GST Demand out of disallowance of ITC: Orissa HC Dismisses Petition on Alternative Remedy [Read Order]

Savitri Industries, the petitioner, challenged the order dated 25.02.2025 passed in GST DRC-07 by the Deputy Commissioner of State Tax, Cuttack-I West Circle, Cuttack-Opposite Party No.2, whereby and whereunder a demand to the tune of Rs.13,63,646/- comprising tax (Rs.4,82,531/-), interest (Rs.3,98,584/-)and penalty (Rs.4,82,531/-) for the tax periods from April, 2019 to March, 2020 has been raised invoking power under Section 74 of the Odisha Goods and Services Tax Act, 2017/the Central Goods and Services Tax Act, 2017 ( the GST Act ).Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updatesSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates

Upon scrutiny of self-assessment returns furnished under Section 39 of the GST Act, the petitioner was requested by a notice in GST ASMT-10, dated 08.09.2022 to reverse Input Tax Credit ( ITC ) of Rs.4,82,531/- availed for the periods August, September, October and November of 2019 under Integrated Goods and Service Tax Act, 2017 ( IGST Act ) with respect to transactions effect with M/s. KVR Industries Limited, Sarasanapalli assigned with GSTIN37AACCK7954J1Z1.

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Consequent thereto finding there was a discrepancy in Form GSTR-3B vis-à-vis claim of ITC, a proceeding under Section 73 of the GST Act was undertaken, but said proceeding was dropped on the ground that a proceeding under Section 74 of the GST Act had already been initiated.

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Proceeding under Section 74 of the said Act, on participation by the petitioner and production of books of accounts and documents, culminated in demand, which is reflected in the order in DRC-07, dated 25.02.2025. The present writ petition is directed against said order framed under Section 74 of the GST Act.

Mr. Madhab Lal Agarwal, counsel appearing for the petitioner, submitted that the entire demand under Section 74 of the GST Act has been raised on account of the disallowance of ITC on the transactions effected with M/s. KVR Industries Limited as the said supplier had not discharged its tax liability as a consequence of which the Assessing Officer invoked Section 16(2)(c) of the GST Act.

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He strenuously contended that the ITC availed by the petitioner was on account of tax paid to the supplier and the same was reflected in self-assessment returns in Form GSTR-2A. Such availment could not have been disallowed on technical approach. He urged that merely because the supplier did not file its returns in GSTR-3B for the months of August, 2019, September, 2019, October, 2019 and November, 2019, the petitioner could not have been saddled with the liability of the supplier by disallowing equal amount of ITC claimed in its returns. Such a manner adopted by the assessing authority would tantamount to directing the recipient to discharge the liability of the supplier, who was in default.

Strongly opposing such submission, Mr. Sunil Mishra, Standing Counsel appearing for CT & GST Department-opposite party nos.1 & 2 contended that there is no flaw in the reasoned order passed by the assessing officer inasmuch as no legal infirmity was shown by the petitioner. The assessing officer having acted in consonance with the provisions contained in Section 16(2) exercised power under Section 74 after affording opportunity of hearing and examining the evidence adduced before him. Therefore, essentially he submitted that the writ petition against the order raising demand with reasons is not entertainable.

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He further vociferously submitted that vires being not in question in the writ petition, on factual matrix the petitioner had remedy available under the GST Act which it attempted to circumvent. Efficacious alternative remedy being available the writ petition is liable to be dismissed with costs.

Order under Section 74 indicates that determination of the assessing officer cannot be found fault with as it reveals that the demand was raised after examination/verification of purchase register, waybill details, payment details, goods transport details and ITC register with reference to proof of payment of deposit by the supplier to the Government exchequer. Since the petitioner could not satisfy by demonstrating that it has correctly availed the ITC in tune with the statutory requirement, which can further be subject- matter for consideration by the appellate authority under Section 107 of the GST Act, the writ petition is premature and not to be entertained at this stage.

So far as disallowance of ITC on the premise that the supplier having not discharged its liability by furnishing statutory returns, the availment of ITC by the recipient whether is in conformity with statutory requirement could be subject-matter of examination and determination by the appellate authority on merits. On the principle for entertainment of writ petition against an order for which alternative remedy is available under the statute, when the present writ petition is tested, the averments and fact- situation narrated by the petitioner do not seem to have fallen within such parameters.

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A division bench of Chief Justice Mr. Harish Tandon and Justice Mr. Murahari Sri Raman considered that the appellate authority is the competent authority to deal with the facts as well as the law. The issues raised in the present case can very well be addressed in appeal under Section 107 of the GST Act. If need be other alternative fora are also put in place to question the appellate order after disposal of appeal.

However, the petitioner is at liberty to avail the alternative remedy as available under the GST Act. It is made clear that for the purpose of writ petition, the facts are discussed and such facts as narrated above may not be treated as expression of opinion touching the merit of the matter.

As a consequence of above observations made, the writ petition stands disposed of along with pending interlocutory applications, if any, but in the circumstances there shall be no order as to costs.

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