M/S Santhhome Latex Enterprises vs. Commissioner Of CGST, Thiruvananthapuram

Facts

M/s Santhome Latex Enterprises, engaged in manufacturing and supply of Centrifugal Rubber Latex, underwent an audit for the period July 2017 to March 2022. A Show Cause Notice (SCN) was issued under Section 74(1) of the CGST Act proposing recovery of ineligible Input Tax Credit (ITC) of Rs. 8,56,877/- with interest and penalty. The Adjudicating Authority dropped the demand, finding no evidence of fraud, wilful misstatement, or suppression. However, the Joint Commissioner (Appeals) reversed this, relying on the appellant's non-response to an audit enquiry and the final audit report. The appellant contended that the reconciliation of ITC was disclosed through GSTR-9C and annual filings.

Held

The Court held that the mere availment of ineligible self-assessed ITC, without evidence of fraud, wilful misstatement, or suppression of facts with the intent to evade tax, cannot attract Section 74 of the CGST Act. The Court found that no material evidence of fraud, wilful misstatement, or suppression to evade tax was indicated in the SCN, which failed to meet the criteria laid down in CBIC Instruction No. 05/2023-GST. The Court also held that the disclosure of ITC reconciliation through GSTR-9C and annual return filings, available on the GST portal, negated the allegation of suppression of facts under Explanation 2 to Section 74. The appellate authority's reliance on a ground not contained in the SCN (failure to reply to audit enquiry) was found to be against the fundamental principles of natural justice. Finally, the Court held that mere failure to reply to an audit enquiry or final audit report, in the absence of other evidence, does not amount to suppression of facts under Section 74. Consequently, the impugned Order-in-Appeal was set aside, and the appeal was allowed with consequential relief.

Key Issues

1. Whether the mere availment of ineligible self-assessed ITC, without evidence of fraud, wilful misstatement, or suppression of facts with intent to evade tax, would amount to suppression of facts so as to invoke Section 74(1) of the CGST Act? 2. Whether the disclosure of ITC reconciliation through GSTR-9C/annual return filings and on the GST portal would negate the allegation of suppression of facts under Explanation 2 to Section 74 of the CGST Act? 3. Whether the Appellate Authority was justified in sustaining the invocation of Section 74 on a ground not contained in the Show Cause Notice? 4. Whether mere failure to reply to the audit enquiry/final audit report would amount to suppression of facts under Section 74 of the CGST Act? Petitioner's Arguments: The petitioner argued that Section 74(1) cannot be invoked merely for availing ineligible ITC without intent to evade tax. They contended that the reconciliation of ITC was already disclosed through statutory filings (GSTR-9C/annual returns), negating any suppression. Furthermore, the appellate authority introducing a new ground (non-response to audit enquiry) not present in the SCN violated principles of natural justice. They relied on CBIC Instruction No. 05/2023-GST and Supreme Court judgments in Cosmic Dye Chemical and Ballarpur Industries Ltd. Revenue's Arguments: The judgment does not record specific arguments made by the revenue. However, the Joint Commissioner (Appeals) reversed the original order by relying on the appellant's non-response to audit enquiries and the final audit report.