GST Liability raised w.r.t. ITC Reversal on Credit Notes: Madras HC remands for Reconsideration on 12.5% Pre-deposit [Read Order]

The Madras High Court set aside the GST ( Goods and Services Tax ) demand order raising the lability of ITC ( Input tax reversal ) on credit notes reflected in the auto populated GSTR 2A. The court remanded the case on 12.5% pre-deposit as remitted by the petitioner.

The original order was challenged in the writ petition on the grounds that the petitioner did not have a reasonable opportunity to challenge the tax demand on its merits.

The dispute began with a show cause notice issued on 27.06.2023, which called upon the petitioner to explain why the Input Tax Credit ( ITC ) should not be reversed due to credit notes issued by the petitioner's suppliers.

Unaware of this show cause notice, the petitioner, M/s.Orient Electricals and Engineers India P. Ltd did not respond in time. It was only when the petitioner’s banker informed them about an attachment notice from the Commercial Tax Department for tax recovery that they became aware of the issue.

Subsequently, the petitioner filed an appeal with the first appellate authority, accompanied by a pre-deposit of 12.5% of the tax demand. However, the appeal was dismissed on the grounds of limitation, prompting the filing of the present writ petition.

T.R.Ramesh, the petitioner's counsel argued that the suppliers had issued invoices which were later cancelled via credit notes. The petitioner did not avail of ITC for the value of these credit notes. If given the opportunity, the petitioner could establish that only eligible ITC was claimed.

The counsel representing the respondent, acknowledged the notice and highlighted 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 an offer for a personal hearing to the petitioner.

The court observed that the GST proposal was related to the credit notes reflected in the auto-populated GSTR-2A. The petitioner's counsel reiterated that ITC was not claimed for the value of these credit notes.

Considering this submission and the fact that the petitioner did not participate in the initial proceedings due to unawareness, the bench of Justice Senthilkumar Ramamoorthy deemed just to provide the petitioner an opportunity to contest the tax demand on its merits. It was noted that the petitioner had already remitted 12.5% of the disputed tax demand when filing the appeal.

The petitioner was allowed to submit a reply to the show cause notice within 15 days of receiving a copy of this order. The respondent was then directed to provide a reasonable opportunity to the petitioner, including a personal hearing, and to issue a fresh order within three months of receiving the petitioner’s reply. Consequently, the bank attachment was lifted.

To Read the full text of the Order CLICK HERE

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