Case Law Details
Orient Electricals and Engineers India P. Ltd. Vs Assistant Commissioner (ST) (Madras High Court)
In a significant ruling, the Madras High Court has remanded the case of Orient Electricals and Engineers India P. Ltd. versus the Assistant Commissioner (ST) for reconsideration. The case revolves around the reversal of Input Tax Credit (ITC) based on credit notes and the procedural fairness extended to the petitioner.
Background of the Case: On August 23, 2023, an order was issued against Orient Electricals and Engineers India P. Ltd., demanding the reversal of ITC to the extent of credit notes issued by the company’s suppliers. The petitioner contested this order on the grounds of not having had a fair chance to present their case, as they were unaware of the show cause notice dated June 27, 2023, which called for the ITC reversal.
Petitioner’s Arguments: The petitioner argued that they were not informed of the show cause notice, which led to their inability to respond in a timely manner. The situation came to their attention only when their banker informed them about a notice of attachment from the Commercial Tax Department for tax recovery. Subsequently, the petitioner appealed to the first appellate authority, making a pre-deposit of 12.5% of the tax demand. However, the appeal was dismissed on grounds of limitation, prompting the filing of the present writ petition. The petitioner’s counsel argued that the suppliers issued credit notes to cancel the initial invoices and that the petitioner did not claim ITC for the value of these credit notes. They contended that, if given an opportunity, they could prove that only eligible ITC was claimed.
Respondent’s Position: The learned Government Advocate, representing the respondent, acknowledged the receipt of the show cause notice and asserted that the petitioner was given a personal hearing before the impugned order was passed. The impugned order was based on the credit notes reflected in the auto-populated GSTR 2A.
Court’s Observation and Decision: The Madras High Court, upon examining the case, noted that the petitioner claimed not to have availed ITC for the value of the credit notes and was unaware of the show cause notice. The Court recognized the need for procedural fairness and decided that the petitioner should be given an opportunity to contest the tax demand on merits. Consequently, the impugned order was set aside, and the matter was remanded for reconsideration. The Court directed the petitioner to submit a reply to the show cause notice within fifteen days from the date of the order. The respondent was instructed to provide a reasonable opportunity for the petitioner, including a personal hearing, and to issue a fresh order within three months of receiving the petitioner’s reply. Additionally, the Court clarified that the petitioner’s pre-deposit of 12.5% of the disputed tax demand would be subject to the outcome of the remanded proceedings. The bank attachment was also lifted in light of the assessment order being set aside.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
An order in original dated 23.08.2023 is challenged in this writ petition on the ground that the petitioner did not have a reasonable opportunity to contest the tax demand on merits. A show cause notice dated 27.06.2023 was issued to the petitioner calling upon the petitioner to show cause as to why Input Tax Credit should not be reversed to the extent of credit notes issued by the petitioner’s suppliers. Since the petitioner was unaware of the show cause notice, the petitioner could not reply thereto. Eventually, the petitioner was informed by its banker that an attachment notice was received from commercial Tax Department for recovery of tax. Thereafter, the oner filed an appeal before the first appellate authority. While filing such appeal, the petitioner made a pre deposit of 12.5% of the tax demand. Since such appeal was not entertained on the ground of limitation, the present writ petition was filed.
2. Learned counsel for the petitioner submits that the supplier had issued these invoices and thereafter issued credit notes so as to cancel such invoices. He further submits that the petitioner did not avail of Input Tax Credit for the value of these credit notes. If provided an opportunity, learned counsel submits that the petitioner would be in a position to establish that only eligible Input Tax Credit was availed.
3. Mr. V. Prasanth Kiran, learned Government Advocate, accepts notice for the respondent. He points out that the impugned order was preceded by a notice in Form ASMT 10 dated 17.05.2023, a show cause notice dated 27.06.2023 and by offering a personal hearing to
the petitioner.
4. On examining the impugned order, it is evident that the tax proposal relates to the credit notes reflected in the auto populated GSTR 2A. Learned counsel for the petitioner submits that Input Tax Credit was not availed of for the value of such credit notes. By taking the said submission into account and the assertion that the petitioner did not participate in proceedings on account of not being aware of the same, the interest of justice warrants that the petitioner be provided an opportunity to contest the tax demand on merits. In this connection, it should be noticed that the petitioner remitted 12.5% of the disputed tax demand while filing the appeal.
5. For reasons set out above, impugned order dated 23.08.2023 is set aside and the matter is remanded for re-consideration. The petitioner is permitted to submit a reply to the show cause notice within fifteen days from the date of receipt of a copy of this order. Upon receipt thereof, the respondent is directed to provide a reasonable opportunity to the petitioner, including a personal hearing, and thereafter issue a fresh order within three months from the date of receipt of the petitioner’s reply. For the avoidance of doubt, it is made clear the petitioner’s remittance of 12.5% of the disputed tax demand shall abide by the outcome of the remanded proceedings. In view of the assessment order being set aside, the bank attachment is raised.
6. W.P.No.15515 of 2024 is disposed of on the above terms. No costs. Consequently, W.M.P.Nos.16867 and 16869 of 2024 are closed.
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