The impugned order confirms the tax demand primarily because the petitioner did not submit documents or appear for a personal hearing. In effect, it appears that the petitioner's reply dated 07.11.2023 was not taken into account probably because such reply was submitted manually and not uploaded in the portal. In these circumstances, it is just and necessary to provide the petitioner an opportunity to contest the tax demand. The impugned order shall be treated as a show cause notice. The respondent is directed to issue a supplement setting out the reasons for denying transitional credit to the petitioner. Such supplement shall be issued within a maximum period of two weeks from the date of receipt of a copy of this order - Petition disposed off. Issues: Challenge to order dated 27.12.2023 regarding denial of transitional credit of Rs.14,05,211/- without clear reasons in the show cause notice.In this case, the petitioner, a construction company, received a show cause notice dated 25.09.2023 regarding the denial of transitional credit. The petitioner requested additional time to reply and later responded on 07.11.2023, stating that the notice lacked clarity on why the transitional credit was denied. The petitioner also mentioned that the TRAN 1 data was previously verified and found to be correct. The impugned order confirming the tax demand was issued without considering the petitioner's reply and rectification petition filed later. The petitioner argued that the show cause notice did not provide necessary particulars for challenging the denial of credit.The learned counsel for the petitioner highlighted the lack of clarity in the show cause notice regarding the reasons for denying the transitional credit of Rs.14,05,211/-. The respondent, represented by the Additional Government Pleader, acknowledged the rectification petition filed by the petitioner and assured that it would be reviewed as per the law. The tax demand was confirmed based on the verification of the TRAN 1 return, as stated by the respondent.Upon examination, the court found that the show cause notice did not clearly specify the reasons for calling upon the petitioner to show cause regarding the ineligible input tax credit. The impugned order upheld the tax demand mainly due to the petitioner's failure to submit documents or attend a personal hearing. It was noted that the petitioner's reply dated 07.11.2023 might not have been considered because it was manually submitted and not uploaded on the portal. Consequently, the court deemed it necessary to grant the petitioner an opportunity to contest the tax demand.Considering the lack of necessary particulars in the show cause notice, the court treated the impugned order as the show cause notice and issued specific directions. The respondent was directed to provide a supplement within two weeks, explaining the reasons for denying transitional credit. The petitioner was given two weeks to respond, followed by a reasonable opportunity, including a personal hearing, before the respondent issued a fresh order within two months from the petitioner's reply. The case was disposed of with these directives, and connected miscellaneous petitions were closed without costs.