This is to apprise you about an important decision by Hon'ble Madras High Court ('HC') in the case of Mahendra Feeds and Foods, 2022 (5) TMI 1237. The HC was dealing with the question as to whether a Show Cause Notice ('SCN') can be the first intimation of Input Tax credit (‘ITC’) mis-match.
- The Petitioner availed ITC for the FY 2017-18 and 2018-19. The GST Department issued a SCN requiring the Petitioner to explain the ITC mismatch.
- The Petitioner contended that before issuance of a SCN, Departement was obliged to first communicate the mismatch to both the supplier and recipient as per Section 42(3). Thus, SCN cannot be issued as a very first communication.
- The Department submitted that SCN issued to the recipient was itself a communication as per Section 42(3).
- After receipt of SCN, if at all the petitioner wanted to rectify the ITC mismatch, he would have submitted the supporting documents to substantiate that output tax had been paid by the supplier, which he failed to do.
- Therefore, SCN can be treated as a communication as per Section 42(3), intimating the ITC mismatch.
- Apparently, the HC made it clear that merely on such small technical ground, an adjudication proceeding cannot be diluted, especially when the Petitioner did not even care to explain the mismatch or put forth a reply.
- This decision will surely encourage GST authorities to issue a SCN directly for ITC mismatches which will definitely create a problematic situation for taxpayers.
