Case Law Details
Tanveer S/o Gulamhusain Gavandi Vs State of Karnataka (Karnataka High Court)
In Tanveer vs State of Karnataka, the Karnataka High Court examined a challenge to an order dated 18.08.2023 passed under Section 73(9) of the KGST Act, 2017 for the financial year 2017–18, wherein tax, interest, and penalty were determined. The petitioner also sought protection from coercive recovery.
The petitioner, a registered dealer engaged in iron and steel business, was subjected to scrutiny under Section 61. Notices were issued in Form ASMT-10 highlighting discrepancies between GSTR-3B, GSTR-1, and GSTR-2A. This was followed by pre-intimation in Form DRC-01A, a show cause notice under Section 73(1), and ultimately the impugned order confirming liability. The demand was based on differences in outward supplies, alleged ITC mismatch, and consequential interest and penalty.
The petitioner contended that the order was mechanical and failed to consider reconciliation statements. It was argued that ITC cannot be denied solely on GSTR-2A mismatch and that no effective personal hearing was granted as required under Section 75(4). The discrepancies were attributed to bona fide reporting errors during the initial GST implementation phase. Reliance was placed on Circular No.183/15/22-GST permitting reconciliation.
The respondents opposed the petition, citing availability of an alternative appellate remedy under Section 107 and asserting that adequate opportunity had been given. They maintained that the petitioner failed to respond to notices and that the order was based on verification of returns and records.
The Court observed that the existence of an alternative remedy does not bar writ jurisdiction where there is violation of natural justice, mechanical adjudication, or procedural lapses. It found that the impugned order was largely based on portal mismatches, lacked detailed discussion of reconciliation documents, and did not clearly demonstrate compliance with the requirement of personal hearing. The reasoning was primarily tabular and computational without independent analysis.
The Court held that denial of ITC solely on GSTR-2A mismatch without verifying supporting records such as purchase registers, invoices, supply status, and reconciliation statements defeats the scheme of GST. Adjudication under Section 73 must involve fair consideration of representations and cannot be mechanical.
Accordingly, the Court set aside the impugned order and remitted the matter for fresh adjudication. The petitioner was permitted to submit reconciliation statements, books of accounts, and pay admitted liabilities. The authority was directed to provide a personal hearing, consider reconciliation in light of the relevant circular, and pass a reasoned order. No coercive steps were to be taken until such reconsideration.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The petitioner has approached this Court seeking to quash the order dated 18.08.2023 passed by respondent No.2 under Section 73 (9) of the Karnataka Goods and Services Tax Act KGST Act, 2017 (‘Act’ for short) for the financial year 2017-18, whereby, tax, interest and penalty has been determined and confirmed and further seeks for consequential protection from coercive recovery proceedings.
Brief facts:
2. The petitioner is a registered dealer under the CGST/KGST Act engaged in the business of Iron and Steel. For the financial year 2017-18, scrutiny proceedings were initiated under Section 61 of the Act. A notice in Form ASMT-10 dated 22.08.2022 was issued pointing out discrepancies between GSTR-3B, GSTR-1 and GSTR-2A. Thereafter, pre-intimation in Form DRC-01A was issued, and show cause notice issued under Section 73(1) and ultimately Order under Section 73(9) dated 18.08.2023 was passed confirming liability at Annexure-D.
3. The demand is primarily based on difference in outward supplies, alleged ITC mismatch between GSTR-3B and GSTR-2A and interest and penalty under Section 73 (9) of the Act.
4. Learned counsel for the petitioner submits that the impugned order is mechanical, without proper consideration of reconciliation statement. It is submitted that the ITC cannot be denied solely on mismatch between GSTR-3B and GSTR-2A. It is contended that the petitioner was not afforded an effective personal hearing as required under Section 75 (4) of the Central Goods and Services Tax Act, 2017 (‘CGST Act’ for short). The discrepancy occurred due to the initial implementation phase of GST and was a bona fide reporting error. It is submitted that the petitioner is willing to pay the admitted outward difference. The Circular No.183/15/22-GST permits reconciliation of ITC mismatch which has not been considered.
5. Per contra, learned counsel appearing for the respondent submits that the writ petition is not maintainable due to statutory appeal remedy under Section 107 of the CGST Act. Adequate opportunity was granted at all stages. The petitioner did not respond to the notices and liability was computed based on verification of the returns and statutory records and the order under Section 73(9) is legal and proper.
6. This Court has carefully considered the rival submissions and perused the material on record. The point that arises for consideration is:
“Whether the writ petition is maintainable in view of the alternative remedy under Section 107 of the CGST Act and whether the impugned order under Section 73(9) of the Act reflects proper consideration of reconciliation and opportunity?”
7. It is settled law that existence of alternative remedy does not bar exercise of writ jurisdiction where i) principles of natural justice are violated, ii) order is passed mechanically, iii) jurisdictional error is apparent, and iv) foundational procedural safeguards are ignored. Though Section 107 provides an alternative remedy, this Court finds from the impugned order at Annexure-D that the dispute relates to reconciliation of ITC during the initial GST implementation year. The impugned order is largely based on a portal mismatch and that there is no detailed discussion of reconciliation documents and the reasoning portion is primarily tabular and computational. No personal hearing compliance under Section 75(4) is clearly demonstrated.
8. Section 73 applies to non-fraud cases. Penalty under Section 73(9) is consequential upon determination. The object of Section 73(1) provides for issuance of show cause notice where tax is not paid/short paid or ITC wrongly availed other than by fraud or suppression. Section 73 (9) describes that after considering the representation, the proper officer shall determine tax, interest and imposed penalty of 10% of the tax or ₹10,000/- whichever is higher. The object of Section 73 is to ensure fair adjudication after giving an opportunity to the assessee.
9. It is not intended to operate mechanically on auto-generated mismatched data. The denial of ITC solely on GSTR-2A mismatch without verifying supplies compliance and book of accounts would defeat the scheme of GST. The adjudication must be based on independent examination i) purchase register, ii) tax invoices, iii) supply status, iv) reconciliation statements. The impugned order does not reflect any such exercise.
10. Thus, the matter requires fresh reconsideration. Accordingly, the point framed for consideration is answered and this Court pass the following:
ORDER
i. The writ petition is allowed in part.
ii. The impugned order dated 18.08.2023 (Annexure-D) is hereby set aside.
iii. The matter is remitted back to respondent No.2 for fresh adjudication.
iv. The petitioner is at liberty to file reconciliation statement, produce book of accounts, pay admitted outward difference.
v. The authority shall after affording a personal hearing, consider the reconciliation under Circular No.183/15/22-GST and pass reasoned order in accordance with law with Section 73 of the CGST Act.
vi. Till such consideration, no coercive step shall be taken.
vii. All contentions are kept open.
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