The Himachal Pradesh High Court has directed the GST Department to reconsider the objections against multiple show cause notices relating to denial of Input Tax Credit (ITC), while allowing the petitioner to file a fresh and detailed response supported by documentary evidence.  

The Bench of Justice Vivek Singh Thakur and Justice Ranjan Sharma did not examine the constitutional validity of Section 16(2)(c) of the Central Goods and Services Tax (CGST) Act, 2017, as the petitioner chose not to press that challenge at this stage. 

The petitioner had approached the High Court challenging the constitutional validity of Section 16(2)(c) of the CGST and Himachal Pradesh GST Acts, contending that the provision unfairly restricts the availment of Input Tax Credit where the supplier has failed to deposit the tax with the Government.

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According to the petition, the provision effectively compels a purchasing dealer to perform an impossible task by ensuring that the supplier has actually paid the tax to the Government, despite the absence of any statutory mechanism enabling such verification. The petitioner argued that the provision violates Articles 14, 19(1)(g), 265 and 300A of the Constitution. The petition also sought quashing of three notices dated July 9, 2024, July 24, 2024, and August 1, 2024, besides seeking protection against further proceedings under Section 74 of the CGST Act. 

During the hearing, counsel for the petitioner informed the Court that the company was not pressing its challenge to the constitutional validity of Section 16(2)(c) or its prayer seeking restraint against further proceedings. Instead, it reserved its right to raise those issues in an appropriate future proceeding if necessary.

The petitioner confined its request to challenging the show cause notices and sought permission to submit comprehensive replies along with supporting documents before the adjudicating authority. 

The petitioner submitted that although replies had allegedly been filed earlier, no such averment was contained in the writ petition, nor were copies placed on record. The respondents also denied receiving any such replies.

Without entering into that controversy, the petitioner requested liberty to submit fresh and detailed objections addressing all issues raised in the notices. Specifically, the petitioner sought an opportunity to establish that payments for the purchases, including GST, had actually been made to the suppliers; that the transactions were genuine and supported by valid documentation; whether the purchases had been made before or after cancellation of the supplier’s GST registration; and that the petitioner had complied with all statutory requirements regarding verification of the supplier’s identity. 

The petitioner further argued that if these facts were established, it should not be denied the benefit of Input Tax Credit.

The Advocate General for the State as well as counsel appearing for the GST authorities informed the Court that if the petitioner filed fresh responses supported by relevant documents, the competent authority would consider them and decide the matter within a reasonable period. 

Accepting the consensus between the parties, the High Court disposed of the writ petition with specific procedural directions.

The Court directed the competent GST authority to accept fresh objections and supporting documents from the petitioner within 28 days; examine the petitioner’s submissions while considering the genuineness of the transactions, payment of GST, timing of purchases vis-à-vis cancellation of supplier registration, and statutory compliance; pass a speaking and reasoned order within six weeks from the filing of the objections.

The Court further clarified that if the petitioner failed to submit objections within the stipulated period, the authorities would be free to proceed in accordance with law on the basis that the petitioner had no further submissions to make. 

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