GST assessment over GSTR-3B vs GSTR-2A mismatch and ineligible ITC remanded after 50% disputed tax deposit ordered

Where the assessee failed to respond to the SCN and the statutory appeal under s.107 of the GST enactments, 2017 was time-barred, the HC considered whether writ jurisdiction should nonetheless be exercised. Relying on prior orders in comparable situations, the HC held that the impugned assessment orders could be set aside and the matters remitted for fresh adjudication on protective terms, to balance revenue interests against denial of an effective appellate remedy. The HC directed the assessee to deposit 50% of the disputed tax (limited to mismatch in GSTR-3B vis-à-vis GSTR-2A and ineligible ITC) in cash from the electronic cash ledger within 30 days, and disposed of the writ petitions by quashing and remanding.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the Court should interfere in writ jurisdiction with GST demand orders passed after the assessee failed to reply to the show cause notices, despite the existence of an appellate remedy under Section 107 and the expiry of the statutory appeal limitation.

(ii) Whether, and on what conditions, the impugned GST demand orders should be quashed and the matter remitted to enable the assessee to file replies with documents and obtain a fresh order on merits.

(iii) Whether bank account attachment should be lifted, and the conditions governing such lifting pending fresh adjudication.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Writ interference despite alternate remedy and expired appeal limitation

Legal framework (as discussed): The Court considered the availability of an alternate appellate remedy under Section 107 of the GST enactments and noted that the limitation for filing such appeal against the impugned orders had already expired. The Court also took note of the respondents' objection that, since the assessee did not reply to the show cause notices, the orders were passed and the writ petitions should be dismissed.

Interpretation and reasoning: The Court found that the writ petitions were filed after the appeal limitation had expired, but relied on its approach in "similar circumstances" where orders had been quashed and matters remitted on terms, including deposit of a portion of disputed tax based on the length of delay in approaching the Court. The Court held there was no reason to adopt a different approach in the present case.

Conclusion: The Court chose to exercise writ jurisdiction to set aside the impugned orders and permit a fresh adjudication, notwithstanding the alternate remedy and the expiry of appeal limitation, but only on stringent conditions designed to protect the revenue.

Issue (ii): Conditional remand; quantum, mode, and timelines for deposit and reply

Legal framework (as discussed): The Court proceeded on the basis that demands were confirmed, inter alia, on account of mismatch between GSTR-3B and GSTR-2A and alleged ineligible input tax credit, and that the assessee had not responded to the DRC-01 show cause notices.

Interpretation and reasoning: The Court considered the request for "one opportunity" to explain the case afresh and the willingness to be put on reasonable terms. It adopted a conditional remand mechanism used in similar cases, requiring substantial pre-deposit to balance equity to the assessee with protection of revenue. The Court directed deposit of 50% of the disputed tax under each impugned order (restricted to the demand confirmed on mismatch and ineligible ITC). It further directed that the deposit be made in cash from the assessee's electronic cash register within 30 days from receipt of the Court's order. The assessee was required, within the same period, to file replies to the DRC-01 notices along with requisite supporting documents, treating the impugned orders as an addendum to the show cause notices.

Conclusion: The impugned orders were quashed and the matter remitted for fresh decision on merits, conditional upon timely deposit and filing of replies with documents. Upon compliance, the department was directed to pass a final order on merits in accordance with law, preferably within three months of such reply/pre-deposit.

Issue (iii): Lifting of bank attachment pending adjudication

Legal framework (as discussed): The Court addressed the continuation of bank account attachment in connection with recovery of the impugned demands.

Interpretation and reasoning: The Court linked the lifting of attachment to compliance with the ordered deposit and clarified that lifting would operate only if the assessee was not in arrears of any other amount apart from the amounts demanded under the impugned orders.

Conclusion: Subject to compliance with the stipulated deposit (50% as ordered) and absence of other arrears, the bank attachment would stand automatically vacated. If the assessee failed to comply with any stipulation, the department was permitted to proceed with recovery as if the writ petitions had been dismissed in limine, after giving due notice before taking such action.

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