In a significant ruling, the Punjab & Haryana High Court quashed an order passed by the Joint Commissioner, Patiala, confirming a GST demand against a taxpayer for alleged short reversal of Input Tax Credit (ITC) on supplies of exempted goods. The Court found that the impugned order suffered from a complete non-application of mind and lacked any cogent reasoning for rejecting the taxpayer’s detailed replies and supporting documentation.
The petitioner, a proprietorship concern engaged in trading veterinary and poultry feed supplements, was initially issued a notice for the financial year 2020-21 alleging failure to reverse ITC on common inputs used for both taxable and exempted supplies. After the petitioner submitted a reply and supporting documents, the authorities did not pursue the matter further for that year. However, for the subsequent financial year 2021-22, the department again raised the same issue through scrutiny and show cause notices, to which the petitioner responded with detailed explanations, reconciliations, and references to relevant CBIC circulars.
Despite these submissions, the adjudicating authority passed an order on December 30, 2025, confirming the proposed demand. The order merely stated that the matter was “sub-judice” and that the petitioner’s reply was unsatisfactory, without addressing the specific contentions, documents, or the basis for distinguishing between taxable and exempt supplies. The petitioner challenged this order, arguing that it was unreasoned and demonstrated a lack of application of mind.
During the hearing, counsel for the State conceded that there was no issue pending as “sub-judice” regarding the merits of ITC reversal in the petitioner’s case. The High Court, upon reviewing the record, observed that the impugned order failed to provide any substantive reasoning for rejecting the petitioner’s replies or for the conclusion that the matter was “sub-judice.” The Court noted the absence of any analysis of the CBIC circulars or the reconciliation statements provided by the petitioner.
The Court held that the impugned order was vitiated by non-application of mind and a lack of reasoned decision-making, both of which are essential requirements under law for any quasi-judicial order affecting rights of parties. Accordingly, the order dated December 30, 2025, was set aside. However, the Court clarified that the authorities are not precluded from proceeding afresh in accordance with law, but must do so only after duly considering all replies and submissions made by the petitioner and providing a fresh opportunity of hearing.
The writ petition was disposed of with these directions, reinforcing the principle that tax authorities must pass reasoned and speaking orders after due consideration of all material placed before them.
Case Reported at:
Case Name: Bagga Vet Pharma v. State of Punjab and Anr.
Case Citation: (2026) taxcode.in 985 HC
