2026 (1) TMI 1273 - HC - GST

Reversal of Input Tax Credit: SCN specificity required under Section 75(7); adjudication set aside, fresh proceedings permitted.

Adjudication reversed where the authority imposed reversal of input tax credit on a product not specified as exempt in the show-cause notice; the notice ... Reversal of Input Tax Credit in proportion to exempt supply - Requirement of specificity in show-cause notice - Compliance with Section 75(7) - Principles of audi alteram partem in adjudication - Judicial review of adjudication orders by High Court - Exclusion of period in computation of limitation for issuing SCN - HELD THAT:- The adjudication order impugned has in the process practically held that the product that was (is) dealt in by the petitioner does not fall under the exempted category and held the petitioner liable for reversal of ITC on that ground. This aspect was clearly not in issue insofar as the notice to show cause is concerned. If it was indeed an issue, a notice to show cause clearly indicating that point ought to have been issued to the petitioners. It is now well-settled that a notice to show cause should clearly specify all the charges/grounds that the noticee is required to meet and answer. It is this very idea which has been encapsulated in the provisions of Section 75(7) of the said Act of 2017. Since the adjudication order has proceeded on a basis absolutely different than the one indicated in the notice to show cause, the same falls foul of the provisions of Section 75(7) of the said Act of 2017. Accordingly, the order impugned stands set aside. Judicial review of adjudication orders by High Court - Although the adjudication order was set aside for procedural infirmity, the respondents were not precluded from initiating fresh proceedings in accordance with law. Consistent with an earlier coordinate order in the petitioners' own case, the court directed that the period from the date of the impugned order until the disposal of the writ petition, or until receipt of certified copy, shall be excluded in computing limitation for any fresh proceedings founded on the observations made in the impugned order. It is held that the period from the date of the order impugned i.e. from February 24, 2025 till the date of disposal of the writ petition i.e. January 21, 2026, or the date of receipt of certified copy of this order, whichever is later shall stand excluded while computing the period of limitation for initiation of any proceeding against the petitioners on the basis of the observations made in the impugned adjudication order. With the aforesaid observations, WPA stands disposed of. Issues: Whether the adjudication order dated February 24, 2025, which held that the goods dealt in by the petitioners were not exempt and directed reversal of ITC, is vitiated for non-compliance with Section 75(7) of the Central Goods and Services Tax Act, 2017 by deciding a ground not raised in the show-cause notice.Analysis: The show-cause notice framed the discrepancy as 'ITC found reversible in proportion to exempt supply, if any' and required documentary reconciliation of exempted inward and outward supplies. The adjudication order proceeded to determine that the product did not qualify as exempt supply although that specific factual/legal question was not put to the petitioners in the notice. Section 75(7) mandates that grounds of adjudication must be those which the noticee was required to meet; a determination on a new ground without prior notice deprives the noticee of an opportunity to answer. The adjudication therefore proceeded on a basis materially different from the notice and failed to afford the petitioners the required opportunity to meet the specific charge which formed the basis of the adverse finding. The Court excluded the period from the date of the impugned order to the date of disposal from computation of limitation for any fresh proceedings and permitted initiation of fresh proceedings in accordance with law.Conclusion: The adjudication order dated February 24, 2025 is set aside for non-compliance with Section 75(7) of the Central Goods and Services Tax Act, 2017; respondents are free to initiate fresh proceedings in accordance with law and the period from February 24, 2025 until disposal of the writ or receipt of certified copy is excluded for limitation purposes.