Delhi Soccer Pvt. Ltd. v. Union of India & Ors., Delhi High Court, W.P.(C) 7804/2024, Section 73 CGST Act, Category – Input Tax Credit / Scrutiny & Adjudication, decided on 28 May 2024
Facts
The petitioner was subjected to scrutiny proceedings under Section 61 of the Central Goods and Services Tax Act, 2017, pursuant to which explanations furnished by the petitioner were accepted and Form GST ASMT-12 was issued, signifying closure of scrutiny proceedings. Subsequently, a Show Cause Notice dated 22.09.2023 was issued under Section 73 proposing a demand of ₹10.99 crore on multiple ITC-related grounds. The petitioner did not file a reply to the said notice, proceeding on the bona fide belief that no further action would survive once scrutiny stood concluded. The Proper Officer thereafter passed an adjudication order dated 19.12.2023 confirming the demand along with penalty solely on account of non-submission of reply
Questions before the Court
Whether an adjudication order under Section 73 could be sustained where the assessee failed to file a reply due to a bona fide impression that proceedings stood concluded after acceptance of explanation under Section 61, and whether principles of natural justice warranted remand for fresh adjudication
Observations of the Court
The Court noted that the Show Cause Notice invoked multiple and distinct grounds relating to excess ITC, ineligible credits, reversals, non-business transactions, exempt supplies, and ITC availed from cancelled or defaulting suppliers. It observed that the petitioner had made out a plausible case that the culmination of scrutiny proceedings under Section 61 reasonably led to an impression that no further proceedings would follow. The Court emphasised that the impugned order had been passed solely on the ground of non-filing of reply, without any adjudication on merits, and that in such peculiar facts, denial of an opportunity would offend principles of natural justice
Judgment
The Delhi High Court set aside the adjudication order dated 19.12.2023 passed under Section 73 and remanded the matter to the Proper Officer for re-adjudication. The petitioner was granted four weeks’ time to file a detailed reply to the Show Cause Notice. The Proper Officer was directed to grant personal hearing and pass a fresh speaking order in accordance with law within the time limits prescribed under Section 75(3) of the CGST Act. The Court expressly clarified that it had not examined the merits of the allegations and left all rights and contentions open
Relevant statutory provisions
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Section 61, CGST Act, 2017 – Scrutiny of returns
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Section 73, CGST Act, 2017 – Determination of tax not paid or short paid without fraud
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Section 75(3), CGST Act, 2017 – Time limit for adjudication
Between the fine lines (practical takeaway)
Closure of scrutiny proceedings under Section 61 can legitimately create a bona fide expectation for taxpayers that issues stand resolved. Where a subsequent Section 73 notice is issued and the assessee fails to respond due to such impression, mechanical confirmation of demand is vulnerable. Adjudicating authorities must ensure substantive opportunity of hearing, particularly where demands are confirmed solely due to non-reply, failing which High Courts are inclined to remand matters for fresh adjudication.
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