GST order demanding transitional credit recovery quashed for violating natural justice: verification reports must be furnished, fair hearing on same granted before adjudication.

Judgment :

G.S.Kulkarni, J.

1. This petition under Article 226 of the Constitution of India challenges the Order-in-Original dated 5^th February 2025 issued by Respondent no.3 primarily on the ground that it is against the principles of natural justice and more particularly the same having passed without furnishing to the Petitioner the copies of verification reports. At the outset, the prayers made in the petition are required to be noted, which read thus :

“a. this Hon’ble Court be pleased to issue a Writ of Certiorari or a writ in the nature of Certiorari or any other writ, order or direction under Article 226 of the Constitution of India calling for the records pertaining to the Petitioners’ case and after going into the validity and legality thereof quash and set aside the impugned Original-in-Original No.218/ADC/MUM-SOUTH/VS/2024-25 dated 05.02.2025, issued in Form GST DRC-07 (Reference No.ZD270225-29464G) dated 05.02.2025 by the Respondent No.3 (Exhibit A);

b. this Hon’ble Court be pleased to issue a Writ of Prohibition or a writ in the nature of Prohibition or any other appropriate writ, order or direction under Article 226 of the Constitution of India prohibiting the Respondents by themselves, their subordinate, servants and agents from acting upon or taking any further proceedings in pursuance of/or in furtherance of the impugned Order-in- Original No.218/ADC/MUM-SOUTH/VS/2024-25 dated 05.02.2025, issued in Form GST DRC-07 (Reference No.ZD270225-29464G) dated 05.02.2025 by the Respondent No.3 (Exhibit A).”

2. The facts lie in a narrow compass. The Petitioner claims to be a manufacturer of various chemical products including adhesives, industrial resin, construction chemicals etc. The Petitioner was registered with the erstwhile Sales Tax Department in the State of Maharashtra, under Central Sales Tax Act along with the then respective State Sales Tax/Value Added Tax Acts. Upon implementation of Central Goods and Services Tax Act, 2017 (`CGST Act’), the Petitioner obtained a registration under the Goods and Services Tax Acts. It is contended that under Section 140 of the CGST Act, a provision is made for the transition of the input tax credit from existing laws to the GST regime. The Petitioner is stated to have filed GST TRAN-1 and GST TRAN-2 declarations for transition of input credit to the electronic credit ledger on 17^th November 2017. On such backdrop, some time in February-2018, the Respondent no.2 initiated an audit for verification of the transition of CANVAT credit being availed by the Petitioner while being transitioned to the GST regime under of the CGST Act read with Rule 117 of CGST Rules. Extensive correspondence ensued between the Petitioner and the officers of Respondent no.2 during the period from February-2018 to December-2021. In such correspondence, the Petitioner has stated to have furnished all the documents as required by Respondent no.2.

3. It is the Petitioner’s case that although all such information and documents were provided, on 9^th December 2021, a show cause notice was issued to the Petitioner under Section 73(5) of the CGST Act read with Rule 142 of CGST Rules, calling upon the Petitioner to show cause as to why transitional credit of central tax and state tax of Rs.21,73,43,970/- claimed by the Petitioner by filing Form GST TRAN-1 and transitional credit of central tax and integrated tax of Rs.68,54,143/- claimed by the Petitioner by filing Form TRAN-2, should not be demanded and recovered from the Petitioner with interest and penalty the