2026 (1) TMI 106 - HC - GST

GST registration cancellation and blocked ITC claims for 2017-21; writ denied for non-response, rectification u/s 161 allowed.

A registered person sought writ relief against cancellation of GST registration and consequential denial of ITC for FYs 2017-18 to 2020-21, including on ... Cancellation of GST registration of petitioner - entitlement to take Input Tax Credit (ITC) in respect of four financial years i.e., 2017-18, 2018-19, 2019-20 and 2020-21 - retrospective effect of the provision or not - HELD THAT:- No tax payer who receives an email from the Department can simply remain silent and not reply to the same and, thereafter, file a writ petition challenging the final order which has been passed that too in such a belated manner. In this case, the Petitioner did not file the reply to the SCN, did not attend any personal hearing and the impugned order was also passed on 8th April, 2024, but the challenge has been raised almost 18 months later. In the opinion of this court the Petitioner has been recalcitrant in the manner in which it has dealt with the SCN. The Department cannot be faulted under such circumstances and for passing the impugned order. In the opinion of this Court, this would be a proper course of action especially considering the fact that Section 16(5) of the CGST Act has been amended and the Petitioner may be entitled to some benefit under the said provision - the writ petition is disposed of permitting the Petitioner to file a rectification application under Section 161 of the CGST Act by 15th January 2026. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the Court should exercise writ jurisdiction to set aside a tax demand and penalty where the taxpayer did not respond to the show cause notice, did not attend personal hearing, and approached the Court after a substantial delay, while disputing service through an 'unauthorized' email. (ii) Whether, in the circumstances, the appropriate course is to permit recourse to rectification under Section 161 of the CGST Act so that the taxpayer's claim to benefit under the amended Section 16(5) of the CGST Act can be examined by the Department on merits with a reasoned order and personal hearing. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Maintainability/relief in writ in light of non-response to SCN, non-participation, and delay Legal framework: The Court proceeded under Articles 226 and 227, and considered the taxpayer's conduct in relation to the departmental show cause process and the belated challenge to the final adjudication order. Interpretation and reasoning: The Court noted that the taxpayer did not file any reply to the show cause notice, did not attend personal hearing, and challenged the adjudication order long after it was passed. The Court rejected the approach of remaining silent upon receipt of an email from the Department and later challenging the final order, particularly where the challenge was raised after a prolonged delay. On the facts, the Court found the taxpayer's conduct recalcitrant and held that the Department could not be faulted for proceeding to pass the impugned order in such circumstances. Conclusion: The Court did not set aside the demand and penalty in writ on the basis urged, and declined to fault the Department given the taxpayer's failure to respond/participate and the belated approach. Issue (ii): Whether to direct recourse to rectification under Section 161 to consider benefit under amended Section 16(5) CGST Act Legal framework: The Court considered the amendment to Section 16(5) of the CGST Act as relied upon by the taxpayer, and directed use of rectification proceedings under Section 161 of the CGST Act, including consideration of the third proviso to Section 161 as to passing a reasoned order. Interpretation and reasoning: While the Department asserted that a mechanism existed for availing ITC after the amendment and that the taxpayer did not use it, the Court considered that rectification would be a proper course because the amendment to Section 16(5) might confer some benefit on the taxpayer. The Court therefore opted to dispose of the writ by permitting a rectification application, requiring the taxpayer to set out in detail the benefit claimed under Section 16(5), mandating that the Department consider that claim and pass a reasoned order, and directing that a personal hearing be granted. The Court also protected the rectification application from rejection on limitation if filed by the stipulated date, and fixed a timeline for disposal. Conclusion: The petition was disposed of by permitting filing of a rectification application under Section 161 by a specified date; the Department was directed not to reject it on limitation if filed within that time, to decide it on merits with a reasoned order after personal hearing, and to pass the rectification order within two months; all further rights and remedies were left open.