Madras High Court Slams GST Authority for Failing to Provide Reasons in ITC Refusal
The Madras High Court has recently set aside a Goods and Services Tax (GST) order that refused Input Tax Credit (ITC) under section 17(5) of the GST Act, 2017, due to lack of clarity and insufficient reasoning from the respondent.
Madra: The Madras High Court has recently set aside a Goods and Services Tax (GST) order that refused Input Tax Credit (ITC) under section 17(5) of the GST Act, 2017, due to lack of clarity and insufficient reasoning from the respondent.
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The Court’s decision comes after the applicant, Sri Dhanalakshmi Steels, contested the order issued by the GST authorities on August 27, 2024.
Background of the Case
Sri Dhanalakshmi Steels, a trader dealing in goods, had their Input Tax Credit (ITC) claim rejected on the grounds of ineligibility, citing Section 17(5) of the GST Act. The company was informed that ITC would not be allowed on certain goods and services without specific reasons or details being provided for the refusal under the relevant clause of Section 17(5).
Key Issues in the Case
The applicant’s counsel argued that the notice issued by the respondent simply listed the goods and services for which the ITC was refused, without citing the precise clauses of Section 17(5) invoked. They further argued that the refusal of ITC lacked clear justification for non-compliance. The applicant’s counsel clarified that the company was only engaged in trading goods and did not use any inputs for personal consumption or the construction of its own building, which would typically be grounds for ineligibility under GST.
The council also offered to provide tax invoices for the inward supply of taxable goods for the relevant period and stated their readiness to participate in a personal hearing. However, the impugned order was issued, stating that the applicant had not provided the necessary documents and had failed to attend the personal hearing scheduled for August 9, 2024.
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Court’s Judgment
Justice Mohammed Shaffiq, presiding over the case, noted that the applicant was not given adequate information regarding the specific clause of Section 17(5) that led to the refusal of the ITC claim. The Court found that the absence of clear details on the grounds for refusal undermined the applicant’s ability to defend their case effectively.
In light of this, the Court ruled that the impugned order was unjustified and set it aside. The respondent was directed to issue a fresh notice specifying the relevant clause under Section 17(5) that applied to the refusal of ITC. The Court emphasized that the applicant must be given a fair opportunity to respond to the notice and to be heard before a final decision is made, in line with legal and procedural fairness.
Impact of the Court’s Ruling
This ruling is significant for businesses navigating the GST landscape, as it reinforces the need for clear communication and transparency from tax authorities. Taxpayers must be made aware of the specific grounds on which any adverse decision, such as the refusal of ITC, is based. This ensures that businesses have an adequate opportunity to present their case and meet the statutory requirements.
The Madras High Court’s decision provides relief for Sri Dhanalakshmi Steels, and it sets a precedent for future cases where the grounds for refusing ITC under Section 17(5) are not clearly communicated.
