Issue of Irregular GST ITC: Calcutta HC dismissed Petition being not maintainable [Read Order]

The Calcutta High Court dismissed the petition filed challenging the Goods and Services Tax (GST) order which was basically regarding irregular Input Tax Credit (ITC) as it was not maintainable for the second round litigation. A challenge to a jurisdictional issue can be maintained, such that the issue must relate to an exercise of jurisdiction by an authority that it does not have, and not merely an error committed within its jurisdiction.

Tara Lohia Private Limited, the petitioner challenged the order dated 29th January, 2025 issued under Section 74 of the WBGST/CST Act, 2017 (“said Act”) in respect of the tax period July 2017 to March 2022. Records would reveal that on the basis of an audit observation under Section 65 of the said Act, a proceeding under Section 74 was initiated by issuing a notice dated 1st August, 2024 in the Form DRC-01.

Mr. Saraf, Advocate representing the petitioner has, however, pointed out that the petitioner confines the challenge only in respect of the paragraphs 2.2, 2.3, 2.4 and 2.8 of the above show cause. Since, according to Mr. Saraf, the show cause has been initiated on the basis of the audit observations, he had drawn attention of the Court to the audit observations especially in relation to the non- payment of tax to sundry creditors and would submit that the respondents had in the most irregular manner purported to treat the outstandings shown against sundry creditors in the balance- sheet/profit and loss account of the petitioner as amounts which have remained outstanding for more than 180 days, in order to attract the second proviso of Section 16(2) of the said Act, though there being no basis for the same.

According to Mr. Saraf, the reflection of the figure against the head of the sundry creditor in the balance sheet/profit and loss account of the petitioner cannot tantamount to an outstanding amount of the sundry creditor beyond 180 days. In the instant case, on the basis of the disclosure made by the petitioner, according to him, except for one particular creditor, namely Unique Safety, there are no other sundry creditors in respect whereof, payment had been made beyond 180 days from the date of the invoices being raised.

Although, such fact was duly notified to the auditors, the respondents by ignoring the same have caused the show cause to be issued. Despite the fact that the petitioner had clarified its position once again, in the response to the show cause and though, the proper officer in paragraph 9.9.3 of the adjudication order has taken note of such response, such response appears to have been brushed aside on the ground that the proof of payment by way of bank statement was not disclosed. In this context, Mr. Saraf submits that when an audit enquiry was made, the respondents could have called for all documents including payments voucher and bank statements and could have examined such issue. Having not done so, the petitioner cannot be made responsible for the same.

On the issue of irregular availment of input tax credit against the invoices relating to purchasers as detailed in paragraph 2.2 and the irregular availment of ineligible credit in paragraph 2.3 and the excess availment of ITC in GSTR 3B, he would submit that ordinarily, the petitioner has no control in respect of a statement generated in GSTR 2A and 2B. The petitioner had duly clarified the position and had indicated that it intended to claim credit in respect of purchase made by the petitioner which concerns the petitioner and not otherwise. Such aspect has also not been properly dealt with by the proper officer.

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According to Mr. Saraf, the aforesaid is an error of jurisdiction committed by the proper officer and as such notwithstanding the availability of alternative remedy in the form of an appeal under Section 107 of the said Act, this Hon’ble Court is competent to entertain the writ petition under Article 226 of the Constitution of India. In support of his aforesaid contention, he has placed reliance on the judgment delivered in the case of Raza Textiles Limited v. Income Tax Officer, Rampur, reported in (1973) 1 SCC 633. In the backdrop as aforesaid he would submit that the order passed by the proper officer dated 4th February, 2025 should be set aside and the matter be remanded back for re- adjudication on the issues noted above.

While reserving his right to challenge the writ petition on the ground of alternative remedy he has addressed this Court on merits to demonstrate that the proper officer did not commit any irregularity in procedure. By drawing attention of this Court to paragraphs 9.9.3 and 9.9.4 of the order impugned he would submit that admittedly, in this case the petitioner did not disclose materials in the form of bank statements to demonstrate that the payments made to the sundry creditors were within the prescribed period of 180 days for the petitioner to avail the credit.

It was argued that the petitioner has failed to provide documents, the onus thereof, cannot be thrust on to the respondents. On the issue of irregular availment of ITC, he stated that the petitioner has not disclosed supporting documents for availing the same.

The court viewed that the petitioner is primarily aggrieved with the failure on the part of the respondents including the proper officer to consider the claim made by the petitioner that all payments to the sundry creditors were made within the statutory period of 180 days which entitles the petitioner to avail input tax credit.

The bench found that upon the audit observation being published in the form ADT-2 dated 13/16th February, 2024, the petitioner had duly filed a response and subsequently after issuance of show cause notice had disclosed a chart so as to contend that except for one particular creditor, in respect of all other creditors payments had been made within the period of 180 days.

“If during the audit the respondents had failed to notice such documents, it was the obligation and the onus of the petitioner to place such documents before the authorities. The same has not been done. Admittedly, there is nothing on record even today at this stage to substantiate the fact that the payments made by the petitioner to the sundry creditors were, in fact, made within 180 days from the date of the invoices.:, the bench said.

The decision on the challenge made in this petition is conclusively adjudicated between the parties,especially since, the petitioner has taken a chance and approached this Court. The court was of view that “No further statutory challenge thereto, is maintainable as the petitioner cannot be permitted to have a second round before the appellate authority, so as to reopen the issues raised herein once again.”

Justice Raja Basu Chowdhury stated that “Though, violation of principles of natural justice, and a challenge on jurisdictional issue can be maintained, such issue must, relate to an exercise of jurisdiction by an authority which it does not have, and not merely an error committed within its jurisdiction.”

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