GST input tax credit irregularity, belated GST interest, and late GSTR-9 fee dispute remanded for fresh merits review after 50% deposit.

The dominant issue was whether the GST demand order alleging excess/irregular ITC availment, non-payment of interest on belated GST payment, and late fee for delayed GSTR-9 filing required reconsideration on merits consistent with natural justice. The HC held that the assessee must be afforded an effective opportunity to reply with supporting documents by treating the impugned order as an addendum to the earlier show cause notice, and therefore remitted the matter for a fresh order on the surviving issues. The remand was made conditional upon the assessee depositing 50% of the disputed tax (for the specified head) in cash and filing a comprehensive reply within 30 days, failing which the benefit would not enure. Upon compliance, bank attachment stood automatically vacated.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the demand confirmed on the ground of "irregular availment of ITC in terms of Section 16(4)" for FY 2019-20 remained sustainable in view of the subsequent statutory insertion of Section 16(5) with retrospective effect.

(ii) Whether, for the remaining confirmed issues (GSTR-3B vs GSTR-2A mismatch and interest for belated payment/late filing), the matter should be remitted for fresh adjudication on merits when no reply to the show cause notice had been filed, and if so, on what conditions (including pre-deposit) and consequential relief regarding bank attachment.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Sustainability of demand based on Section 16(4) in view of insertion of Section 16(5) with retrospective effect

Legal framework (as discussed by the Court): The Court noted a "statutory intervention" by insertion of Section 16(5) to the relevant GST enactments by Finance (No.2) Act, 2024, with retrospective effect from 01.07.2017.

Interpretation and reasoning: The Court treated the retrospective insertion as settling the controversy in favour of the taxpayer to the extent of the demand confirmed under the head "Irregular availment of ITC in terms of Section 16(4)." On that basis, the Court formed a prima facie view that the confirmed demand under this head was not sustainable.

Conclusion: The Court concluded that, to the extent of the amount confirmed under the Section 16(4) issue, the impugned confirmation was prima facie unsustainable due to the retrospective statutory change, and the matter required reconsideration consistent with that intervention.

Issue (ii): Remand on surviving issues; conditions for remand; filing reply and treatment of impugned order; bank attachment relief

Legal framework (as discussed by the Court): The Court proceeded on the basis that adjudication arose from a show cause notice in GST DRC-01 and that a final order must be passed "on merits and in accordance with law," after "due notice."

Interpretation and reasoning: For the mismatch between GSTR-3B and GSTR-2A and for interest relating to belated payment/late filing, the Court relied on the admitted fact that no reply had been filed to the show cause notice. Considering this and the need for adjudication on merits, the Court held remand appropriate, but balanced it by directing a pre-deposit condition limited to 50% of the disputed tax pertaining to the mismatch issue. The Court also directed that, within the same time, the taxpayer must file a reply with documents, and specifically ordered that the impugned order be treated as an addendum to the original show cause notice for the purpose of response and reconsideration. The Court further linked automatic vacation of bank attachment to compliance with the pre-deposit and clarified that attachment would be lifted only if there were no other arrears apart from the impugned demand. Non-compliance would permit recovery proceedings as if the writ had been dismissed at admission, subject to prior notice.

Conclusion: The Court remitted the matter for a fresh order on merits on the surviving issues, subject to (a) deposit of 50% of the disputed tax relating to the mismatch issue in cash from the electronic cash register within 30 days, and (b) filing of a reply to the show cause notice with supporting documents within that time, treating the impugned order as an addendum to the show cause notice. Upon compliance, the authority was directed to pass a final order preferably within three months, and the bank attachment would stand automatically vacated, subject to the deposit and absence of other arrears; failure to comply would allow recovery action after due notice.

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