It is a frequent occurrence for tax authorities to issue demand orders without adequately justifying their allegations, particularly in cases concerning ineligible input tax credits. The eligibility of input tax credit is primarily assessed under section 16 of the CGST Act, with certain credits being blocked under section 17(5). Tax authorities tend to utilize section 17(5) to disallow input tax credits, yet they often fail to provide justification for the specific subsection under which these credits should be disallowed.
Numerous legal precedents emphasize that an order must be a “speaking order,” meaning it should thoroughly justify the allegations made. It should be rendered after careful consideration of the facts and submissions provided by taxpayers.
A comparable case was brought before the Honorable High Court of Madras, where the Court remanded the case and directed authorities to reassess it based on its merits, ensuring that the taxpayer is given a reasonable opportunity to be heard.
| SW Point of View: Although the Court’s order did not provide any relief, it emphasized the principle that liabilities cannot be sustained if allegations are not adequately explained. From our perspective, this results in time inefficiencies and could be prevented if adjudication authorities perform diligent work from the outset. P.S. The adjudication authority must provide adequate justification for why any input tax credit should be disallowed under section 17(5). Simply subjectively disallowing it is insufficient. |
Source: 2024 (4) TMI 296 – MADRAS HIGH COURT
Amandeep Singh – Indirect Tax
