2024 (9) TMI 428 - HC - GST

Violation of principles of natural justice - respondent failed to consider the petitioner's reply and instead confirmed the audit observations in the form of an adjudication order - denial of Input Tax Credit (ITC) in respect of payments made to the statutory auditors - Alleged purchase of goods falling under HSN 85171110 - Alleged non payment to creditors for a period exceeding 180 days. Denial of ITC in respect of payments made by the petitioner to its statutory auditors - HELD THAT - On perusal of the show cause notice, it appears that the petitioner was called upon to show cause as to why ITC should not be denied because the supply falls within the scope of sub-section (5) of Section 17. The petitioner replied stating that supply of services by an auditor does not fall within the scope of sub-section (5) of Section 17. The show cause notice did not call upon the petitioner to produce relevant invoices. The petitioner has also placed invoices on record. In these circumstances, reconsideration is necessary on this issue. Alleged purchase of goods falling under HSN 85171110 - HELD THAT - The petitioner asserted that it deals with online recharge coupons and not mobile phones. At the time of audit, the petitioner has produced extensive documents relating to the nature of business carried on by the petitioner, including all financial statements and income tax returns. In view thereof, on this issue also, the matter requires reconsideration. Alleged non payment to creditors for a period exceeding 180 days - HELD THAT - The show cause notice was based on the balance sheet for the relevant period indicating the outstanding of about Rs.2.05 lakhs to the creditor. In reply to the show cause notice, the petitioner stated that the only creditor is Sun TV and that the credit period is three days. In the absence of evidence of non payment for more than 180 days, it could not have been concluded that the petitioner was not entitled to avail of ITC in this regard. As regards non maintenance of the stock register, even the audit report indicates that it is inapplicable to the nature of services provided by the petitioner. The impugned order is unsustainable and is hereby set aside. As a corollary, the matter is remanded for reconsideration by the respondent. After providing a reasonable opportunity to the petitioner, including a personal hearing, the respondent is directed to pass a fresh order within a period of three months from the date of receipt of a copy of this order - Petition disposed off by way of remand.

Summary

Issues:
1. Denial of Input Tax Credit (ITC) in respect of payments made to statutory auditors.
2. Alleged purchase of goods falling under HSN 85171110.
3. Alleged non-payment to creditors for a period exceeding 180 days.
4. Alleged non-maintenance of stock registers.

Detailed Analysis:
1. The petitioner challenged an order dated 30.12.2023, contending that the respondent failed to consider their reply and confirmed audit observations in an adjudication order. The petitioner, engaged in the business of purchasing and selling recharge coupons, responded to audit observations on 25.09.2023. Despite the petitioner's explanations, the respondent issued the impugned order on 30.12.2023. The first issue raised was the denial of ITC for payments to statutory auditors. The petitioner argued that the payment did not fall under sub-section (5) of Section 17. The denial was based on the absence of relevant tax invoices, which the petitioner claimed they would have provided if requested.

2. The second issue concerned the alleged purchase of goods under HSN 85171110. The petitioner clarified that they only dealt with online recharge coupons, not mobile phones. The petitioner's response was allegedly disregarded due to the lack of tax invoices. The third issue was non-payment to creditors for over 180 days. The petitioner explained that payments to Sun TV were made within the credit period, supported by bank statements. The last issue was the alleged non-maintenance of stock registers, which the petitioner argued was irrelevant as transactions were conducted online.

3. In response, the Additional Government Pleader argued that the petitioner failed to produce necessary documents during adjudication, leading to the confirmation of tax proposals. However, the court found merit in the petitioner's contentions. Regarding the denial of ITC, the court noted that the show cause notice did not request relevant invoices, and the petitioner had submitted them. Reconsideration was deemed necessary. Similarly, on the issue of goods purchase, the court found that the petitioner had provided extensive documentation supporting their business nature, warranting reconsideration.

4. The court addressed the alleged non-payment to creditors, emphasizing that without evidence of non-payment exceeding 180 days, the denial of ITC was unjustified. Additionally, the court noted that the audit report acknowledged the inapplicability of stock register maintenance to the petitioner's services. Consequently, the impugned order was set aside, and the matter was remanded for reconsideration by the respondent, with directions to issue a fresh order within three months, providing the petitioner with a fair opportunity, including a personal hearing. The writ petition was disposed of without costs, and related petitions were closed.