2025 (1) TMI 1304 - HC - GST

Petitioner misclassified transitional ITC in TRAN-1; authorities must grant personal hearing, consider s.140(5) CGST evidence and pass reasoned order

HC found petitioner misclassified transitional ITC in TRAN-1 but held denial of personal hearing breached natural justice. Court directed authorities to ... Entitlement to claim the Transitional Input Tax Credit (ITC) under Section 140(5) of the Central Goods and Services Tax Act, 2017 (CGST Act) for service tax invoices received after June 30, 2017 - petitioner could not file the Form GST TRAN-1 due to technical glitch - denial of opportunity of personal hearing - violation of principles of natural justice - HELD THAT:- It is not in dispute that the petitioner has committed a mistake in for the carry forward of the Transitional Input Tax Credit in Form TRAN-1 as admitted by the petitioner by showing the carry forward of the Transitional Input Tax Credit of the Service Tax in column No. 5(a) and instead of Column No. 7(a), as the petitioner has failed to point out while filing the FORM TRAN- 1 that such claim was pertaining to the invoices received by the petitioner after 30th June, 2017 and as such the petitioner was required to fulfill the requirements of Sub- Section (5) of Section 140 of the CGST Act, 2017. On perusal of the provisions of Section 140 (5) of the CGST Act, it is for the petitioner to prove that the amount was received after 30th June, 2017 which has been duly recorded in the books of accounts within a period of 30 days from the date of receipt. Therefore, it is incumbent upon the respondent Nos. 2 and 3 to provide an opportunity to the petitioner, to show that the requirements of the Sub Section (5) of Section 140 of the CGST Act are fulfilled by the petitioner along with the requisite documents and the proof. The petitioner has been denied the opportunity of personal hearing by the respondent Nos. 2 and 3 and in such circumstances, there is a clear breach of the principle of natural justice. Conclusion - It is necessary for authorities to provide a personal hearing and issue a reasoned order when processing claims for Transitional ITC. Matter remanded to the respondent authorities to reconsider the petitioner's claim for Transitional ITC. Petition allowed by way of remand. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment were:Whether the petitioner was entitled to claim the Transitional Input Tax Credit (ITC) under Section 140(5) of the Central Goods and Services Tax Act, 2017 (CGST Act) for service tax invoices received after June 30, 2017.Whether the respondent authorities violated the principles of natural justice by not providing a personal hearing to the petitioner before rejecting the claim for Transitional ITC.Whether the procedural requirements under the relevant circulars issued by the Central Board of Indirect Taxes and Customs (CBIC) were followed by the respondent authorities.ISSUE-WISE DETAILED ANALYSISEntitlement to Transitional ITC under Section 140(5) of the CGST ActLegal Framework and Precedents: Section 140(5) of the CGST Act allows a registered person to claim credit for eligible duties and taxes on inputs or input services received after the appointed day, provided they are recorded in the books of account within 30 days.Court's Interpretation and Reasoning: The Court noted that the petitioner admitted to an error in filing the Form GST TRAN-1 by placing the carry forward of Transitional ITC in the wrong column. The petitioner argued that the invoices were received after June 30, 2017, and thus should be claimed under Section 140(5).Key Evidence and Findings: The petitioner submitted relevant documents, including service tax returns and invoices, to support the claim that the ITC was recorded within the prescribed period.Application of Law to Facts: The Court determined that it was necessary for the respondent authorities to verify whether the petitioner fulfilled the requirements of Section 140(5) by examining the submitted documents and providing an opportunity for explanation.Treatment of Competing Arguments: The respondents argued that the petitioner's claim was inadmissible due to the error in filing and the lapse of the deadline for amending Form GST TRAN-1. However, the Court emphasized the need for procedural fairness and the opportunity for the petitioner to correct the error.Conclusions: The Court found that the petitioner should be given an opportunity to prove compliance with Section 140(5) requirements.Violation of Principles of Natural JusticeLegal Framework and Precedents: Principles of natural justice require that parties be given a fair opportunity to present their case before a decision is made.Court's Interpretation and Reasoning: The Court observed that the petitioner was not granted a personal hearing, despite the procedural requirement to do so as per CBIC's Circular No. 182 of 2022.Key Evidence and Findings: The Court noted that the respondent authorities failed to issue a notice for a personal hearing, which was a procedural requirement.Application of Law to Facts: The lack of a personal hearing constituted a breach of the principles of natural justice, necessitating a reconsideration of the petitioner's claim.Treatment of Competing Arguments: The respondents contended that sufficient opportunities were provided. However, the Court found that the procedural lapse in not providing a personal hearing was significant.Conclusions: The Court concluded that the petitioner was denied a fair opportunity to present their case, warranting a remand of the matter.Compliance with CBIC CircularsLegal Framework and Precedents: CBIC Circulars provide procedural guidelines for processing claims related to Transitional ITC.Court's Interpretation and Reasoning: The Court referred to Circular No. 182 of 2022, which mandates a reasoned order post-personal hearing.Key Evidence and Findings: The Court found that the respondent authorities did not adhere to the procedural guidelines set forth in the circulars.Application of Law to Facts: The Court emphasized the importance of following procedural guidelines to ensure fairness and transparency in decision-making.Treatment of Competing Arguments: The respondents argued that the final remarks from the relevant authorities sufficed. However, the Court disagreed, highlighting the necessity for a personal hearing and a reasoned order.Conclusions: The Court determined that the procedural lapses necessitated a remand for compliance with the circulars.SIGNIFICANT HOLDINGSCore Principles Established: The judgment underscores the importance of adhering to procedural fairness and the principles of natural justice in administrative decision-making. It emphasizes the necessity for authorities to provide a personal hearing and issue a reasoned order when processing claims for Transitional ITC.Final Determinations on Each Issue: The Court quashed the impugned order dated February 27, 2023, and remanded the matter to the respondent authorities to reconsider the petitioner's claim for Transitional ITC. The authorities were directed to provide a personal hearing and assess the claim in accordance with Section 140(5) of the CGST Act and relevant CBIC circulars.