Below discussed case laws are part of article – Show cause Notice under GST – A Complete Analysis
SCN can be quashed by HC in certain cases
-Cases where the Constitutional vires of the very enactment under which the proceedings are initiated is under challenge;
-Cases where the proceedings have been initiated or concluded in total violation of the principles of natural justice; and
-Where the orders impugned are totally without jurisdiction or where private and public wrongs are so inextricably mixed up or where prevention of public injury and the vindication of public justice demands that recourse the Article 226 of the Constitution be taken.
Cases
- Special director v Mohd. Ghulam Ghouse [2004 (164) E.L.T. 141 (S.C.) – writ petition should not be entertained by High Court unless issuance of notice was totally non est in eye of law
- Kirloskar Computer Service Ltd. Vs. Union of India [1998 (98) E.L.T 355 (Kar.)
- Indian Cardboard Industries Limited v. Collector of Central Excise, [1992 (58) E.L.T. 508 (Cal.)]
“15. On the basis of the decisions cited it appears that the court in exercise of its jurisdiction under Art. 226 of the Constitution will interfere with a show cause notice in the following circumstances :
- When the show cause notice ex facie or on the basis of admitted facts does not disclose the offence alleged to be committed;
- When the show cause notice is otherwise without jurisdiction;
- When the show cause notice suffers from an incurable infirmity;
- When the show cause notice is contrary to judicial decisions or decisions of the Tribunal;”
NON ISSUANCE OFF ELECTRONIC NOTICE –ISSUED UNDER REGD. POST
Jabir Hasan Versus Assistant Commissioner Of State Tax GST (Uttarakhand High Court)
Relevant Section/Rule: Rule 68 of the Central Goods and Services Tax Rules, 2017
Matter in Dispute: Notice under Rule 68 to be issued electronically or through post?
It is not disputed that Rule 68 of the Central Goods and Services Tax Rules, 2017 provides for notice to the non filers of returns – a notice in form GSTR – 3A shall be issued electronically to a registered person who fails to furnish return under Section 39 or Section 44 or Section 45 or Section 52. No notice, as envisaged in Rule 68 of the Rules, was issued, rather a postal notice was sent.
It is a settled principle of law that if enactment or legislation prescribes a particular procedure to conduct business affairs, then it has to be followed. In this case, impugned order has been passed without issuing electronic notice to the petitioner but by issuing registered postal notice. In view of the above, the writ petition is allowed and the impugned orders are quashed.
INSPECTION IN THE PRESENCE OF PERSON CANCELLATION OF REGISTRATION
Micro Focus Software Solutions India Private Limited Versus Union of India & Anr.
Name of the Authority: Delhi High Court
Relevant Section/Rule: Rule 25 of the CGST Rules
Matter in Dispute: Physical verification of the taxpayer’s premises in the absence of taxpayer Judgement of the Authority:
The order whereby the application for revocation was rejected shows that an inspection was carried out on the premises of the petitioner. It is not in dispute that although, Rule 25 requires inspection to be done the presence of the person whose property is being inspected, it was not done as the petitioner had no notice of the inspection. Besides the aforesaid, there is no tax outstanding qua the petitioner. Thus, for the foregoing reasons, as noticed above, the order of cancellation of registration is set aside.
FR Trade Links Vs. State Tax Officer Writ Petition No. 3710 of 2021 04/08/2021
Place of business place in the third floor and no business place
Petitioner has challenged in High court the order for cancellation of registration granted under the provisions of the CGST/SGST Acts. The Proper officer has provided the order of cancelling the registration on the basis of information which has come to their notice by intelligence squad report stating business place of petitioner is situated on the first floor of the three storied building which is partially completed with structure only and no building number affixed by the local authority. Hence directing the petitioner to furnish a reply to the notice.
The petitioner has rebutted the imputations by filing a detailed reply, still the registration certificate was cancelled. Upon receipt of the cancellation order the petitioner has filed an application for revocation of the cancellation of Registration Certificate, which was also rejected. Thus, aggrieved by the impugned order the dealer approached the Court by a writ petition.
Hon’ble Kerela High Court after hearing the submission, stated that the proper officer has failed to establish that the petitioner had contravened any of the provisions of the Act or Rules made thereunder, either in the show-case notice issued or in the order of cancellation. Out of the five grounds arrayed u/s. 29(2), sub clause [e] has some remote relevance with the present situation (fraud, willful misstatement or suppression of facts). However, the same is also not seen proved.
The only reason, in the instant case, for cancellation of the registration is that, business place is situated in a building which is partially completed with structures only and no building number is affixed by the local authority.
In fact, this allegation is totally insufficient for the purpose because Sub section (2) of Section 29 does not envisage the contingency of situation of place of business in a partially completed building having no building number affixed on it by the local authority. Consequently, the impugned order of cancellation of registration cannot stand in the scrutiny of law.
GST registration cannot be cancelled for more than 2 months on the basis of Show cause notice lacking any reason or fact
Shakti Shiva Magnets Pvt Ltd. V. Assistant Commissioner, 2022-VIL- 100-DEL
Facts:
The Petitioner has filed the present petition against the show cause notice issued by Revenue Department due to which the Petitioner’s registration was suspended was suspended for more than two months with no sufficient explanation or fact. The petitioner contented that as per Rule 21A as well as Rule 22(3) of the CGST Rules, 2017, provides that an assessee’s registration can be suspended only for 30 days and the cancelling proceeding has to be concluded within the same period.
Held:
The Hon’ble High Court held as follows:
- That the impugned show cause notice contains no fact or reasons and is not supported by any document based on which the Petitioner’s registration could not be suspended.
- Therefore, the Court quashed the show cause notice and directed the department to restore the Petitioner’s GST registration and also allowed the department to issue a fresh show cause notice mentioning all the relevant facts and reasons within a week.
- Further, directed the department to issue a practice direction so that in future, if any show cause notice for cancellation of registration is issued, the same is not berefit of any material particulars or reasons.
Rejection of Refunds – personal hearing not given – not justified
The petitioner is a registered Assessee under CGST Act 2017. The petitioner has made a claim for refund of Input Tax, in respect of which a deficiency memo had been raised by the respondent on 15.06.2020 calling for documents in support of the claim.
An e-application for refund was once again filed on 16.06.2020 followed by a show cause notice dated 25.06.2020 proposing rejection of refund stating that there was a mismatch between the export value and the net ITC when compared to monthly returns.
The petitioner has responded to the show cause notice vide reply dated 07.07.2020 enclosing copies of the export invoice, inward supply bills and bank realisation statements. Petition contended that two invoices relating to the month of March has been inadvertently omitted to be taken into account which accounted for mismatch. Hence the Petitioner challenged order dated 22.07.2020 by his request for refund was rejected.
The Honorable High Court cited that “had a personal hearing been afforded to the petitioner prior to adjudication of the request for refund, this point would have been explained.” However, since the impugned order has been passed without affording an opportunity of personal hearing, this point has not been put forth to the respondent for consideration effectively.
The Court pointed out that the column available for the reason was conspicuously left blank. Court set aside the non-speaking order of the State Tax Officer on the ground of violation of principles of natural justice as the column available for reason was conspicuously left blank without mentioning any reasons.
Demand cannot be raised during investigation: Telangana High Court
The petitioner is engaged in the business of dealing in goods and services relating to Ferrous waste and scrap, re-melting scrap ingots of iron or steel, flat rolled pro, plated or coated etc. Petitioner is issued a letter specifying that Input Tax Credit (ITC) availed by them are on the basis of fake invoices issued by certain fictitious suppliers/firms.
The letter further specifies that, ITC availed by the petitioner is in a fraudulent manner without receiving any material, and the petitioner was requested to reverse ITC on such invoices.
In the instant case, no doubt, summon has been issued to the Director of the petitioner firm under Section 70 of the CGST Act to give evidence / depose statement and to produce certain purchase orders and to appear. Admittedly, investigation against the petitioner is underway and not complete, and no notice u/s 74(1) of the Act has been issued to it.
Petitioner in order to buy peace with the respondent and to avoid coercion, had paid Rs.10.00 lakhs on 30.04.2019 and Rs.25.00 lakhs on 13.09.2019. According to the Counsel for the petitioner, liability cannot be determined by respondents before conducting enquiry when even the investigation is incomplete and when no enquiry has been initiated, petitioner cannot be compelled coercively to pay amounts to the respondents as it violates Art.14 and 300-A of the Constitution.
The Honourable Telangana High Court observed that, Section 74(5) of the CGST Act gives an option to the taxpayer to make any payment, if he so opts, but it does not confer any power on the respondents (authorities) to make a demand as if there has been a determination of liability of the assessee and demand tax along with interest and penalty. Consequent to the observation made, the HC directed the respondents to refund the amount already collected from petitioner along with interest @7% from the date of receipt till the date of refund.
Balaji Traders v. State Tax Officer [2021] 132 taxmann.com 244 (Madras)
Dealers were not given sufficient breathing time
The state tax officer/Respondent wanted to revisit the monthly returns filed by the petitioner. A summary of show-cause in Form GST-DRC-01 under rule 142(1) of the Rules, has been generated or uploaded electronically on June 4, 2020. However, without giving any slightest breathing time to the petitioner to respond on the very same date, that is, on June 4, 2020, the impugned assessment order has been passed. Therefore, on that ground, it is being challenged by the petitioner.
Hon’ble Court observed that the uploading or serving of a summary of show cause in Form GST-DRC-01 under rule 142(1) is not a mere formality, but it is mandated under the rule, so that, the taxpayer would have a chance of getting a summary of show cause and to respond the same and without giving such a breathing time, on the very same day, that is, the date on which GST-DRC-01 notice, that is, a summary of notice was uploaded, the impugned order was passed. Therefore, on that ground, this Court feels that the impugned order cannot be sustained, accordingly, it is liable to be quashed.
The impugned order is quashed and the matter is remitted back to the revenue officer for reconsideration. While reconsidering the same, if notice has already been issued, a summary of such show cause in Form GST-DRC-01 shall be freshly uploaded to the petitioner by giving some breathing time, and on noticing the same being served electronically, the petitioner shall respond with their available records and after giving an opportunity of being heard in this regard to the petitioner, a fresh assessment order can be passed by the Revenue officer in the manner known to law. This writ petition is disposed of.
Joy Mathew v. Union of India [2020] 120 taxmann.com
On account of fault committed by assessee to file returns in month of July 2018 to March 2019, assessee received notices in form of GSTR-3A – Assessee replied to said notice – Thereafter GST Authority passed assessment order and recovery notice was issued.
Whether in view of fact that assessee filed return within 30 days from receipt of assessment order u/s 62(1), there could not have been an occasion for issuing of recovery notices as assessment orders were in law required be withdrawn in terms of section 62(2)-
Held, yes.
Whether thus, impugned recovery notices were to be set aside and respondent was to be directed to look into returns filed by assessee – Held, yes
Impugned recovery notices were to be set aside, if return filed within 30 days.
SC allowed service of notices/summons/ document via WhatsApp, Telegram in addition to e-mail
Cognizance for Extension of Limitation [Suo Moto W.P. (C) No. 3/2020 dated on July 10, 2020]
The Hon’ble Supreme Court in Re: Cognizance for Extension of Limitation [Suo Moto W.P. (C) No. 3/2020 dated on July 10, 2020] w.r.t. I.A. No. 48461/2020 observed that service of notices, summons and exchange of pleadings/documents, is a requirement of virtually every legal proceeding and that the service of notices, summons and pleadings etc. have not been possible during the period of lockdown because this involves visits to post offices, courier companies or physical delivery of notices, summons and pleadings.
The Court therefore, considered it appropriate to direct that such services may be effected by e-mail, FAX, commonly used instant messaging services, such as Whatsapp, Telegram and Signal etc.
However, if such services are made by means of said instant messaging services, then in addition thereto, the service of the same document/documents must be made via e-mail on the same date.
Parallel proceedings cannot be initiated by State GST authorities on the same subject matter
Raj Metal Industries & Anr. v. UOI & Ors. [W. P. A. 1629 of 2021,
Facts
Raj Metal Industries (“the Petitioner”) has filed this petition challenging the actions initiated by the State GST Authorities (“the Respondent”) with respect to summons issued dated October 19, 2020 under Section 70 of the WBGST Act
Challenging blocking of the electronic credit ledger on December 8, 2020 being challenged the vires of Rule 86A of the West Bengal Goods and Services Tax Rules, 2017 (“the WBGST Rules”)/ Central Goods and Services Tax Rules, 2017 (“the CGST Rules”) & Section 16(2)(c) of the WBGST Act/ CGST Act
Further, the proceedings were already pending against the Petitioner on the same subject matter under the CGST Act.
[2020] 116 taxmann.com 262 (Jharkhand) Mahadeo Construction Co.v. Union of India*
Interest cannot be recovered without SCN. No garnishee proceedings unless Demand quantified vide adjudication
Assessee, a partnership firm, filed its monthly return for month of February, 2018 and March, 2018 – Revenue Authorities directed petitioner to make payment of interest on ground of delay in filing of GSTR-3B return for said months –
Revenue further exercised powers under section 79 by initiating garnishee proceedings for recovery of said amount of interest by issuing notice to assessee’s Banker – Whether since petitioner disputed computation or very leviability of said interest, liability of said interest was required to be adjudicated by initiation of adjudication proceedings under section 73 or 74 –
Held, yes – Whether, therefore, without initiation of any adjudication proceedings, no recovery proceeding under section 79 could be initiated for recovery of interest amount – Held, yes [Para 22] [In favour of assessee]
GST : Where Revenue Authorities exercised powers under section 79 by initiating garnishee proceedings for recovery of certain amount of interest by issuing notice to assessee’s Banker and assessee disputed computation or very leviability of said interest, it was to be held that liability of said interest was required to be adjudicated by initiation of adjudication proceedings under section 73 or 74; thus, without initiation of adjudication proceedings, no recovery proceeding under section 79 could be initiated for recovery of interest amount
a. Rejection of refund of an amount higher than that covered in the SCN is not tenable.
(TTEC India Customer Solutions Private Limited Vs. Deputy Commissioner of Sales Tax, 2022-Vil-16-Guj)
Facts:
The petitioner is engaged in providing customer solution service and mainly engaged in export of services as per the GST law. The petitioner exports its services under the bond or letter of undertaking without payment of integrated tax and claims refund of unutilized input tax credit. An application for refund of unutilized credit was preferred by the petitioner aggregating to Rs. 2,84,04,175/- for the period of February 2019 to March 2020.
A SCN was issued by the authority for the rejection of refunds to the tune of Rs.36,85,893/- out of the total refund claim. A proper reply to the SCN was filed. In the proceedings the concerned officer went on leaves due to personal reasons resulting in assigning of another new officer, who had to give a fresh opportunity of personal hearing to the petitioner but without doing so the new officer passed an order rejecting the entire claim of refund amounting to Rs. 2,84,04,175/-.
An appeal was filed under Section 107 of the CGST Act, 2017 but the appeal has not been listed for hearing. So, the petitioner approached the Hon’ble High Court to seek justice.
Held: After hearing both the parties, the Hon’ble Court quashed the rejection order with the following observations:
The rejection of a certain amount mentioned in a SCN for the refund claim cannot be more than the amount mentioned in the respective SCN.
The non availment of the opportunity of being heard is against the Principle of Natural Justice and when it adversely affects the petitioner and exceeds the scope of SCN, the respective SCN must be quashed as observed in the present case.
Registration of the purchasing dealer cannot be cancelled for any fraud committed by the selling dealer
M/s. Bright Steel Industries Vs Additional Commissioner (ST) 2021-VIL-687- MAD
Facts:
The Petitioner is carrying on the business of manufacturing and trade of Poly Vinyl Chloride (PVC) pipes, high-density polyethylene etc. The Central Tax and GST officer issued a show cause notice to the petitioner in Form GST REG-17 under Rule 22(1) of the CGST Rules, 2017 for cancellation of petitioner’s registration. Further, on the very same day, another show cause notice was issued for cancellation of registration on the ground that “the petitioner had claimed Input Tax Credit(ITC) against fake invoices issued by non-existent supplier”. The petitioner has filed the present writ petition against the order passed by the Additional Commissioner of CT & GST, rejecting the Petitioner’s application for revocation of cancellation of his registration on 7th January, 2021 under Section 30(2) of the OGST Act,2017
Held:
In light of above background, the Hon’ble High Court observed as follows:
On a collective reading of Section 16 of the CGST Act, 2017 with Rule 21 of the CGST Rules 2017, there is no provision that enables the cancellation of the registration of the purchasing dealer for any fraud committed by the selling dealer.
In case any fraud is committed by the sealing dealer, which resulted in cancellation of registration of selling dealer, there cannot be an automatic cancellation of the registration of the purchasing dealer
To attribute fraud by purchasing dealer, the Dept. would have to satisfy a high threshold of showing that the purchaser indulged in the transactions with the full knowledge that the selling dealer was non-existent.
The Department has failed to show that the petitioner as a purchasing dealer deliberately availed of the ITC in respect of the transactions with an entity knowing that such an entity was not in existence.
Author Bio
Sir,
Whether issuance of show cause notice u/s 73(1)/74(1) in DRC-01 without issuance of Pre-Show Cause Notice u/s 73(5)/74(5) in DRC-01A, is constitutionally valid within the framework of GST Act.
CA Om Prakash Jain s/o J.K.Jain, Jaipur
Tel:9414300730