The Goods and Services Tax Appellate Tribunal (GSTAT), Thane Bench, has set aside tax, interest and penalty demands aggregating to ₹18.84 lakh against a works contract and construction services firm, holding that cryptic notices, unreasoned adjudication orders and dismissal of statutory appeals for non-prosecution violated the principles of natural justice.

The Bench of Ramesh Nair (Judicial Member) and Prallhad S. Paranjape (Technical Member) remanded the disputes for fresh adjudication. It clarified that the taxpayer’s ultimate entitlement to input tax credit (ITC) remained undecided and that all questions of fact and law would remain open. 

Buy Now: 160+ GST E-Magazine September 2026

The proceedings concerned ITC claimed by the assessee during financial years 2020–21 and 2021–22 on inward supplies from vendors whose GST registrations were subsequently cancelled retrospectively.

For FY 2020–21, the disputed credit amounted to ₹4,89,456 on purchases from Eagle Enterprises, Prati Enterprises and Bhagaban Barik/Maruti Enterprises. For FY 2021–22, the dispute involved credit of ₹6,80,142 relating to supplies from Singh Lakshay Traders.

The department categorised these suppliers as “Non-Genuine Taxpayers”, alleging that their registrations had been obtained through fraud, wilful misstatement or suppression of facts and that they had issued invoices without underlying supplies.

Show cause notices dated March 25, 2023, were issued under Section 73 of the CGST/MGST Act. The taxpayer did not submit replies at the adjudication stage, following which the adjudicating authority passed ex parte orders on October 12, 2023.

The demand for FY 2020–21 totalled ₹8,39,640, comprising tax of ₹4,89,456, interest of ₹3,01,238 and penalty of ₹48,946. For FY 2021–22, the demand totalled ₹10,44,328, comprising tax of ₹6,80,142, interest of ₹2,96,170 and penalty of ₹68,016.

After making the mandatory pre-deposits, the taxpayer challenged the demands before the Joint Commissioner of State Tax (Appeals), Kalyan.

During those proceedings, it submitted written representations and documents, including tax invoices, bank statements and e-way bills, to establish the genuineness of the transactions.

The first appellate authority nevertheless rejected the appeals. It held that the taxpayer had failed to discharge the burden of proving ITC eligibility under Section 155 because complete supporting records concerning transportation and delivery had not been produced.

The appellate orders also cited non-prosecution, referring to the taxpayer’s failure to attend scheduled personal hearings.

Before the Tribunal, the taxpayer argued that both the original and appellate orders were mechanical, non-speaking and contrary to natural justice.

It maintained that the suppliers were shown as active on the GST portal when the transactions occurred, that the goods and services were actually received and used for taxable outward supplies, and that consideration inclusive of GST was paid through banking channels.

The taxpayer further contended that a purchaser had no statutory mechanism to audit suppliers’ bank accounts or ensure their subsequent tax compliance. It argued that retrospective cancellation of a supplier’s registration could not, by itself, defeat the credit claim of a bona fide recipient.

These submissions, however, were not finally adjudicated by the Tribunal, which confined its determination to the procedural validity of the proceedings.

The department defended the demands, arguing that possession of invoices and payment through banking channels did not automatically establish eligibility for ITC.

It submitted that actual receipt of goods was a mandatory condition under Section 16(2)(b), while Section 155 placed the burden of establishing eligibility on the person claiming credit.

According to the department, the taxpayer had failed to produce sufficient corroborative material, including lorry receipts, consignment notes, transport payment records, toll receipts, updated Part B of e-way bills, loading payment records and comprehensive stock registers.

Relying on the Supreme Court’s decision in State of Karnataka v. Ecom Gill Coffee Trading Private Limited, the department argued that disputed transactions required cogent evidence of physical movement beyond invoices and payment particulars.

The Tribunal acknowledged that the statutory burden of proving ITC eligibility rested on the taxpayer. It nevertheless held that the revenue authorities were equally obliged to provide a fair and reasonable opportunity to discharge that burden.

Examining the show cause notices, the Bench found that the sections dealing with the brief facts and grounds merely referred to an attachment without elaborating specific findings or explaining the precise contravention alleged against the recipient.

The original adjudication orders compounded the defect. They described the issue in a single line concerning ineligible ITC from a non-existent supplier and proceeded to confirm substantial demands without independent analysis, transaction-specific findings or supporting reasons.

Referring to Kranti Associates Pvt. Ltd. v. Masood Ahmed Khan, the Tribunal emphasised that recording reasons is an essential component of natural justice and that quasi-judicial authorities must issue speaking orders. 

The Tribunal held that dismissal of the statutory appeals for non-prosecution was legally unsustainable.

It examined Sections 107(11) and 107(12), which require the appellate authority to adjudicate the challenge and issue a written order identifying the points for determination, its decisions and the reasons supporting them.

The Bench relied on the Patna High Court decisions in Purushottam Stores v. State of Bihar and Nav Nirman Construction v. Union of India, which recognise the appellate authority’s duty to consider the merits and grounds of appeal even when the appellant does not appear.

It also referred to the Bombay High Court decision in CIT v. Premkumar Arjundas Luthra (HUF) concerning disposal of appeals on merits.

The Tribunal consequently found that the first appellate authority had failed to cure the defects in the original proceedings by improperly relying on non-prosecution while disposing of the appeals.

The Bench held that the department could not confirm a demand solely on the basis of retrospective cancellation of suppliers’ registrations without independently verifying the facts and giving the recipient a fair opportunity to be heard.

At the same time, it expressly refrained from deciding whether the disputed ITC was admissible. The order therefore grants procedural relief and requires reconsideration; it does not finally establish the genuineness of the purchases or approve the credit claims.

Setting aside both the original adjudication orders and the appellate orders, the Tribunal directed the adjudicating authority to communicate detailed and specific grounds for the proposed ITC disallowance.

The authority must provide a reasonable opportunity for a personal hearing, permit the taxpayer to submit corroborative documents and independently examine the evidence under Sections 16(2) and 155. It must then pass a detailed, reasoned order addressing the submissions and material placed on record.

The taxpayer was also directed to cooperate fully and proactively produce the required evidence, including invoices, payment records and proof of physical movement of goods, within the timelines prescribed during the fresh proceedings.

The Tribunal specified that the remand was open and that the adjudicating authority must examine all relevant factual and legal issues without being influenced by the Bench’s observations. Both appeals were accordingly allowed by way of remand. 

Membership Required to Access Case Details & Order Copy

To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.

Read More: GST Refund Can’t Be Rejected Without SCN; Appellate Hearing Can’t Cure Defect: GSTAT