Facts of the Case

  1. Vardhman Ispat Udyog approached the Himachal Pradesh High Court by filing CWP No. 4923 of 2021.
  2. The petitioner initially sought a declaration that Section 16(2)(c) of the CGST Act, 2017 and the Himachal Pradesh GST Act, 2017 was ultra vires the Constitution of India and the CGST Act, 2017, alleging arbitrariness, unreasonableness and violation of Articles 14, 19(1)(g), 21 and 300A of the Constitution of India.
  3. The petitioner also sought a writ of certiorari for quashing the summary show cause notices dated 17.08.2021, whereby demand of tax, interest and penalty had been raised.
  4. During the proceedings, learned counsel for the petitioner stated that the constitutional challenge to Section 16(2)(c) was not being pressed at that stage. The petitioner reserved the right to raise the issue through an appropriate petition, if so desired.
  5. The petitioner submitted that summons dated 09.08.2021 and an intimation dated 09.08.2021 had been issued.
  6. In response, the petitioner claimed to have submitted a detailed reply along with documents asserting entitlement to the benefit of Input Tax Credit.
  7. According to the petitioner, despite submission of the detailed reply and supporting documents, the authorities proceeded to issue the impugned summary show cause notices/detailed notices dated 17.08.2021 without considering the material already furnished.
  8. The petitioner therefore sought fresh consideration of its claim and objections, together with the documents already filed or to be filed before the competent authority.

Issues Involved

The principal issues arising from the proceedings were:

  1. Whether the petitioner’s claim for Input Tax Credit was required to be reconsidered after examining the objections and supporting documents submitted by it.
  2. Whether payment for the disputed purchases, together with the GST component, had actually been made to the supplier/registered taxable person.
  3. Whether the disputed transactions and purchases were genuine and supported by valid documentary evidence.
  4. Whether the transactions and purchases had taken place before or after cancellation of the supplier’s GST registration.
  5. Whether the petitioner had complied with the statutory obligations concerning verification of the identity of the supplier/registered taxable person.
  6. Whether the petitioner could be granted the benefit of ITC if the purchases and transactions were found genuine, duly supported by valid documents and made before cancellation of the supplier’s registration.
  7. Whether the summary show cause notices/detailed notices dated 17.08.2021 required fresh consideration by the competent authority through a speaking and reasoned order.
  8. Whether the constitutional validity of Section 16(2)(c) of the CGST Act, 2017 and the corresponding Himachal Pradesh GST provision required adjudication in the present petition.

Petitioner’s Arguments

The petitioner contended that:

  1. After issuance of summons dated 09.08.2021 and intimation dated 09.08.2021, it had submitted a detailed reply along with documents supporting its entitlement to Input Tax Credit.
  2. The authorities allegedly proceeded with the impugned summary show cause notices/detailed notices dated 17.08.2021 without properly considering the petitioner’s detailed reply and documentary material.
  3. The petitioner requested that the competent authority be directed to reconsider its claim and objections afresh along with the documents filed or to be filed.
  4. The authority should specifically determine whether payment for the purchases, including GST, had actually been made to the supplier.
  5. The authority should examine whether the transactions and purchases were genuine and supported by valid documents.
  6. The authority should determine whether the transactions and purchases were undertaken before or after cancellation of the supplier’s GST registration.
  7. The authority should also examine compliance with the petitioner’s statutory obligations concerning verification of the identity of the supplier.
  8. If, upon examination of the relevant documents, the purchases and transactions were found genuine, supported by valid documents and made prior to cancellation of the supplier’s registration, the petitioner should be granted the disputed ITC benefit.
  9. The petitioner did not press the constitutional challenge to Section 16(2)(c) at that stage and reserved the right to raise such challenge in an appropriate petition, if so desired.

Respondents’ Arguments

The learned Advocate General submitted that:

  1. If the petitioner filed a fresh response to the summary show cause notices/detailed notices before the competent authority;
  2. And if such response was accompanied by relevant documents substantiating the petitioner’s claim;
  3. The competent authority would decide the matter within a reasonable time.

Thus, the respondents did not oppose fresh consideration of the petitioner’s response and supporting documents by the competent authority.

Court Order / Findings

The Himachal Pradesh High Court disposed of the writ petition with the following directions:

  1. The competent authority was directed to consider the petitioner’s objections along with supporting documents, if filed.
  2. Such objections and documents were required to be filed within 28 days from the date of the judgment in response to the summary show cause notices/detailed notices dated 17.08.2021.
  3. The competent authority was directed to consider the matter keeping in view the submissions made by the petitioner.
  4. The authority was required to pass an appropriate speaking and reasoned order.
  5. Such speaking and reasoned order was required to be passed within six weeks from the date of filing of the objections/response.
  6. If the petitioner failed to file objections within the prescribed period of 28 days, the competent authority was permitted to proceed further in accordance with law.
  7. In such an eventuality, the authority could treat the petitioner as having nothing further to say in response to the notices.
  8. The writ petition, together with pending applications, if any, was disposed of in these terms.

Important Clarification

1. No Final Decision on Constitutional Validity of Section 16(2)(c)

The High Court did not adjudicate or declare Section 16(2)(c) of the CGST Act, 2017 or the corresponding Himachal Pradesh GST provision unconstitutional.

The petitioner expressly did not press that relief at the present stage and reserved the right to agitate the issue in an appropriate petition, if so desired.

Accordingly, this judgment should not be interpreted as striking down, reading down or finally upholding the constitutional validity of Section 16(2)(c).

2. No Automatic Grant of ITC

The High Court did not directly grant Input Tax Credit to the petitioner.

Instead, it directed the competent authority to reconsider the petitioner’s objections and supporting documents and thereafter pass a speaking and reasoned order.

3. Genuineness of Transactions Requires Examination

The competent authority is required to examine material aspects including:

  • Whether the purchase consideration was actually paid;
  • Whether GST was actually paid to the supplier;
  • Whether the transactions and purchases were genuine;
  • Whether valid supporting documents existed;
  • Whether the purchases occurred before or after cancellation of the supplier’s registration; and
  • Whether statutory obligations relating to verification of the supplier’s identity were complied with.

4. Timing of Supplier Registration Cancellation Is Material

A central factual aspect requiring examination is whether the transactions and purchases occurred before or after cancellation of the supplier’s GST registration.

The petitioner specifically submitted that if the purchases were genuine, supported by valid documents and made prior to cancellation of the supplier’s registration, the ITC benefit should be granted.

5. Strict Procedural Timeline Fixed by the Court

The petitioner was granted 28 days to file objections/response along with documents.

Thereafter, the competent authority was directed to pass a speaking and reasoned order within six weeks from the date of filing such objections/response.

6. Consequence of Failure to File Objections

If no objections were filed within 28 days, the competent authority was permitted to proceed in accordance with law by treating the petitioner as having nothing further to state in response to the notices.

Sections Involved

  • Section 16(2)(c) of the Central Goods and Services Tax Act, 2017
  • Section 16(2)(c) of the Himachal Pradesh Goods and Services Tax Act, 2017
  • Article 14 of the Constitution of India
  • Article 19(1)(g) of the Constitution of India
  • Article 21 of the Constitution of India
  • Article 300A of the Constitution of India

Link to download the order - https://www.mytaxexpert.co.in/uploads/1783502665_1474compressed.pdf

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