Facts of the Case

MRF Limited, represented through its authorised signatory, challenged a show cause notice dated 15.02.2021 proposing to disallow input tax credit under Section 16(4) of the BGST Act read with Rule 36(4) of the BGST Rules for the period April 2019 to September 2019, on the ground that the credit had been availed even before the Rule came into force. The petitioner also challenged the consequent order dated 24.02.2021 disallowing its ITC claim for the period April 2019 to March 2020 for alleged non-filing of the annual return, though the return had in fact been filed online on 23.02.2021. It was further contended that the order was passed on a mere seven-day notice without adequate opportunity of hearing, and that a demand notice in Form GST DRC-07 as well as a bank attachment notice dated 26.02.2022 attaching the petitioner's HDFC Bank account had followed. The petitioner sought quashing of the show cause notice, the disallowance order, the demand notice and the attachment, besides rectification under Section 161 of the BGST Act.

Issues Involved

  1. Whether the disallowance of input tax credit and the consequent demand were vitiated by the assessing officer's failure to consider the returns already filed by the petitioner.
  2. Whether the attachment of the petitioner's bank account for recovery of the disputed demand was sustainable once the underlying order itself was infirm.

Petitioner's Arguments

  • The annual return for the disputed period had already been filed on 23.02.2021, containing the necessary data relating to the claim of input tax credit, before the impugned order was passed the next day.
  • The order was passed on a seven-day notice without affording adequate opportunity of being heard, and the officer failed to notice or consider the returns on record.
  • The consequent demand notice in Form GST DRC-07 and the attachment of the bank account ought to be quashed as being founded on a flawed order.

Respondent's Arguments

  • The State, represented by the Government Pleader, did not seriously dispute that the returns filed by the petitioner may not have been taken into account by the assessing officer.
  • The Assessing Officer would be entitled to pass a fresh order after considering the entire factual record, including the returns filed by the petitioner.

Court Order / Findings

  • The Division Bench observed that the fact that returns had been filed under the GST Act appeared to have escaped the attention of the officer who passed the impugned order.
  • Faced with the choice of calling for a response from the respondent or quashing the order to enable a fresh determination, and noting that the petitioner's bank account stood attached for non-payment of dues arising from the impugned order, the Court chose the latter course.
  • The order dated 24.02.2021 disallowing ITC, the consequential demand notice, and the bank attachment order dated 26.02.2022 were all quashed.
  • The matter was disposed of on mutually agreeable terms: the petitioner to deposit Rs.10,00,000/- with the Assessing Officer within two working days; the Assessing Officer to pass a fresh order accounting for the entire facts on record, including the returns filed, within four weeks; and any amount found in excess on adjudication to be adjusted towards dues for the subsequent period.

Important Clarification

  • An ITC disallowance order passed without accounting for returns already on record is liable to be quashed rather than merely remanded with the demand intact, particularly where recovery by way of bank attachment has already caused hardship.
  • Courts may craft interim conditional relief — a token deposit pending fresh adjudication — to balance revenue protection with the assessee's right to have the matter reconsidered on a complete factual record.

Sections Involved

  • Section 16(4), BGST Act — prescribes the time limit within which input tax credit may be availed in respect of an invoice or debit note.
  • Rule 36(4), BGST Rules — restricts provisional availment of input tax credit not reflected in supplier returns.
  • Section 161, BGST Act — empowers rectification of errors apparent on the face of the record.
  • Form GST DRC-07 — the summary of the order creating a demand under the GST Act.

Decision – In Favour of

Disposed of with directions, substantially in favour of the Assessee — the disallowance order, demand notice and bank attachment were all quashed, subject to a conditional deposit and fresh adjudication within a fixed timeline.

Related Case Laws

  • Posts on Section 16(4) CGST/BGST Act time-barred ITC disputes on this site.
  • Related posts on bank account attachment for GST recovery and its quashing for procedural lapses.

Case Details

  • Court: High Court of Judicature at Patna
  • Case No.: Civil Writ Jurisdiction Case No.3929 of 2022
  • Coram: Hon'ble the Chief Justice (Sanjay Karol, CJ) and Hon'ble Mr. Justice S. Kumar
  • Date of Order: 11.03.2022

Link to Download the Order

https://mytaxexpert.co.in/uploads/1787067212_4500compressed.pdf

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