In W.P.No.8493 of 2023-MAD HC- Third proviso to Sec.16 of CGST Act necessitates that due process must be followed where Authority proposes to take adverse view against applicant 
Justice Anita Sumanth [20-03-2023]

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Read Order: Pinstar Automotive India Pvt. Ltd v. Additional Commissioner 


 

LE Correspondent

 

Chennai, March 25, 2023:The Madras High Court has allowed a petition filed by an assessee in a case pertaining to the Central Goods and Services Tax Act, 2017 where the petitioner had received pre-assessment notice in regard to the issue relating to invocation of Section 16(2)(c) of the Act.

 

Referring to section 16 which deals with the eligibility and conditions for taking Input Tax Credit (ITC) , Justice Anita Sumanth asserted, “There can be no dispute on the position that the provisions of Section 16 are to be observed strictly, such that, there is no jeopardy to the interests of the revenue.”

 

It was the Authority’s case that certain supplies had been made to the petitioner by third parties and the petitioner had averred that the entirety of the amount including tax had been paid to the suppliers.

 

It was the stand of the petitioner that those suppliers were delinquent insofar that their registrations had been cancelled and the tax paid by the petitioner had not been remitted by them to the Department.

 

It was the respondent’s case that no fault could be attributed to the Department in this regard, since three suppliers, Techno Rubber Plastic and Co., Techno Rubber and Plastic and M/s.Unique Autoplastics Private Limited had uploaded their invoices in GSTR -1, but no tax had been remitted by them, since GSTR 3B had not filed by them. The petitioner, as a consequence, suffered reversal of ITC, IGST, CGST and SGST.

 

On the contrary, it was the stand of the petitioner that they had fulfilled all the conditions stipulated under the Statute and had adduced proof for payment of consideration within a period of 180 days and therefore, they were eligible to ITC. The stand was rejected by the respondent who passed an order-in-original confirming the demand proposed in the show cause notice.

 

“The provisions of the Central Goods and Services Tax Act, 2017 has, assimilating wisdom of experience from the erstwhile tax regimes, gone one step further to ensure that the interests of the revenue are protected by providing for a mandate that the tax liability is defrayed/met either at the hands of the supplier or the purchaser, the petitioner in this case”, the Bench held while asserting that no fault could be attributed to the revenue in this regard.

 

The Bench also stated that an additional factor is that where the tax liability has been met by way of reversal of ITC and similarly recovery is effected from the supplier as well, this would amount to a double benefit to the revenue. 

 

Thus, while the Department may reverse credit in the hands of the purchaser, this has to be a protective move, to be reversed and credit restored if the liability is made good by the supplier. The substative liability falls on the supplier and the protective liability upon the purchaser, the Bench noted while also adding that a mechanism must be put in place to address this situation.

 

Considering the fact that the  petitioner had chosen to seek rectification of order-in-original, the Bench clarified that it had no intention of intervening in the conclusion of the assessing authority on this aspect. 

 

“However, the procedure followed by the authority is clearly contrary to the third proviso to Section 16 of the Act that necessitates that, where the authority proposes to take a view adverse to the applicant, due process must be followed”, the Bench said.

 

Noting that there had been no opportunity granted to the petitioner prior to the passing of impugned order which was a fatal flaw, the Bench set aside the impugned Order. 

 

“The petitioner shall be heard by issue of notice and orders passed on the Section 161 application within a period of four (4) weeks from today”, the Bench further ordered.



 

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