Facts of the Case

  • Assessee & Business Profile: The petitioner, M/s Friends Mobile, is a sole proprietorship firm situated at Boring Road, Patna, Bihar, operating through its authorized signatory, Mohammad Quadir Khan.
  • Rejection of ITC Claim: For Financial Year 2019-20, the Assistant Commissioner of State Tax (Respondent No. 5) rejected the Input Tax Credit (ITC) claimed by the petitioner in Form GSTR-3B.
  • Reason for Rejection: The primary basis for rejection was that the ITC claimed in Form GSTR-3B was not auto-populated in Form GSTR-2A. There existed a discrepancy of ₹4,77,257/- under CGST and SGST between GSTR-3B and GSTR-2A.
  • Demand Raised: Pursuant to the rejection without considering the tax invoices produced by the petitioner, an assessment order bearing Reference No. ZD101221010679Y dated 17.12.2021 was passed under Section 73(9) of the BGST Act along with Form GST DRC-07, imposing a demand of ₹13,34,280/- covering tax, interest, and penalty.
  • Appellate Rejection: The petitioner filed an appeal against the assessment order; however, the Additional Commissioner of State Tax (Appeal) (Respondent No. 6) dismissed Appeal Case No. AD100722004108T via Memo No. 234 dated 01.08.2022 solely on the technical ground of limitation.
  • Writ Petition: Aggrieved by the rejection of the appeal as well as the underlying assessment order passed without due consideration of physical tax invoices, the petitioner filed a Writ Petition before the Hon’ble High Court of Judicature at Patna.

Issues Involved

  1. Whether the High Court can exercise its writ jurisdiction under Article 226 of the Constitution of India to interfere with an assessment order despite the availability of statutory remedies or dismissal of an appeal on grounds of limitation?
  2. Whether an ex-parte assessment order passed under Section 73(9) of the BGST Act rejecting ITC on account of GSTR-3B and GSTR-2A mismatch without affording reasonable opportunity or issuing a reasoned speaking order violates the principles of natural justice?
  3. Whether rejecting an ITC claim purely on the basis of non-reflection in GSTR-2A without examining the actual tax invoices submitted by the taxpayer is legally sustainable?

Petitioner’s Arguments

  • Violation of Natural Justice: The petitioner argued that sufficient time was not afforded to present their case, rendering the order ex-parte and in gross violation of the principles of natural justice.
  • Failure to Consider Documentary Evidence: The assessing authority rejected the ITC claim solely due to differences between GSTR-3B and GSTR-2A while completely ignoring the valid tax invoices and supporting documents produced by the petitioner.
  • Unjust Assessment: The demand amounting to ₹13,34,280/- comprising tax, interest, and penalty under Section 73(9) of the BGST Act was arbitrarily determined without supplying discernible or sufficient reasons in the order.

Respondent’s Arguments

  • No Objection to Remand: Learned counsel for the Revenue stated that the department had no objection if the matter was remanded back to the Assessing Authority to decide the case afresh on merits without allowing limitation to act as a bar.
  • Conditional Undertaking: The Revenue agreed that no coercive steps would be taken during the pendency of the fresh assessment proceedings.

Court Order & Findings

The Division Bench of the Patna High Court, comprising Hon’ble Chief Justice Sanjay Karol and Hon’ble Mr. Justice S. Kumar, observed and held as follows:

  1. Writ Jurisdiction Not Precluded: The Court affirmed that despite statutory remedies, it is not precluded from exercising writ jurisdiction where an order is ex-facie bad in law due to violations of natural justice or arbitrary procedural lapses.
  2. Breach of Natural Justice & Lack of Reasoning: The Court noted that:
    • No fair opportunity of hearing or sufficient time was afforded to the petitioner.
    • The ex-parte order failed to assign sufficient or decipherable reasons showing how the liability was computed, entailing civil consequences.
    • The authorities failed to adjudicate the factual matrix (such as physical tax invoices) despite proceedings being ex-parte.
  3. Quashing of Orders: The High Court quashed and set aside:
    • The Appellate Order dated 01.08.2022 (Appeal Case No. AD100722004108T).
    • The Assessment Order dated 17.12.2021 passed under Section 73(9) of the BGST Act.
    • The Summary Demand Notice in Form GST DRC-07 dated 17.12.2021.
  4. Remand Directions & Conditions:
    • Pre-Deposit: The Court recorded that 10% of the demand was already deposited, and the petitioner undertook to deposit an additional 10% before the Assessing Officer within four weeks without prejudice. Refund to be issued within two months if deposit is ultimately found excess.
    • De-freezing Bank Accounts: Immediate de-attaching/de-freezing of the petitioner’s bank accounts was directed.
    • Fresh Adjudication: The petitioner was directed to appear before the Assessing Authority on 02.11.2022. The Assessing Authority was ordered to issue a fresh speaking order on merits after affording a full opportunity of hearing and examining all essential documents within two months.
    • Protection: No coercive steps to be taken against the petitioner during the pendency of proceedings.

Important Clarification

Key Legal Takeaway: An assessment order passed under Section 73 of the GST Act rejecting Input Tax Credit merely on the basis of a mismatch between Form GSTR-3B and GSTR-2A—without evaluating physical tax invoices or providing a fair opportunity of hearing—violates the principles of natural justice and is liable to be quashed under writ jurisdiction. Furthermore, tax authorities are required to issue speaking orders containing clear reasoning when determining tax liability.

Sections Involved

  • Section 73 of the Bihar Goods and Services Tax (BGST) / Central Goods and Services Tax (CGST) Act, 2017: Determination of tax not paid, short paid, erroneously refunded, or input tax credit wrongly availed or utilized for any reason other than fraud or any willful-misstatement or suppression of facts.
  • Section 73(9) of the BGST / CGST Act, 2017: Issuance of order determining the amount of tax, interest, and penalty due.
  • Form GST DRC-07: Summary of the order issuing demand for tax, interest, and penalty.
  • Form APL-04: Summary of Appellate Order.
  • Article 226 of the Constitution of India: Power of High Courts to issue certain writs to enforce fundamental rights and for any other purpose.

Link to download the order - https://mytaxexpert.co.in/uploads/1784616703_1565compressed.pdf

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