Lack of Clarity in SCN for GST Transitional Credit Denial of Rs. 14L : Madras HC orders STO to Provide Clear Reasons [Read Order]

It was directed to treat the impugned GST order as Show Cause Notice ( SCN ).
Lack of Clarity - Lack of Clarity in SCN - SCN - Transitional Credit - Madras HC - STO - taxscan

The Madras High Court has issued clear directions to the State Tax Officer ( STO ) to issue supplements providing clear reasons for the denial of Goods and Services Tax ( GST ) transitional credit. Also, it was directed to treat the impugned GST order as Show Cause Notice ( SCN ).

The petitioner, Alpha City Chennai IT Park Projects Private Limited is a construction company, received a show cause notice dated 25.09.2023, raising concerns about its transitional credit of Rs. 14,05,211/-. Seeking clarity, the petitioner requested additional time to respond.

Subsequently, in its reply, the petitioner highlighted the lack of rationale behind the denial of transitional credit, emphasising that the submitted data had been previously verified by the tax authorities.The authorities issued an impugned order without due consideration of the petitioner’s response.

The issue in the case is in the ambiguity of the Show Cause Notice (SCN) , which failed to provide adequate particulars regarding the alleged ineligible Input Tax Credit (ITC). Consequently, the petitioner filed a rectification petition, followed by the present writ petition, challenging the validity of the order.

The petitioner’s counsel pointed out that it cannot be discerned from such a show cause as to the reason for calling upon the petitioner to show cause with regard to ineligible ITC of Rs.14,05,211/-. In the absence of necessary particulars in the show cause notice, she submitted that the impugned order is unsustainable.

The Additional Government Pleader, representing the respondent, acknowledged the rectification petition filed by the petitioner and assured its due consideration. He further submitted that the tax demand was confirmed upon verification of the TRAN 1 return of the petitioner.

Considering the submissions, a Single bench of Justice Senthilkumar Ramamoorthy concurred with the petitioner’s contention regarding the inadequacy of the show cause notice. It was observed that the impugned order primarily confirmed the tax demand due to the petitioner’s failure to submit documents or attend a personal hearing.

The court also noted that the petitioner’s reply was not taken into account probably because such reply was submitted manually and not uploaded in the portal. Thus, it is required to provide the petitioner an opportunity to contest the tax demand.

Further the High Court issued a set of directions to the STO as follows:

  1. “the impugned order shall be treated as a show cause notice. The respondent is directed to issue a supplement setting out the reasons for denying transitional credit to the petitioner. Such supplement shall be issued within a maximum period of two weeks from the date of receipt of a copy of this order.
  1. Upon receipt thereof, the petitioner shall reply within a further period of two weeks.
  1. 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 a period of two months from the date of receipt of the reply from the petitioner. Consequently, connected miscellaneous petitions are closed. No costs.”
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