Madras HC: Non-Existing Suppliers Can’t be Verified for GST Demand Without Giving Them a Chance to be Heard

In the matter of M/s. M.B.M. Steels vs. The Assistance Commissioner (ST), the Madras High Court stated that if the taxpayer received an inward supply from a non-existent taxpayer, the petitioner should be given an opportunity for a personal hearing before pursuing recovery action.

The petitioner is a dealer of hardware and has a GST registration under the respondent’s jurisdiction. On 01.08.2022, the respondent informed the petitioner that an examination of his GSTR-3B returns vis-a-vis GSTR-2A returns revealed that the petitioner received an inward supply from a non-existent taxpayer (Sun Steels), for which he claimed an input tax credit of Rs. 71,604/- (CGST: Rs. 35,802/- + SGST: Rs. 35,802/-).

The instruction further said that the petition was submitted through the portal. However, the taxpayer has not responded to the same. As a result, the submission was approved to recover Rs. 71,604/- plus a penalty of the same amount under Section 74 of the Tamil Nadu Goods and Services Tax Act, 2017.

The petitioner is stating that the respondent claimed to have sent them two notices: one on 28.03.2022 and another on 21.04.2022 asking the petitioner to pay Rs. 71,604 along with an equal amount as a penalty. However, the petitioner is arguing that they never received any further notice for a personal hearing after the show cause notice was issued. They are concerned about not being given an opportunity to present their side of the point either through the portal or through the post.

As a consequence, the petitioner claims that he wasn’t given a chance to defend himself, and this lack of opportunity goes against the principles of natural justice. This, in turn, makes the respondent’s decision seem arbitrary. Therefore, the petitioner seeks to challenge and set aside the order.

Additionally, the petitioner argues that Sun Steels is an existing company with a valid GST registration. The submitted documents also show that Sun Steels filed a GST return and paid taxes related to the supplies made by the petitioner.

The counsel representing the petitioner pointed out that the reason for issuing a show cause notice was that the supplier of the petitioner was non-existent. However, this argument doesn’t stand because the supplier, Sun Steels, is registered under GST (Goods and Services Tax) and has paid taxes for the supply made to the petitioner.

The petitioner’s counsel contends that if the petitioner had been given a chance for a personal hearing, they could have stated their point to the respondent. The respondent has not disputed this fact. Since the petitioner was not given an opportunity to present their documents and evidence to counter or prove their point against the respondent, especially when they have documents that could disprove the claim, the order that was issued against them was liable to be set aside. Therefore, the decision has been overruled based on the conclusion.

After reviewing the matter, the Writ Petition is granted, and the impugned order is remitted back to the respondent for a fresh review. The petitioner must prepare copies of the papers mentioned in the impugned order, including the invoice copy, GST e-Way bill copy, and payment details.

The stated documents must be provided within one week after receiving a copy of this decision, and the responder must review them and issue orders within six weeks of receiving them. There are no costs. As a result, the associated miscellaneous petitions have been closed.