World Phone Internet Vs Superintendent (Allahabad High Court)
The Allahabad High Court considered a challenge to an adjudication order and Form GST DRC-07 relating to the financial year 2019-20. During the hearing, the petitioner confined the dispute to the denial of the statutory benefit under Section 74(5) of the CGST Act, 2017, read with Rule 142(1A) of the CGST Rules, 2017, contending that no Form GST DRC-01A had been issued before the show cause notice in Form GST DRC-01. The petitioner asserted that this deprived it of the statutory opportunity to settle the dispute by paying the tax, interest and 15% penalty before issuance of the show cause notice.
The Revenue argued that Rule 142(1A) is directory after the amendment substituting the word “shall” with “may”, and therefore issuance of DRC-01A is not mandatory. It was also contended that the petitioner had already participated in the adjudication proceedings and that no prejudice had been caused since the petitioner could have opted to settle the matter after receipt of the show cause notice by paying tax, interest and 25% penalty.
The High Court held that Section 74(5) forms an integral part of the statutory scheme and confers a substantive right on a taxpayer to settle the proposed demand before issuance of the show cause notice by paying the tax, interest and 15% penalty. The Court observed that this statutory benefit cannot be curtailed through an interpretation of Rule 142(1A) that treats issuance of DRC-01A as merely discretionary. The Rule must be read consistently with the parent statute, and delegated legislation cannot dilute or defeat the mandate of the Act. Accordingly, the Court held that Section 74(5) read with Rule 142(1A) is mandatory to the extent that a demand carrying a penalty exceeding 15% cannot initially be raised without first affording the taxpayer the statutory opportunity contemplated under Section 74(5), and issuance of DRC-01A is mandatory for that purpose.
