Discrepancies in ITC Claims and Non-Reversal of ITC for Credit Notes: Madras HC allows re-adjudication on pre-deposit [Read Order]

The Madras High Court, in a recent ruling, allowed re-adjudication on discrepancies in input tax credit ( ITC ) claims and non-reversal of ITC for credit notes, subject to a pre-deposit of 25%.

In this case, the petitioner, M/s. Ashwa Air Technologies, has challenged the order passed by the State Tax Officer, stating that it was passed violating the principles of natural justice.

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The petitioner, a manufacturer of machinery components, had filed its returns for the period 2020-21, and a surprise inspection was conducted at the petitioner's place of business on 05-04-2023. The department noted discrepancies in ITC claims and non-reversal of ITC for credit notes. Despite receiving an intimation in Form DRC-01 on 07-02-2024 and a reminder on 07-03-2024, the petitioner did not respond.

The petitioner’s counsel contended that the assessment order was uploaded on the GST portal without proper service, due to which the petitioner was unaware of the proceedings and was unable to participate in the adjudication proceedings

The counsel on behalf of the assessee submitted that if the petitioner was provided with an opportunity, the petitioner wanted to explain the alleged discrepancies. The counsel also sought the withdrawal of garnishee proceedings initiated post-assessment.

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The petitioner’s counsel also relied on the judgements of the High Court in the case of  M/s.K. Balakrishnan, Balu Cables vs. O/o. the Assistant Commissioner of GST & Central Excise in W.P.(MD)No.11924, in which the court remanded the matter back in similar circumstances, subject to payment of 25% of the disputed taxes.

The counsel submitted that the petitioner is willing to pay 25% of the disputed tax and that he may be given a final chance to explain the alleged discrepancies.

The High Court bench, comprising Mohammed Shaffiq, set aside the impugned order on the condition that the petitioner deposit 25% of the disputed tax within four weeks. The bench noted that upon compliance, the order will be treated as a show cause notice, and the petitioner must file objections with supporting documents within four weeks.

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The bench directed the department to consider the objections and pass a fresh order after granting a hearing, and if the deposit or objections are not filed within the stipulated time, the impugned order will be restored.

The bench further held that garnishee proceedings shall be withdrawn upon payment of the 25% deposit.

To Read the full text of the Order CLICK HERE

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