Facts of the Case

Two connected petitioners — Anaz Abdul Rahiman Kutty, proprietor of NAS Medicals, and CVV Trading Company — registered dealers under the CGST/SGST Act, had filed monthly returns in Form GSTR-3B for Assessment Year 2017-18. On scrutiny, discrepancies between GSTR-2A and GSTR-3B were noticed and communicated via notice in Form GST ASMT-10 under Rule 99(1). Neither petitioner filed a reply or remitted the demanded tax and interest. Intimations under Rule 142(1A) in Form GST DRC-01A followed, and thereafter show-cause notices under Section 73(1) with Form GST DRC-01 were issued. Assessment orders disallowed input tax credit of Rs.1,26,281 (SGST) and an equal CGST amount for one petitioner, and Rs.1,33,580 (SGST) and equal CGST for the other, along with interest and penalty, aggregating Rs.4,84,448 and Rs.5,87,752 respectively.

Issues Involved

  1. Whether disallowance of input tax credit without affording the petitioners an opportunity to substantiate their claims with supporting documents was justified.
  2. Whether relief could be granted considering that the disputed period, 2017-18, was the first year of GST implementation.

Petitioner's Arguments

  • The dispute pertained to the initial period of GST implementation, when small dealers faced considerable difficulty in understanding compliance requirements.
  • The supplier-dealers had in fact paid the tax underlying the petitioners' ITC claim, and the petitioners possessed evidence to substantiate this.
  • The petitioners should be granted one opportunity before the Assessing Authority to produce the relevant documents.

Respondent's Arguments

  • The petitioners were duly served with notice under Section 73(1) and chose not to respond or produce any documentary proof.
  • There was full compliance with the statutory process and principles of natural justice, and the petitions were liable to be dismissed.

Court Order-Findings

  • The Court acknowledged genuine difficulty faced by small dealers during 2017-18, the GST regime's first year, and noted the submission that the underlying tax had already been paid to the Government by suppliers.
  • The disallowance of input tax credit was set aside in both matters, to the extent challenged.
  • Petitioners were directed to appear before the jurisdictional State Tax Officer with all relevant documents; the officer was directed to pass fresh orders within two weeks after hearing them.
  • It was clarified that any dissatisfaction with the fresh order must be pursued through the statutory appellate route, and a further writ petition would not be entertained.

Important Clarification

  • Genuine hardship faced by small dealers during the transitional first year of GST (2017-18), coupled with evidence that the underlying tax was in fact paid by suppliers, can justify granting a fresh opportunity of hearing even where the dealer initially failed to respond to a Section 73 notice.

Sections Involved

  • Section 73, CGST/SGST Act, 2017 — determination of tax not paid/short paid for reasons other than fraud.
  • Rule 99(1), Form GST ASMT-10 — scrutiny of returns.
  • Rule 142(1A), Form GST DRC-01A — intimation of tax ascertained before issuance of show-cause notice.

Decision-In Favour of

Assessee, in part — the disallowance of ITC was set aside and the matter remanded for a fresh hearing, though the final outcome depends on the documents the petitioners produce before the State Tax Officer.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: High Court of Kerala at Ernakulam
  • Case No.: WP(C) No.31056 & 31026 of 2023
  • CNR: Not available
  • Coram: Hon'ble Mr Justice Dinesh Kumar Singh
  • Decision Date: 29-09-2023

Link to Download the Order

Download the full order (PDF)

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