2024 (9) TMI 827 - HC - GST

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

FIS Payment Solutions and Services India Pvt. Ltd. Versus Union of India Through Its Secretary and Ors.

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 ... Recovery of inadmissible input tax credit with interest and penalty - Respondent No. 3 has relied upon some Verification Report which was not referred to in the show cause notice and which was not even furnished to petitioner - violation of principles of natural justice - HELD THAT:- Once it is admitted that the Verification Report formed the basis of passing the impugned order, the petitioner ought to have been given an opportunity to respond and controvert the same. The failure on the part of Respondent No. 3 in sharing such vital document tantamounts to gross violation of principles of natural justice. In fact, if only the Verification Report was made available to petitioner, perhaps petitioner would have been able to correlate invoice to invoice or make further submissions by providing further documents and explanation. The Verification Reports which were available before the show cause notice was issued ought to have been released alongwith the show cause notice so that petitioner would have been able to effectively deal with the allegations in the show cause notice and if the report has been prepared after issuance of the show cause notice, then certainly before passing the impugned order Respondent No. 3 was duty bound to make available the same alongwith either supplementary show cause notice or a query memo. Respondent having failed to do so, in our view, the impugned order dated 30th April 2024 cannot be sustained. The same is hereby quashed and set aside. Petition disposed off. 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.