ITC Denial: Officer cannot reject detailed submission by merely stating that reply is unsatisfactory

Safe Fly Aviation Services Private Limited Vs Union Of India And Ors (Delhi High Court)

Introduction: In the case of Safe Fly Aviation Services Private Limited Vs Union Of India And Ors, the Delhi High Court (HC) recently issued a significant directive. The court addressed the denial of an excess Input Tax Credit (ITC) claim without providing adequate reasoning. This article delves into the details of the case, the court’s observations, and the implications of its directive.

Detailed Analysis: The crux of the matter lies in the order dated 30.12.2023, where the Delhi HC scrutinized the implications of the impugned Show Cause Notice issued on 23.09.2023. This notice proposed a substantial demand against Safe Fly Aviation Services Private Limited, totaling Rs. 2,92,00,768.00, under Section 73 of the Central Goods and Services Tax Act, 2017.

Safe Fly Aviation Services Private Limited, the petitioner, had responded to the notice with a detailed reply dated 20.10.2023. However, the court noted with concern that the subsequent order failed to adequately consider the petitioner’s submission. Despite the petitioner’s comprehensive response addressing various heads mentioned in the Show Cause Notice, the order labeled the reply as unsatisfactory in a cursory manner.

The court emphasized that the Proper Officer, tasked with assessing the reply, appeared to have dismissed it without due consideration. The lack of detailed reasoning in the order raised questions about the application of mind by the Proper Officer. Moreover, the court highlighted the absence of any opportunity granted to the petitioner to clarify or supplement their response, indicating procedural irregularities.

Consequently, the court set aside the impugned order and directed the matter to be remitted to the Proper Officer for re-adjudication. The directive included specific instructions for the Proper Officer to communicate any additional details or documents required from the petitioner. Upon receiving this information, the petitioner was to furnish the necessary explanation and documents, following which the Proper Officer would re-adjudicate the matter.

Importantly, the court clarified that its decision did not delve into the merits of the case but rather focused on procedural fairness. All rights and contentions of the parties involved remained reserved for future consideration.

Conclusion: The ruling of the Delhi High Court in the case of Safe Fly Aviation Services Private Limited Vs Union Of India And Ors underscores the importance of procedural integrity in tax adjudication. By directing re-adjudication due to the inadequacy of the initial order, the court reaffirmed the principles of natural justice and fair procedure. This case serves as a reminder of the judiciary’s role in upholding the rule of law and ensuring due process in administrative actions.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. Petitioner impugns order dated 30.12.2023, whereby the impugned Show Cause Notice dated 23.09.2023, proposing a demand of Rs.2,92,00,768.00 against the Petitioner has been disposed of and a demand including penalty has been raised against the Petitioner. The order has been passed under Section 73 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the Act).

2. Learned counsel for Petitioner submits that Petitioner had filed a detailed reply dated 20.10.2023, however, the impugned order dated 30.12.2023 does not take into consideration the reply submitted by the Petitioner and is a cryptic order.

3. Perusal of the Show Cause Notice shows that the Department has given separate headings i.e., under declaration of output tax; excess claim of ITC; ITC to be reversed on non-business transactions and exempt supplies; under declaration of ineligible ITC and ITC claimed from cancelled dealers, return defaulters and tax nonpayers. To the said Show Cause Notice, a detailed reply was furnished by the Petitioner giving disclosures under each of the heads.

4. The impugned order, however, after recording the narration, records that the reply uploaded by the tax payer is not satisfactory. It merely states “And whereas, a notice for personal hearing was also issued to the taxpayer along with notice DRC 01 to explain their reply/objections against proposed amount of tax and interest . And whereas, the taxpayer has filed his/her reply on the Portal on scrutiny of the documents along with supporting documents was/were not found satisfactory.” The Proper Officer has opined that the reply is not satisfactory.

5. The observation in the impugned order dated 30.12.2023 is not sustainable for the reasons that the reply dated 20.10.2023 filed by the Petitioner is a detailed reply. Proper Officer had to at least consider the reply on merits and then form an opinion. He merely held that the reply is not satisfactory which ex-facie shows that Proper Officer has not applied his mind to the reply submitted by the Petitioner.

6. Further, if the Proper Officer was of the view that if any further details were required, the same could have been specifically sought from the Petitioner. However, the record does not reflect that any such opportunity was given to the Petitioner to clarify its reply or furnish further documents/details.

7. In view of the above, the order cannot be sustained, and the matter is liable to be remitted to the Proper Officer for re-adjudication. Accordingly, the impugned order dated 30.12.2023 is set aside. The matter is remitted to the Proper Officer for re-adjudication.

8. As noticed hereinabove, the impugned order records the reply furnished by the Petitioner is not satisfactory. Proper Officer is directed to intimate to the Petitioner details/documents, as may be required to be furnished by the Petitioner. Pursuant to the intimation being given, Petitioner shall furnish the requisite explanation and documents. Thereafter, the Proper Officer shall re-adjudicate the show cause notice after giving an opportunity of personal hearing and shall pass a fresh speaking order in accordance with law within the period prescribed under Section 75(3) of the Act.

9. It is clarified that this Court has neither considered nor commented upon the merits of the contentions of either party. All rights and contentions of parties are reserved.

10. The challenge to Notification No. 9 of 2023 with regard to the initial extension of time is left open.

11. Petition is disposed of in the above terms.