Procedural Flaw Invalidates Tax Credit Recovery Order, Mandates Fair Hearing and Document Sharing for Proper Legal Process

HC of Bombay quashed an order for recovery of input tax credit due to violation of natural justice. The court found that the respondent failed to provide crucial Verification Reports to the petitioner before issuing a show cause notice. The order was set aside, with directions for the respondent to share documents and provide a fresh hearing, without examining the case merits.

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Issues: Impugning order for recovery of inadmissible input tax credit, Violation of principles of natural justice by not providing Verification Report, Failure to share vital document, Quashing and setting aside the impugned order, Directions for providing Verification Reports, Respondent's duty to make documents available, Petition disposed without going into merits.

The judgment by the High Court of Bombay involved the impugning of an order for the recovery of inadmissible input tax credit under the Central Goods and Service Tax Act, 2017. The petitioner challenged the order passed by Respondent No. 3, which demanded the recovery of a substantial amount along with interest and penalty. One of the key grounds raised in the petition was the failure to provide a Verification Report, which was the basis of the impugned order, to the petitioner. The petitioner argued that this non-furnishing of a crucial document violated the principles of natural justice and indicated a premeditated mindset on the part of Respondent No. 3.

In response, the affidavit filed by the Respondent stated that the reconciliation report formed the basis of the order and that providing a copy of the report was unnecessary. However, the Court disagreed with this stance, emphasizing that the Verification Report should have been shared with the petitioner to allow for a proper response and rebuttal. The Court highlighted that the failure to provide such a vital document amounted to a gross violation of principles of natural justice. The Court noted that had the Verification Report been made available, the petitioner could have effectively addressed the allegations and provided further documents and explanations.

Furthermore, the Court pointed out discrepancies in the dates of the Verification Reports referenced in the impugned order, indicating that these reports should have been shared with the petitioner before the issuance of the show cause notice. The Court held that the failure to provide these reports either before passing the order or along with a supplementary notice was a breach of duty on the part of Respondent No. 3. Consequently, the Court quashed and set aside the impugned order dated 30th April 2024.

As part of the judgment, the Court directed Respondent No. 3 to make all Verification Reports available to the petitioner by a specified date and allowed the petitioner to respond with further submissions. The Respondent was instructed to pass a new order after giving the petitioner a personal hearing. The Court clarified that it did not delve into the merits of the case and kept all other grounds open for future consideration. Ultimately, the petition was disposed of with all rights and contentions being kept open for further proceedings.

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