Facts of the Case

The petitioner, M/s. Ujjain Steel Processors, a partnership firm registered under GST (registration no. 20AAEFU1474E1ZM) and engaged in trading of iron and steel, purchased steel worth Rs.34,00,571/- (inclusive of tax) from a registered supplier, M/s Maa Kali Steel, in March 2018. On 14.02.2020, without prior notice, the department suo motu blocked the petitioner's credit ledger, alleging the supplier was a non-existing entity. Although a proceeding initiated under Section 74(1) (fraud) was dropped, the department switched to Section 73(1) and passed an ex-parte order dated 15.09.2020 confirming reversal of Input Tax Credit with interest and penalty, without supplying the intelligence-based documents relied upon or granting any personal hearing.

Issues Involved

  1. Whether an ex-parte order reversing Input Tax Credit, passed without supplying the relied-upon intelligence documents and without personal hearing under Section 75(4), could be sustained.
  2. Whether the supplier's subsequent cancellation of registration (in June 2019) affected the validity of ITC availed on purchases made in March 2018, when the supplier was still validly registered and had filed its returns.

Petitioner's Arguments

  • The petitioner's counsel argued that the supplier (M/s Maa Kali Steel) was duly registered and had filed GSTR-1 and GSTR-3B for the relevant period with no mismatch, that its registration was cancelled only in June 2019 — well after the March 2018 purchase — and that no relied-upon documents (the intelligence note) were ever supplied, nor was any hearing granted as mandated by Section 75(4).

Respondent's Arguments

  • The department's counsel maintained that the petitioner had fraudulently availed ITC forwarded by a non-existent dealer based on intelligence notes and scrutiny of returns, that intimation was sent under Rule 142(1)(a), and that the petitioner was given ample opportunity, though counsel could not produce any document evidencing that personal hearing was actually granted.

Court Order / Findings

  • The Court found that no relied-upon documents (the inspection/intelligence report) were ever served on the petitioner, and no personal hearing was ever granted, relying on the Supreme Court's ruling in Ayaaubkhan Noorkhan Pathan v. State of Maharashtra that documents relied upon in intelligence-based proceedings must be furnished to enable a proper response.
  • The Court also noted the striking fact that the department's own counsel admitted no order sheet or record of the assessment proceeding had been maintained by the State Tax office concerned, despite a specific direction from the Court to produce it.
  • The Court held that the ex-parte adjudication order dated 15.09.2020 was passed in utter violation of the principles of natural justice and of Section 75(4) and 75(5) of the JGST Act, and quashed and set aside the order, remitting the matter for a fresh notice, supply of relied-upon documents, personal hearing, and a fresh order in accordance with law.

Important Clarification

  • Where the department relies on intelligence notes or inspection reports to allege that ITC was availed from a non-existent supplier, natural justice requires that those very documents be furnished to the assessee before an adverse order is passed — an ITC-reversal order passed without doing so, and without personal hearing under Section 75(4), is liable to be quashed regardless of the seriousness of the underlying allegation.
  • A supplier's subsequent cancellation of GST registration does not retroactively taint purchases made while that supplier was validly registered and had filed matching returns; the department cannot treat a dealer as "non-existing" for a period during which it was, in fact, an active registered taxpayer.

Sections Involved

  • Section 73 of the CGST/JGST Act, 2017 - governs determination of tax not paid for reasons other than fraud/suppression.
  • Section 75(4) and (5) of the CGST/JGST Act, 2017 - mandate opportunity of personal hearing and limit adjournments in adjudication proceedings.

Decision – In Favour of

The writ application was allowed in favour of the Assessee; the ex-parte ITC-reversal order was quashed and the matter remitted for a fresh, properly conducted adjudication.

Case Details

High Court of Jharkhand at Ranchi, W.P. (T) No. 2972 of 2021; Coram: Hon'ble Mr. Justice Aparesh Kumar Singh and Hon'ble Mr. Justice Deepak Roshan; decided on 5 September 2022.

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