Facts of the Case

M/s.Vishnu Trading, engaged in trading steaming (non-coking) coal under GSTIN 33AALFV4390F1Z0, underwent a departmental audit that found discrepancies for the periods 2017-18 through 2019-20. While the petitioner cleared three of five discrepancies, two remained: alleged non-payment of GST Compensation Cess of Rs.8,68,184/- on outward supply of coal between 02.08.2017 and 05.09.2017 under Section 73(1) of the CGST Act read with the GST (Compensation to States) Act, and Rs.1,17,31,328/- of Compensation Cess collected but not remitted for 2017-18 to 2019-20 under Section 76. The petitioner could not attend the personal hearing on 08.12.2022 due to illness and sought an adjournment, but the 1st respondent passed the impugned order dated 31.01.2023 (SCN dated 10.11.2022) confirming both amounts with equal penalty.

Issues Involved

  1. Whether passing the impugned order without granting a further personal hearing opportunity, after the petitioner sought adjournment due to illness, violated principles of natural justice.
  2. Whether the petitioner was entitled to input tax credit against the Compensation Cess collected but not remitted, notwithstanding that it was declared as 'zero' in the monthly GSTR-3B returns.

Petitioner's Arguments

  • The petitioner could not attend the personal hearing due to illness and sought an adjournment, but the respondent proceeded to pass the order without granting further opportunity, violating natural justice.
  • Regarding the Rs.8,68,184/- demand, the petitioner had not actually collected that tax component from the recipient but had nonetheless paid it, warranting relief from penalty.
  • Regarding the larger sum, the petitioner was entitled to offset the Compensation Cess through input tax credit, having reconciled and filed the GSTR-3B returns after the audit, even though it was originally declared as zero.

Respondent's Arguments

  • The respondents accepted that the tax had not actually been recovered from the recipient for the smaller amount, and that the petitioner was in principle entitled to ITC for the larger amount, but contended ITC could only be claimed by declaring it in the monthly GSTR-3B returns, which the petitioner had failed to do at the relevant time, instead reconciling only after the audit -- amounting to suppression.

Court Order / Findings

  • Since it was undisputed that the tax was not recovered from the recipient though paid by the petitioner, and levy of penalty is not automatic, the claim for relief from penalty deserved consideration.
  • Once an assessee has rectified and reconciled its returns and filed revised GSTR-3B, the department cannot decline to consider the entitlement to input tax credit merely because it was originally declared as zero; declining the credit while simultaneously imposing interest and penalty on the same sum is harsh and must be reconsidered.
  • The impugned order was quashed, though only the order and not the underlying show cause notice, and the matter remitted to the authorities to rework the demand based on the reconciled and revised GSTR-3B returns within eight weeks.

Important Clarification

  • The GST law permits rectification of returns, and where an assessee has subsequently reconciled and revised its GSTR-3B to reflect input tax credit, the department must consider that revised position rather than mechanically confirming demand, interest and penalty based only on the original, unreconciled return.

Sections Involved

  • Section 73(1), CGST Act, 2017 - determination of tax not paid, read with GST (Compensation to States) Act.
  • Section 76, CGST Act, 2017 - tax collected but not remitted to Government.
  • Sections 8 and 11, GST (Compensation to States) Act, 2017 - levy and collection of Compensation Cess.

Decision – In Favour of

The writ petition was allowed in favour of the Assessee, with the demand order quashed and the matter remitted for fresh orders based on the reconciled returns.

Case Details

Court: Madurai Bench of Madras High Court
Case No.: W.P.(MD).No.18707 of 2023
Coram: Justice S.Srimathy
Date of Order: 11.09.2023

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