2024 (2) TMI 588 - HC - GST

Reversal of input tax credit (ITC) u/s 17(5)(h) of the CGST Act, 2017 can be sought on presumptive basis or not - Allegation of short declaration of Outward Supply and excess claim of ITC - levy of interest under Section 50 of the CGST Act and penalty under Section 122(2)(a) - seeking quashing endorsement notice issued by Respondent No. 3 as arbitrary, vague and in contradiction to the provisions of the CGST/KGST and violative of Article 265 of the Constitution - HELD THAT - The provisions of Rule 142(1) of the Central Goods and Service Tax Rules, 2017, prior to the Central Goods and Service Tax Sixth Amendment Rules, 2019 only contemplated issuance of Notice under Section 73 1 , 74 1 and 76 2 and other provisions of the CGST/ KGST Act with a summary in FORM GST DRC-01. With the amendment under the aforesaid Amendment Rules with effect from 09.10.2019, Rule 142(1A) is included, and this Rule stipulates that the proper officer shall, before service of notice under Section 73 (1) as also under Section 74(1) of the GST Act, communicate the details of the tax, interest and penalty as is ascertained in Part A of Form GST DRC 01A. The proper office is now given the option of issuing intimation in Part A of FORM GST DRC 01A. Simultaneously with the introduction of Rule 142(1A) under the Central Goods and Service Tax Sixth Amendment Rules, 2019, Rule 142(2A) is introduced. The provisions of this Rule stipulate inter alia that if the person to whom notice is issued in Part A of Form GST DRC 01A is desirous to file any submissions against the proposed liability, such submissions can be filed in Part B of Form GST DRC 01A. This Court must opine that if indeed the petitioner has filed submissions, as part of its submissions in Part B of FORM GST DRC 01A, asserting that it has offered different prices for the same supply of goods and services at different places and declared Returns accordingly, the implication thereof should be examined in the light of the provisions of Section 15 of the KGST Act for a reasonable and just commencement of the proceedings under Section 73(1) of the GST Act. The petitioner s grievance insofar as issuance of impugned notice incorporating Part-II thereof must necessarily be examined in the light of this requirement and the fact that the notice does not refer to the submissions filed in reply to the notice in Part B of FORM GST DRC-01A and though this Court can see the reason for issuance of the impugned Show Cause Notice before 30.09.2023 but when the infirmity as aforesaid is obvious, this Court must intervene under Article 226 of the Constitution of India and pass just and reasonable order to ensure that the proceedings prevail in accordance with the requirement of law. Petition allowed in part.

Summary

Issues Involved:
1. Validity of the impugned Show Cause Notice under Section 73(1) of the KGST Act.
2. Legitimacy of the reversal under Section 17(5)(h) of the CGST Act.
3. Liability for interest and penalty under Sections 50 and 122(2)(a) of the CGST Act.
4. Quashing of the endorsement notice dated 03.08.2022.

Summary:

1. Validity of the Impugned Show Cause Notice:
The petitioner challenges the Show Cause Notice dated 30.09.2023 issued under Section 73(1) of the KGST Act, which includes two parts: Part-I concerning disallowed Input Tax Credit (ITC) for non-compliance with Section 16(2) and Section 15 of the CGST Act, and Part-II alleging short declaration of Outward Supply and excess claim of ITC in Karnataka. The petitioner's grievance is limited to Part-II. The Court observed that if the petitioner's grievance with Part-II is favored, the proceedings could be restored to the stage of FORM GST DRC-01A under Section 73(5) of the KGST Act, allowing the petitioner to file further replies and the respondents to reissue the Show Cause Notice under Section 73(1).

2. Legitimacy of the Reversal under Section 17(5)(h) of the CGST Act:
The petitioner contends that reversal under Section 17(5)(h) cannot be sought on a presumptive basis. The Court noted that the petitioner's Books of Accounts had been audited, and during enforcement, the petitioner's representatives had furnished documents and statements validating the transactional price declared in the Returns. The second respondent's Investigation Endorsement dated 03.08.2022 alleged short declaration of Outward Supply, based on an assumption that the value of Outward Supply must include a 10% profit margin. The petitioner argued that the transactional value, as per Section 15(1) of the KGST Act, should be the dispositive factor.

3. Liability for Interest and Penalty under Sections 50 and 122(2)(a) of the CGST Act:
The petitioner asserts that they are not liable to pay interest under Section 50 nor can a penalty under Section 122(2)(a) be imposed. The Court observed that the intimation in FORM GST DRC-01A dated 22.09.2023 and the subsequent Show Cause Notice dated 30.09.2023 did not consider the petitioner's specific case regarding the transactional value. The Court emphasized that the proper officer must reason why the submissions filed cannot be accepted before assuming jurisdiction to issue notice under Section 73(1).

4. Quashing of the Endorsement Notice dated 03.08.2022:
The petitioner sought to quash the endorsement notice dated 03.08.2022 as arbitrary, vague, and in contradiction to the provisions of the CGST/KGST Act and violative of Article 265 of the Constitution. The Court noted that the entire process from the issuance of intimation in FORM GST DRC-01A to the Show Cause Notice was completed within eight days, with 30.09.2023 being the last date of limitation. The Court found this hurried conclusion to assume jurisdiction under Section 73 of the CGST/KGST Act within a crunched period of eight days to be stark and obvious.

Order:
The petition is allowed-in-part, and the impugned Show Cause Notice dated 30.09.2023 is quashed with the following liberties:
[A] The petitioner may file further submissions in continuation of the submissions filed on 27.09.2023.
[B] The respondents shall examine these submissions and, if there is an opinion of shortfall of payments, proceed to issue notice under Section 73(1) of the KGST Act covering Part-II.
[C] The first respondent shall not be impeded by the question of limitation in issuing such notice. The first respondent is also at liberty to issue notice concerning Part-I as there is no challenge to it in the present proceedings.