The Madras High Court has set aside an order denying a small business the benefit of the GST composition scheme, along with a consequential show cause notice under Section 74, after taking note of its belated filing of Form GST ITC-03.
The bench Justice C. Saravanan, sitting at the Madurai Bench, directed the tax authority to reconsider the matter after examining the taxpayer’s subsequent compliance and its reply to the notice proposing denial of the composition benefit.
The bench did not conclusively declare the business eligible for the scheme, leaving the issue for fresh adjudication.
BUY NOW: 195+ ITC Judgements Along With GSTAT Rulings – 2017 To 2026
The business obtained GST registration on November 30, 2018, and initially opted to pay tax under Section 9 of the respective GST enactments. It subsequently opted for the composition levy under Section 10.
Following this change, the taxpayer filed quarterly returns in Form GST CMP-08 and an annual return in Form GSTR-04, declaring its turnover and the tax payable under the composition scheme.
However, it had not filed Form GST ITC-03 as required under Rule 3(3) of the respective GST Rules. As recorded in the judgment, the form was required to disclose inputs held in stock, input tax credit availed and its reversal.
The authorities initiated proceedings over the failure to file ITC-03. The taxpayer submitted a reply in Form GST DRC-06 on September 27, 2026, providing the relevant details.
Separately, a show cause notice dated August 5, 2026, proposed denying the benefit of the composition levy. The taxpayer did not respond to that notice.
Consequently, the Superintendent passed an order in Form GST CMP-07 on August 24, 2026, denying the composition benefit. A consequential show cause notice in Form GST DRC-01 followed on August 28, 2026, under Section 74.
The taxpayer challenged these proceedings under Article 226 of the Constitution, raising objections relating to jurisdiction, limitation, factual correctness and violation of the principles of natural justice.
The central issue was whether the denial of the composition benefit and the consequential proceedings should stand when the taxpayer had subsequently filed the previously omitted ITC-03.
The Court recorded that the taxpayer completed this compliance on September 27, 2026, although belatedly. It also noted that the order denying the composition benefit had been passed without a reply from the taxpayer.
Crucially, the Court observed that acceptance of the taxpayer’s eligibility for the composition levy would render the subsequent Section 74 proceedings ineffective.
“If the petitioner’s case is accepted for the compounded levy under Section 10,” the Court observed, the subsequent proceedings initiated under Section 74 would be “rendered nugatory.”
In these circumstances, and with the consent of counsel for both sides, the Court set aside the challenged proceedings and directed the Superintendent to pass a fresh order after considering the belated compliance with Section 10 read with Rule 3.
The taxpayer must submit a proper reply to the notice preceding the August 24 order within 30 days of receiving a copy of the High Court’s order.
The Superintendent must consider that reply and pass a fresh order within three months from the date of its submission.
Noting that the taxpayer was a “tiny undertaking” based on its returns, the Court also observed that the authorities may permit it to operate under the composition levy, without prejudice to the department’s rights.
The writ petition was disposed of without costs, and the connected miscellaneous petitions were closed.
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.
