Madras HC Allows Reassessment in TRAN-1 GST Case After Quashing Order

1.Introduction

In a significant judgment that brings relief to several businesses, the Madras High Court has quashed an assessment order issued for non-filing of TRAN-1, the form required to carry forward pre-GST input tax credit (ITC). The Court emphasized the importance of natural justice and directed the tax department to reassess the case with proper opportunity to the taxpayer.

2. What is TRAN-1?

TRAN-1 is a transitional form under GST. Businesses were required to file this form to claim unutilized Input Tax Credit (ITC) from the previous tax regime (Excise, VAT, Service Tax) into the new GST system. If a taxpayer failed to file TRAN-1, they risked losing their eligible credit, leading to large tax demands.

3. Case Summary: Sri Vinayagar Steels vs. Assistant Commissioner (ST)

The petitioner, Tvl. Sri Vinayagar Steels, missed filing the TRAN-1 form on time. As a result, the tax department:

Sent a Show Cause Notice (SCN).

The petitioner did not reply or attend the hearing.

A final order was passed under Section 74 of CGST Act, alleging ineligible ITC and demanding tax.

4.What the Court Observed

The Madras High Court found multiple lapses in how the department handled the matter:

Violation of Natural Justice: The petitioner was not given a fair hearing.

Notice Procedure Not Proper: Merely uploading the notice on the GST portal isn't enough; proper communication must be made.

Assessment Lacked Merit: The order didn’t consider the actual facts or give the petitioner a chance to respond.

5.What Relief Did the Court Give?

The Court provided conditional relief to the petitioner:

1. Impugned Order Quashed

The final assessment order was set aside (cancelled).

2. Case Sent Back for Fresh Assessment

The case is remanded to the department to pass a new order on merits.

3. Pre-Deposit Requirement

The petitioner must deposit 25% of the disputed tax amount in cash within 30 days.

4. Time-Bound Reassessment

A fresh order must be passed within 6 months.

A reply to SCN must be filed by the petitioner within 30 days.

5. Right to Be Heard

The department must provide the petitioner an opportunity for a hearing before passing any fresh order.

6.If Conditions Are Not Met?

If the petitioner fails to:

Deposit 25% of the tax in time, or

Submit a proper reply within 30 days,

The Writ Petition will be automatically dismissed, and

The department will be free to take legal action under GST law.