Orissa High Court quashes GST demand for bypassing scrutiny reply under Section 61

Background of the dispute

The Orissa High Court in Qualicum Solutions Pvt. Ltd. Vs Chief Commissioner of CT and GST (Orissa High Court) examined the legality of a demand order issued under Section 73 of the Odisha Goods and Services Tax Act, 2017, where the Department had proceeded as if no reply had been furnished to an earlier scrutiny communication in ASMT-10 under Section 61.

The assessee, Qualicum Solutions Pvt. Ltd., invoked the writ jurisdiction of the High Court to challenge an order dated 9th April, 2024 passed under Section 73. The central grievance was that the Department initiated demand proceedings on the premise that no reply had been filed to the ASMT-10 scrutiny notice dated 29th June, 2021 bearing Reference No. ZD210621008683T, although a detailed reply dated 29th July, 2021 had, in fact, been submitted.

Impugned order and preceding show cause notice

Key impugned actions

  • The order under challenge was passed on 9th April, 2024 under Section 73 of the Odisha Goods and Services Tax Act, 2017.
  • This order was preceded by a show cause notice dated 29th January, 2024.
  • In that show cause notice, one of the reasons cited for invoking Section 73 was that the assessee had allegedly not responded to the ASMT-10 communication dated 29th June, 2021.

Assessee’s position on the factual matrix

Counsel for the assessee drew the Court’s attention to the show cause notice dated 29th January, 2024, which expressly recorded that action under Section 73 was being proposed because, among other things, the assessee had not submitted any reply to the scrutiny communication in ASMT-10.

The assessee, however, placed on record material (including the disclosure at page 14 of the writ petition) showing that:

  • The assessee had filed a reply dated 29th July, 2021.
  • This reply was specifically in response to the ASMT-10 communication dated 29th June, 2021, bearing Reference No. ZD210621008683T.
  • Despite this, the impugned proceedings proceeded as if no reply had ever been furnished.

On this basis, it was urged that initiation and continuation of proceedings under Section 73 without first dealing with the reply given under Section 61 was legally impermissible and without jurisdiction.

Revenue’s stand before the High Court

Nature of original proceeding

Counsel for the Revenue explained that:

  • The initial communication in ASMT-10 was part of proceedings under Section 61 of the Odisha Goods and Services Tax Act, 2017, which deals with scrutiny of returns.
  • Under this provision, the assessee had been asked to clarify certain discrepancies, for which a reply was solicited.

Justification for the Section 73 action

The Revenue candidly acknowledged that the subsequent proceeding under Section 73 had indeed been initiated without taking into account the assessee’s reply dated 29th July, 2021.

However, it was argued that:

  • In the later Section 73 proceedings, adequate opportunity of hearing was afforded to the assessee.
  • Since the assessee was given a chance to present its case during those proceedings, no real prejudice was caused.
  • Therefore, according to the Revenue, the writ petition deserved to be dismissed despite the oversight at the Section 61 stage.

Statutory framework: Section 61 and its linkage to Section 73

Scheme of Section 61