Madras High Court: Input Tax Credit Determination Must be Included in the Show Cause Notice Itself

Madras High Court: Input Tax Credit Determination Must be Included in the Show Cause Notice Itself

The Madras High Court while setting aside an assessment order passed under the Tamil Nadu Goods and Services Tax Act, 2017 (TNGST Act) held that the determination of the Input Tax Credit (ITC) claimed under GSTR 3B and GSTR 2B should have been included in the show cause notice itself, giving M/s. Hatsun Agro Product Ltd. (petitioner) sufficient opportunity to respond and provide necessary details in support of the claim of ITC.

The single judge Justice Anita Sumanth found that the Assessing Officer (AO) had determined the amount to be reversed based on a comparison of the Input Tax Credit (ITC) claimed under GSTR 3B and GSTR 2B.

The brief background of the case was that a reversal of ITC was claimed by the petitioner. The AO deemed the ITC to be ineligible and not rightfully claimed by the petitioner.

Prior to the impugned order, which was a culmination of proceedings for assessment under Section 73 of the Act, the Assessing Authority had issued notices in DRC-01A and ASMT -10 calling for identical particulars as were required for the present impugned proceedings as well.

The Court noted that a communication dated 9 September, 2022 had outlined the specific manner in which the respondent sought information and supporting particulars, including invoices, from the petitioner.

However, the Court found it to be unclear as to whether the petitioner had provided the requested particulars in the specified manner and whether all the supporting documents had been submitted to the AO.

On perusal of the impugned order makes the Court stated that it was clear that the Assessing Officer had embarked on the determination/crystallization of the amount to be reversed on a comparison of the ITC claimed under GSTR 3B and GSTR 2B.

The Court was of the considered view that, this determination ought to have been put to the petitioner in the show cause notice itself prior to passing of the impugned order, such that the petitioner had been afforded sufficient opportunity to respond the same and, or provide details in support of the claim of ITC.

The court remarked, “Prior to the impugned order of assessment, what was exchanged was only general notices calling for particulars to which the petitioner is seen to have responded, albeit, insufficiently.”

In light of the above observation, the Court set aside the impugned order of assessment and instructed that the order should be treated as a show cause notice.

The petitioner was instructed to appear on 13th of July, 2023, along with all the required details and supporting documents related to the reversal under the impugned order.