Madras HC sets aside GST Demand order u/s 73(9) due to Rejection of SCN Reply without Adequate Reason [Read Order]

The Madras High Court set aside a GST demand order under Section 73(9) of the TNGST (Tamil Nadu Goods and Services Tax) /CGST (Central Goods and Service Tax) Acts, 2017 due to the rejection of the Show Cause Notice (SCN) reply without providing adequate reasons, violating principles of natural justice, and directed the respondent to pass a fresh order, addressing each of the grounds raised by the petitioner.

The petitioner, Ella Tea Industry engaged in the tea industry and registered under the Tamil Nadu Goods and Services Tax (TNGST) Act faced scrutiny from tax authorities for the financial year 2018-2019. During the review under Section 61 of the Act, discrepancies were found in the company's tax returns. The respondent issued a show cause notice on November 25, 2021, claiming the company had not declared its correct tax liability while filing GSTR-3B and had claimed excess Input Tax Credit (ITC) beyond what was available in the inward data. The company responded to the notice on December 19, 2022, submitting supporting documents. Satisfied with the explanation, the respondent dropped the proceedings in an order dated January 3, 2023.

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Despite the closure of the case, a second show cause notice was issued on December 28, 2023, again alleging excess ITC claims for the year 2018-2019 and demanding reversal of the credit. The company responded on February 15, 2024, uploading its detailed reply along with relevant documents to the common portal. However, the respondent confirmed the earlier allegations without properly considering the company's response and passed a demand order on April 29, 2024, under Section 73(9) of the TNGST/CGST Acts, 2017. The company has since filed a writ petition seeking to quash the order and requesting that the respondent reconsider its submissions.

The petitioner’s counsel, Mr. J. Bharathiraja, argued that the respondent had already dropped the charges for 2018-2019 after reviewing the earlier submission and that reopening the case without new reasons violated principles of natural justice. He emphasized that the respondent had failed to address the petitioner’s detailed reply in the latest proceedings.

 In contrast, Mrs. K. Vasanthamala, representing the government, supported the respondent's orders.

Justice Krishnan Ramaswamy acknowledged that the respondent had previously dropped the proceedings for 2018-2019 and expressed concern that the case had been reopened without specific reasoning. The court noted that the respondent's rejection of the petitioner’s reply, merely stating "not satisfied" without adequate explanation, was contrary to legal principles and violated natural justice.

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The court set aside the order dated April 29, 2024, and directed the respondent to pass a fresh order, addressing each of the grounds raised by the petitioner. The court ordered the new decision to be made within eight weeks, with no costs awarded. Connected miscellaneous petitions were also closed.

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