No Proper Consideration of GST ITC Documents & Taxpayer’s Detailed Reply Ignored: HP HC Sets Aside Demand Order [Read Order]

In a recent ruling, the Himachal Pradesh High Court set aside a GST demand order after observing that the authorities had passed the order without properly considering the taxpayer’s detailed reply and supporting documents relating to Input Tax Credit claims.

Ishwar Singh Rathore, the petitioner, filed a writ petition challenging the GST demand proceedings initiated under the Central Goods and Services Tax Act, 2017. The petitioner sought quashing of the demand order and related proceedings on the ground that the authorities did not follow mandatory procedural requirements under the GST law.

The petitioner challenged the demand order dated 28.03.2024 issued during scrutiny proceedings under Section 61 of the CGST Act. They argued that the authorities had not issued the mandatory notice in Form ASMT-10 under Rule 99 before issuing the show cause notice in Form DRC-01.

The petitioner also challenged the order-in-original passed under Section 73 of the CGST Act. The petitioner argued that the authorities failed to issue mandatory intimation in Form DRC-01A under Rule 142(1A) before issuing the show cause notice in Form DRC-01.

The petition further questioned the restriction on Input Tax Credit under Section 16(2)(c) read with Rule 36(4) of the CGST/HPGST Rules and argued that the proceedings were initiated without properly determining the actual variation between the ITC reflected by suppliers in GSTR-1 and the ITC claimed by the petitioner in GSTR-3B. The petitioner also sought benefit of CBIC Circulars dated 27.12.2022 and 17.07.2023.

During the hearing, the petitioner submitted that it was not pressing the constitutional challenge to Section 16(2)(c) and Rule 36(4) at that stage and reserved liberty to raise the issue separately in an appropriate petition.

The petitioner further argued that after receiving the show cause notice dated 28.03.2024, it had filed a detailed reply along with supporting documents claiming entitlement to Input Tax Credit. However, while passing the order-in-original dated 20.06.2024, the authorities failed to consider the reply and the documents filed along with it.

The petitioner’s counsel argued that the competent authority should reconsider the matter by specifically examining whether payment for the purchases along with GST had actually been made to the suppliers, whether the transactions were genuine and supported by valid documents, whether the purchases were made before cancellation of the suppliers’ registration, and whether statutory verification obligations had been complied with.

The Advocate General appearing for the respondents submitted that if the petitioner filed a fresh response to the summary show cause notice along with relevant supporting documents, the competent authority would consider and decide the matter within a reasonable time.

The Division Bench comprising Justice Vivek Singh Thakur and Justice Ranjan Sharma observed that it was an admitted position that while passing the impugned order, the authorities had not considered the petitioner’s reply and the documents filed along with it.

The court explained that the petitioner’s objections and supporting material regarding the genuineness of the transactions, payment of GST, timing of purchases, and compliance with statutory obligations required proper consideration by the competent authority in accordance with law.

The court set aside the order dated 20.06.2024 and directed the competent authority to reconsider the petitioner’s objections and documents in response to the show cause notice dated 28.03.2024. The court directed the petitioner to file objections and supporting documents within 30 days and further directed the competent authority to pass a speaking and reasoned order within six weeks from the date of filing of such objections. The petition was disposed of in these terms.

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