GST Case Law Compendium – March 24 Edition

Introduction: The landscape of Goods and Services Tax (GST) in India is shaped by a myriad of legal decisions, offering clarity and precedent to businesses and taxpayers. In the March 24 edition of the GST Case Law Compendium, various significant rulings from different High Courts across the country have been scrutinized. These rulings cover a wide range of contentious issues, including liability of recipients for bogus invoices, procedural fairness in assessment proceedings, validity of assessment orders, applicability of penalties, and the interpretation of complex GST provisions.

1. Whether the Recipient be held liable for circulating bogus invoices by the supplier?

No, the Honorable Calcutta High Court in the case of Fairdeal Metals Ltd. v. Assistant Commissioner of Revenue, State Tax, Bureau of Investigation (NB) [Writ Petition Application No. 170 of 2024 dated February 01, 2024], held that the Supplier was given registration by the GST authority and if there had been any deficiency on the part of the Supplier, the registration should not have been issued. After registration has been issued and tax has been paid by the Supplier, the allegation made against the Supplier does not stand. Further, the Petitioner was not connected with any of the allegations leveled against the Supplier. Hence, the Recipient cannot be held responsible for availing the wrong ITC on account of bogus invoices circulated by the Supplier. Therefore, the Petitioner was not liable to pay the penalty.

The Honorable Calcutta High Court observed that there was an allegation of the non-existence of the supplier leading to non-deposit of the input tax. However, the Supplier already deposited the input tax on December 30, 2023, prior to the issuance of the Impugned SCN. This act negated the allegation of intention to evade tax. Further, the Supplier was given registration by the GST authority of Assam. If there had been any deficiency on the part of the supplier in the production of the documents, registration should not be issued. After registration has been issued and tax has been paid by the Supplier, the allegation made against the supplier does not stand. The Petitioner, being in no way connected with any of the allegations that have been leveled against the Supplier, cannot be made liable to pay the penalty as has been assessed.

Author’s Comments:-

Confiscation is not an emergency proceeding, unlike seizure. Only offending articles (liable to confiscation) can be confiscated. Every instance of non-payment of tax, even under special circumstances of section 74 does not support confiscation U/s 130.

SCN u/s 130 must be issued to the right person with an allegation supported by evidence that identified goods ‘’Offending Articles’’ are liable to confiscation by showing how to ingredients listed in any of the clauses u/s 130(1) are fulfilled.

Determination that any goods are ‘’liable ’’ for confiscation is an irreversible step.

In the present case, the goods being transported are dully in books of accounts; therefore they cannot be under any circumstances regarded as ‘’Secreted’’ and ‘’offending Article ‘’ liable to be confiscated.

A Similar order was passed by the Honorable Andhra Pradesh high court in case the of M/S Arhaan Ferrous and Non-Ferrous Solution Pvt. Ltd. v. Deputy Assistant Commissioned [Writ petition No.15481 of 2023 dated August 03, 2023], wherein it was held that the Petitioner’s responsibility will be limited to the extent of establishing that he bona fide purchased goods from the supplied for valuable consideration after verifying the GST registration of the said Supplier on the GST portal.

2. Are the Assessment Proceedings without proper intimation bad in law?

Yes, the Honorable Allahabad High Court in the case of Eastern Machine Bricks & Tiles Industries v. State of UP [Writ Tax No. 1507 of 2023 dated January 8, 2024] relying upon the principle of “Audi Alteram Partem” (let the other side be heard as well) allowed the writ petition and set aside the Impugned orders thereby holding that any action that proceeds without the intimation and service of the Show Cause Notice to the Assessee is vitiated and bad in law.

The Honorable Allahabad High Court relied upon the judgments of the Honorable Supreme Court in the cases of Maneka Gandhi v. Union of India and Ors. [(1978) 1 SCC 248], State of Kerala v. K.T. Shaduli Grocery Dealer Etc. [(1977) 2 SCC 777], Madhyamam Broadcasting Limited v. Union of India and Ors. [Civil Appeal No. 8129 of 2022 dated April 05, 2023] and State Bank of India v. Rajesh Agarwal and Ors. [Civil Appeal No. 7300 of 2022 dated March 27, 2023] and enumerating upon the principle of Audi Alteram Partem noted that, the significance and applicability of the principle is universal and is a part of the doctrine of natural justice. The principle ensures that no one is condemned, penalized, or deprived of their rights without a fair and reasonable opportunity of hearing. The principle also acts as a safeguard against arbitrary decision-making, upholding the principle of due process while also providing a crucial foundation for just and equitable legal or administrative proceedings.

The Honorable Court opined that in the present case when the Petitioner had canceled its registration, the proper notice was required to be issued at its address. However, the notice was uploaded merely on the web portal which prevented the Petitioner from appearing in the original proceeding.

Further Opined that any action that proceeds without proper intimation and service of the Show Cause Notice to the Petitioner is vitiated and bad in law and is, accordingly required to be quashed and set aside.

Author’s Comments:-

Although Section 169 of the CGST Act, 2017 specifies 14 different ways/modes of serving any decision, order summons, notice, or order communication under the Act, care must betaken by the authorities not to simply pick and choose any option, rather the best possible option must be chosen by which it is mostly likely to reach the notice. The notice or any other communication cannot be termed to be served until it has reached the intended notice.

A Similar order was passed by the Honorable Madras High Court in the case of Jak Communications (P.) Ltd. v. Deputy Commercial Tax Officer [W.P. No. 35453 of 2023 dated December 19, 2023] wherein the assessment orders were set aside because the Notices were not served physically to the Assessee, even though the Notices were uploaded on the web portal.

Violation of principles of natural justice is a failure of due process. And this violation renders the process arbitrary and when executive action is arbitrary it violates articles 14, 19 and 21 of the Constitution. Reference may be made to the jurisprudence in the case of Menaka Gandhi v. UOI AIR 1978 SC597, which illuminate understanding about the ‘role’ of a valid notice in any proceeding, however obvious the conclusion and consequent treatment might be.

3. Whether the Assessment Order valid when the details for the personal hearing are not mentioned in the Show Cause Notice?

No, the Honorable Calcutta High Court in the case of Goutam Bhowmik v. State of West Bengal [MAT 205 of 2023 dated January 9, 2024] allowed the writ petition and held that the assessment order passed by Proper Officer is not valid when no proper opportunity of hearing is afforded to the Assessee as no essential details have been mentioned in the Show Cause Notice for personal hearing.

The Honorable Calcutta High Court noted that as per Section 73 of the CGST Act read with Section 75(4) of the CGST Act, the Proper Officer is bound to afford an opportunity of hearing where either a request in writing is received by him from the person who is charged with tax or penalty, or where any adverse decision is being contemplated against such person. Also, affording an opportunity for a hearing is a statutory mandate that cannot be violated by the Proper Officer, and if violated, the order passed by the Proper Officer cannot be sustained.

The Honorable Court opined that from the perusal of the SCN, it is evident that the proper officer has declined to afford the opportunity of hearing as the Appellant was not communicated any date, time, and venue of hearing by the Respondent and further Opined that the impugned Order cannot be sustained and deserves to be quashed.

Author’s Comments:-

This is a welcome judgement and this highlights a major issue being faced by the taxpayer, where Principles of Natural Justice are grossly violated when the opportunity of being heard is not provided. This is expressly given in the statute [Section 75(4) and 126(3)] that the opportunity of being heard must be presented where it is specifically asked by the taxpayer or where the adverse order is contemplated. Providing the opportunity of a persona hearing along with SCN also raises a presumption that the proper officer is working with a preconceived notion to confirm the demand because the proper officer at the time of issuing SCN has neither gone through the reply of the taxpayer to contemplate an adverse order nor has the taxpayer requested a personal hearing in writing.

In the Author’s opinion, there is no requirement under the law to provide details of personal hearing in SCN, although, an opportunity of being heard must be given before passing an adverse order.

4. Whether the interest is payable when the GST amount deposited in ECL within the prescribed time period but the return Form GSTR-3B filed belatedly?

No, the Honorable Madras High Court in the case of M/s. Eicher Motor Ltd. v. Superintendent GST and Central Excise and Ors. [W.P. No. 16886 of 2023 dated January 23, 2024] set aside the order and recovery notice and allowed the writ petition, thereby holding that the Assessee is not liable to pay the interest when the amount of GST collected by the Assessee is deposited within the period but returns Form GSTR-3B was filed belatedly post due-date.

The Honorable Madras High Court relies on the judgement of the Honorable Jharkhand High Court in the case of M/s RSB Transmission Indian Limited v. Union of India and Ors. [W.P (T) No. 23 of 2022 dated October 18, 2022] and the judgement of Honorable Telangana High Court in the case of M/s. Megha Engineering and Infrastructure Limited v. Commissioner of Central Tax, Hyderabad [Writ Petition No. 44517 of 2018 dated April 18, 2019], held that any deposit in the Electronic Cash Ledger prior to the due date of filing GSTR-3B return does not amount to discharging tax liability.

The Honorable Court further noted that as per Section 39(7) of the CGST Act, the credit to the account of government would always occur not later than the last date for filing the monthly returns and once the amount is paid by generating GST PMT-06, the amount will be initially credited to the account of the government immediately upon deposit, thereby the tax liability of registered person would be discharged to the extent of amount deposited with the government. As per explanation (a) to Section 49(11) of the CGST Act, the amount of tax deposited, would deemed to be credited in the Electronic Cash Ledger.

The Honorable Court further noted that the tax liability of the registered person would be discharged from the date when the amount was credited to the account of the government. Also, as per Section 50(1) of the CGST Act, the registered person is liable to pay the interest only for the delayed period i.e. when there is any default in payment of GST after the date of filing monthly returns i.e. on or before 20th day of every succeeding month and relying upon the judgment of Honorable Gujarat High Court in the case of M/s Vishnu Aroma Pouching Pvt. Ltd. v. Union of India and Ors. [R/Special Civil Application No. 5629 of 2019 dated November 14, 2019] opined that the tax amount has already been credited in to the Government within the prescribed time limit i.e., before the due date, the issue of payment of interest would not arise.

Author’s Comments:-

After a lot of adverse judgments by various Honorable Courts on this issue, this judgement comes to the rescue of taxpayers contesting interest liability where payment as was made in Electronic cash ledger (ECD) and Electronic Credit Ledger (ECrl).

The Honorable Madras High Court has relied on the ruling of CIT v. Modipon limited, 2017 (356) ELT 481 (SC), wherein it was held that the amount deposited in Personal Ledger Account (PLA) shall be deemed as payment of tax to the Government. Basis this, the court distinguished earlier contrary High Court Rulings and held that no interest is payable.

In the Author’s opinion, this judgment needs revisiting and considering the statutory provisions of CGST

Act and CGST Rules, when read in entirety, reliance on explanation (a) to section 49 does not foster its conclusion as this provision has an entirely different purpose.

Taxpayers may benefit from this favorable judgement. However, it will be interesting to see how the department approaches to this particular issue and most likely it will be appealed before the Division bench of the Madras High Court.

Important to highlight that without demand for tax or creditor refund, there is no provision in section 73/74 to demand (i) only interest or (ii) only penalty without an underlying demand.

5. Whether the belated application for revocation of cancellation of the GST registration is filed and condoned?

Yes, The Honorable Orissa High Court in the case of Badajena Iron & Steel Industries (P.) Ltd. v. ST and GST Officer [Writ Petition (Civil) No. 485 of 2023 dated January 16, 2024] held that the Assessee is entitled to file the revocation application against the cancellation of the GST registration if the Assessee complies with the requirements of paying taxes, interest, late fee, penalty, etc. dues. Thus, the returns filed by the Petitioner would be accepted by the department.

The Honorable Orissa High Court directed that subject to the Petitioner depositing all the taxes, interest, late fee, penalty etc. due and complying with other formalities, the Petitioner’s application for revocation will be considered in accordance with law and held that the Petitioner will have to produce the order of the present judgment before the proper officer, and he will open the portal to enable the Petitioner to file the GST returns. Hence, the writ was disposed of.

Author’s Comments:

Similar orders were passed by the Honorable Orissa High Court in the case of Rakesh Kumar Sethi v. Commissioner of Central Goods and Service Tax [Writ Petition (C.) No. 41639 of 2023 dated January 02, 2024] and Bhagabati Prasad Kar v Superintendent, CGST and Central Excise [Writ Petition (C.) January 24, 2023].

Section 30 and rule 23 provide a mechanism for the ‘revocation’ of canceled registration. Taxpayer’s appeals for restoration of registration are being entertained on equitable considerations, especially citing SMWP 3/2020 of Apex Court read with notifications issued under section 168A.

Where registration is canceled by issuance of REG19, the Proper Officer is empowered to consider an application for revocation of cancellation. Although this ‘review’ appears to touch the line of violating the rule Nemojudex in the Causasua , this power of review is expressed in the law (section 30) and the same is to allow relief to taxpayers, this question is unlikely to come up for consideration before courts.

Application is liable to be allowed by Order in REG22. If not satisfied, the Proper Officer is required toa issue notice in REG23 indicating a proposal to deny the request made in the application.

6. Whether the GST department can raise new grounds or arguments that are not part of the SCN?

No, the Honorable Allahabad High Court in the case of M/s. Associated Switch Gears and Projects Ltd. v. State of Uttar Pradesh [Writ Tax No. 276 of 2020 dated January 25, 2024] held that no other ground can be raised apart from the grounds mentioned in the Show Cause Notice. The Authorities must adhere to the grounds mentioned in the SCN. It is not merely a procedural formality, but a mandatory requirement, beyond the scope of which no action can be taken. The Court also emphasized the fundamental safeguard against arbitrary exercise of power, ensuring that Authorities remain bound to the principles of justice and the rule of law. Hence, the Court directed the Respondents to refund the penalty paid by the Petitioner and further, the writ petition was allowed.

The Allahabad High Court observed that the significance of adhering to the SCN lies in upholding the rule of law and preventing arbitrary exercises of powers. Any action taken by an authority beyond the scope defined in the notice risks the boundaries of legality and procedural fairness. Such overreach not only undermines the legitimacy of the authority but also compromises the rights of the individuals or entities involved, potentially leading to legal challenges and erosion of public trust. Moreover, the issuance of an SCN imposes a duty on the part of the authority that outlines the specific allegations for its issuance. This requirement advances transparency and accountability, as the recipient is entitled to a clear understanding of the charges, which enables it to formulate an informed response. Any attempt by the authority to introduce new allegations beyond those mentioned in the notice would violate this principle of specificity, depriving the recipient of a fair opportunity to address the accusations leveled against it. Hence, by issuing a SCN, an authority acknowledges the principle of audialterampartem, or “hear the other side”, ensuring fairness and due process in its proceedings.

The Honorable Court relied onRamlala v. State of Uttar Pradesh and Ors. [2023 SCC Online All 2479], while placing reliance on the Board of High School and Intermediate Education, Uttar Pradesh v. Kumari Chitra Srivastava [(1970) 1 SCC 121] where it was held that the reason to not allow the authorities to go beyond the SCN is that a person must be given a chance to put up his case with regard to the SCN and relied on the Supreme Court Cases like Commissioner of Customs, Mumbai v. Toyo Engineering Ltd., [(2006) 7 SCC 592], Commissioner of Central Excise, Bhubaneshwar v. Champdany Industries Ltd., [(2009) 9 SCC 466], Commissioner of Central Excise, Chandigarh v. Shital International (2011) 1 SCC 109 and Jitendra Kumar v. State of Uttar Pradesh and Anr. [2023 SCC Online All 2837] wherein it was established that the authorities cannot raise new grounds or arguments that were not part of the SCN.

Author’s Comments:-

Section 75(7) of the CGST Act clearly specifies that the “grounds” on which SCN is issued, an Adjudication order has to be passed on the same very “grounds”. Where any notice is issued on certain grounds, those grounds are exhaustive terms of the lis that can neither be expanded in case of deficiencies nor cured in case of defects, in adjudication.

This principle has been decided by the Apex Court in case (a) CCE v. Brindavan Beverages (P) Ltd (213) ELT 487(S) and (b) Oryx Fisheries (P) Ltd v. UOI 2011 (266) ELT 422(SC).

7. Whether substantive changes be introduced in the Order by way of rectification of errors under Section 161 of the CGST Act?

No, the Honorable Calcutta High Court in the case of Sajal Kumar Das v. State of West Bengal [M.A.T. No. 2475 of 2023 dated January 09, 2024] allowed the writ petition and set aside the Order thereby holding that substantive changes cannot be introduced in the Order by way of rectification of errors under Section 161 of the Central Goods and Services Tax Act, 2017.

The Honorable Calcutta High Court noted that as per Section 161 of the CGST Act the Respondent Authority should be able to point out the error which is apparent on the face of the record, for rectification. However, the Respondent failed to point out the error in the Impugned Order which is apparent on the face of record, and opined that the order suffers illegality as the Impugned Order has essentially been rewritten which is beyond the powers exercised under Section 161 of the CGST Act.

Author’s Comments:-

As per Section 161 of the CGST Act, the power/jurisdiction to rectify is for any error or mistake which is apparent from the record. The error must be self–evident and should not be discoverable by a long process of reasoning, where there is a possibility on points on which there may conceivably be two opinions. But the limiting aspect is that the power cannot be exercised to amend the substantive part of the document concerned.

 The error may be –

(a) Factual,

(b) Legal or

(c) Clerical.

All of them are rectifiable once it is shown that they are apparent on the face of the record and not within the natural understanding of the authority at the time of issuance of the original document but which has crept in due to inadvertence or by reason other than exercise of judgement.

However, it is important to note that ‘apparent on the  face of record’ is not one that involves (i) a conclusion that cannot be reached without taking new facts on record during rectification proceedings or (ii) requiring application of mind to existing facts or interpretation already adopted in reaching the conclusion already reached.

A time limit of 3 months is allowed for the affected person to bring to attention any such error or mistake. This time limit does not apply to the very officer who has passed the said order (containing the apparent error) and voluntarily made the necessary rectification.

8. Whether the Assessment Order sustainable when no opportunity of being heard is granted?

No, the Honorable Madras High Court in the case of Tvl. Shanthi Vijay Granites v. Assistant Commissioner (ST), Hosur [W.P. No. 615 of 2021 dated October 31, 2023] disposed of the writ petition, and set aside the Assessment Order on the ground that adequate opportunity for representation and filing of reply was not granted to the Assessee by the Revenue Department.   

The Honorable Madras High Court observed that Form GST DRC-01 is not supported by the Annexure to Show Cause Notice, therefore, the Petitioner was not provided with the necessary particulars to respond. Also, the Assessment Order in Form ASMT-07 and the SCN were issued on the same day.

The Honorable Court opined that the Impugned Order was issued without any opportunity and when the Impugned Order is issued within forty-eight hours of the issuance of the SCN, the opportunity to respond was merely illusory, therefore, the proceedings are vitiated, and thus, the writ petition is disposed of.

Author’s Comments:-

This is a welcome judgment and this highlights a major issue being faced by the taxpayer, where Principles of Natural Justice are grossly violated when the opportunity of being heard is not provided. This is expressly given in the statute [Section 75(4) and 126(3)] that the opportunity of being heard must be presented where it is specifically asked by the taxpayer or where the adverse order is contemplated.

Similar orders were delivered by the Honorable Madras High Court in the case of M/s. SHIDO Pharma v. Assistant Commissioner (ST) [W.P. Nos. 10371 to 10373 of 2023 and W.M.P Nos. 10334 to 10336 of2023 dated April 03, 2023].

9. Whether Penalty can be imposed for technical errors lacking any intent to evade tax?

No, the Honorable Allahabad High Court in the case of Rawal Wasia Yarn Dying (P.) Ltd. v. Commissioner Commercial Tax [Writ Tax No. 352 of 2023 dated January 16, 2024] held that the invoice itself contains the details of the truck and the error committed is technical only and without any intention to evade tax. Hence, there is no requirement to levy a penalty under Section 129(3) of the Central Goods and Services Tax Act, 2017.

Once this fact has been substantiated, there is no requirement to levy a penalty under Section 129(3) of the CGST Act and relied on the case of M/s Citykart Retail Private Limited through Authorized Representative Commissioner Commercial Tax and Another [2023 U.P.T.C. [Vol.113]-173] where it was held that non filling up of Part ‘B’ of the e-Way Bill by itself without any intention to evade tax cannot lead to the imposition of penalty under Section 129(3) of the CGST Act.

Author’s Comments:-

As per Circular No.64/38/2018 dated 14.09.2018, a general penalty under section 125 of the GST Act must be imposed in case of minor breaches or discrepancies.

In the Author’s opinion, all the discrepancies in relation to the movement of goods except the fatal errors like Non issuance of tax invoices are minor discrepancies and no penalty u/s 129 of the GST Act can be imposed. As per Section 129 and Rule 138A of the GST Act, until and unless mens rea exists and is proved, all the errors and omissions have to be termed as non-fatal errors and no penalty U/s 129 can be imposed.

The Honorable Supreme Court of India has decided on the same issue in the case of Assistant Commissioner ST & Ors. Versus Satyam Shivam Papers Pvt. Ltd.[Special Leave to Appeal (C) No(s). 21132/2021 dated January 12, 2022].

Similar orders were passed by the Honorable Tripura High Court in the case of NE Equipment Solutions Pvt. Ltd. Versus The State of Tripura and others [WP(C) No. 577/2021] dated August 24, 2021 and also a similar judgment was passed by the Honorable Gujarat High Court in the case of M/s. Shree Govind Alloys Pvt. Ltd. Versus State of Gujarat (R/Special Civil Application No. 23835 of 2022) dated December 01, 2022.

10. Whether the transfer of development rights considered a service under GST Law?

Yes, the Honorable Telangana High Court in the case of M/s. Prahitha Constructions Private Limited v. Union of India and Ors. [Writ Petition No. 5493 of 2020 dated February 09, 2024] dismissed the writ petition and held that transfer of development rights would be considered as service and is, therefore subject to levy of GST.

The Honorable Telangana High Court noted that the JDA comprises two parts i.e. one is the agreement between the landowner and the Petitioner and the other is the supply of construction services by the Petitioner to the land owner and thereafter, the sale of constructed area to third-party buyers.

Further noted that there is no automatic transfer of ownership to the Petitioner at the time of execution of JDA. The Petitioner gets the right on the developed property only after the completion of the project and issuance of the completion certificate, the Petitioner derives the right to sell the area of property, which is allotted to him for the realization of the amount of money invested in the course of execution of JDA and under no circumstance, does the execution of JDA or transfer of development rights indicate an automatic transfer of ownership or title rights over any portion of land belonging to the landowner in favor of the Petitioner.

The Honorable Court opined that the services rendered by the Petitioner in the execution of JDA were supplied prior to issuance of JDA and therefore, would fall within the purview of GST.

Further Opined that the aforesaid supply would attract GST as the said supply would fall within the purview of construction services as per Entry 5(b) of Schedule II of the Central Goods and Services Tax Act and the services rendered by the Petitioner the transfer of development rights cannot be brought within the purview of Entry 5 of Schedule-III of the CGST Act.

The Honorable Court held that the challenge to the Impugned Notification is devoid of merits

Author’s Comments:-

While a transfer(sale) of land is outside the scope of GST laws, the law seeks to tax certain other transfers pertaining to land, by way of Notification No. 6/2019-Central Tax (Rate), dated 29.03.2019, as amended by notification no. 3/2021-central tax (Rate), dated 2.06.2021.

 One issue that emerges from the notification is that in case of a joint development agreement (JDA), the activity of providing the right to construct on a land belonging to the owner, is an independent supply in the hands of the owner and that supply, and is treated as a supply of service in terms of this clause. It is inferred such service is independent of the construction service which the developer provides to the landowner. The challenge that arises would relate to the valuation for both these supplies. It is important to note that such transactions are vivisected for the purpose of levy of tax and have not been construed as a single demise.

Important to note that this entry throws much-needed light on the limits to the exclusion available in Para-5of Schedule III to ‘sale of land and (completed) building’. It appears only absolute sale would be excluded from GST and any arrangement inferior to or less than absolute sale, would not be excluded by Schedule III. Arrangements less than absolute sale would be transactions such as leases, license easements, etc., that create ‘interest’ in immovable property.

11. Whether the Audit Report is valid when the reply filed by the Assessee is not taken into consideration?

No, the Honorable Andhra Pradesh High Court in the case of PBL Transport Corporation (P) (Ltd.) v. Assistant Commissioner (ST) [Writ Petition No. 33477 of 2023 dated January 04, 2024] allowed the writ petition and held that the Audit Report is not valid when reply to Discrepancy Notice is not taken into consideration, leading to violation of principles of natural justice.

The Honorable Andhra Pradesh High Court observed that Rule 101(4) of the Central Goods and Services Tax Rules, 2017 provides that the proper officer may inform the registered person of discrepancy notice, as observed in the notice for which the said person may file reply. Thereafter, the proper officer shall finalize the findings of the audit after taking into consideration the reply furnished by the Assessee.

The Honorable Court noted that the reply filed has to be taken into consideration and based on the reply, findings of the Final Audit Report are to be furnished and opined that as the reply has not been taken into consideration, the Impugned Final Audit Report issued is in violation of principles of natural justice.

Author’s Comments:-

This is a welcome decision by the Honorable High Court of Andhra Pradesh and it comes to the rescue of the taxpayer and once again the Rule of Land stands tall against the over-passionate administration. The Revenue Department has to understand that this kind of approach renders the “due process” laid down in the statute “Superfluous, unnecessary and nugatory”, which is impermissible in the law.

12. Whether Penalty can be imposed for mentioning the wrong vehicle number in E Way Bill?

No, the Honorable Allahabad High Court in the case of Hindustan Herbal Cosmetics v. State of UP [Writ Tax No. 1400 of 2019 dated January 2, 2024] allowed the writ petition and set aside the orders imposing a penalty on the ground that the typographical error of entering the wrong vehicle number in e-way bill up to three digits instead of permitted two digits as per the Circular No. 41/15/2018-GST dated April 13, 2018, and Circular No. 49/23/2018 dated June 21, 2018,  is minor in nature and therefore, imposition of penalty is without jurisdiction and illegal in law.

The Honorable Court noted that there is a typographical error of vehicle number with difference of three digits instead of permitted two digits as per the Circulars and relying upon the judgement of the Honorable Supreme Court in the case of Assistant Commissioner ST & Ors. v. Satyam Shivam Papers Pvt. Ltd. [SLP (C) No. 21132/2021 dated January 12, 2022] and judgement of Honorable Allahabad High Court in the case of M/s. Varun Beverages Limited. V.State of U.P. and Ors. [Writ Tax No. 958 of 2019 dated February 2, 2023], the presence of mens rea is a primary requirement for determining evasion of tax for imposition of penalty. Also, typographical error in the e-way bill without any further material to substantiate the intention to evade tax should not and cannot lead to the imposition of a penalty.

The Honorable Court opined that in the particular case wherein the error is minor in nature, the penalty under Section 129 of the CGST Act is without jurisdiction and illegal in law.

Author’s Comments:-

As per Circular No.64/38/2018 dated 14.09.2018 and various judicial pronouncements, a general penalty under section 125 of the GST Act must be imposed in case of minor breaches or discrepancies.

In our view, all the discrepancies in relation to the movement of goods except the fatal errors like Non issuance of tax invoices, no e-way bill, etc are minor discrepancies and no penalty u/s 129 of the GST Act can be imposed. As per Section 129 and Rule 138A of the GST Act, until and unless mens rea exists and is proved, all the errors and omissions have to be termed as non-fatal errors and no penalty U/s 129 can be imposed.

13. Whether GST Registration be restored if the Assessee files pending returns and pays the taxes along with interest and penalty?

Yes, the Honorable Guwahati High Court in the case of SanjoyNath v. Union of India [WP No. 6366 of 2023 dated November 29, 2023] disposed of the writ petition, thereby directing the Revenue Department to take necessary steps for restoring the Petitioner’s GST registration if the Petitioner is willing to comply with all the requirements stated in the proviso to Rule 22(4) of the Central Goods and Services Tax Rules, 2017 which includes furnishing of pending returns and payment of taxes along with interest and penalty.

The Honorable Court observed that Section 39(1) of the CGST Act requires registered person to furnish return for every calendar month, electronically of inward and outward supplies of goods or services or both, ITC availed, tax payable and paid and other related particulars in the prescribed manner and as per Section 29(2)(c) of the CGST Act, the Proper officer is empowered to cancel GST registration in cases where any registered person has not furnished returns for a continuous period of six months. Also, Rule 22 of the CGST Rules provides for procedure pertaining to cancellation of GST Registration.

The Honorable Court noted that as per the proviso to Rule 22(4) of the CGST Rules, the Officer is empowered to drop the proceedings and pass orders in prescribed Form i.e. Form GST Reg-01, in cases where a person who has been served the SCN under Section 29(2)(c) of the CGST Act, is ready and willing to furnish the pending returns and make full payment of tax along with applicable interest and late fees.

After taking into consideration the aforesaid provisions, the Honorable Court opined that the Respondent Authority is empowered to drop the proceedings and pass an order in the prescribed form if the Petitioner approaches the Respondent and expresses its willingness to furnish the pending returns and makes full payment of tax along with applicable interest and late fees.

Author’s Comments:-

Given the legislature has specified five(5) explicit delinquencies that taxpayers are well–informed through section 29(2) itself, there should be no violation of principles of natural justice here too by canceling registration without serving  notice. Maxim vigilantibus are non dormientibus jura subveniunt states that the law assists those who are vigilant about their rights and not those who are asleep over them.

Taxpayers who are issued a notice in REG17 must not only reply in REG18 but more importantly redress and regularize outstanding delinquencies which formed basis for proposal to cancel registration. And where the response and attendant redressal of all outstanding delinquencies (as mentioned in the notice) is found to be satisfactory, cancellation will be dropped by an Order in REG20.

14. Whether an Appellate Authority pass an Order without mentioning the appropriate reasons or findings?

No, the Honorable Delhi High Court in the case of GS Exim International LLP Through its designated Partner Bhakti Pada Ghosh v. Commissioner, Central Excise/ (GST) Appeal-I, Through Join Commissioner and Anr. [Writ Petition (Civil) 3300 of 2022 dated February 08, 2024] held that it was not apparent from the Order passed by the Appellate Authority as to why or on what basis the Petitioner does not fulfill the eligibility conditions of claiming the refund of the Input Tax Credit, the reasoning was not emanating, the Order was cryptic and there was no specific consideration of the factual matrix or the contentions of the Petitioner. Hence, the Order passed by the Appellate Authority was unsustainable.

The Honorable Delhi High Court observed that there is no consideration of the submissions in the paragraphs and the Impugned Order merely extracts the Board Circular and holds that the eligibility conditions are not complied with and it is not apparent from the Impugned Order as to why or on what basis the Petitioner does not fulfill the eligibility conditions for claiming the refund of ITC. Therefore, the Impugned Order is cryptic, and the reasoning is not emanating.

Author’s Comment:-

Even if a refund is to be denied, a speaking order must be passed rejecting the refund for good and sufficient reasons and properly founded in the law.

Unlike other notices for demand, a refund is a very crisp proceeding because the taxpayer is fully seized of the facts and needs to be “put at notice” on certain specific matters that need a response to consider the application to sanction or reject the said refund.

A Similar judgement was passed by the Honorable Delhi High Court in the matter of M/s Chegg India Pvt. Ltd. v. Commissioner of Central Goods and Services Tax [W.P.(c) 14886 of 2022 dated July 19, 2023] wherein it was held that the refund application cannot be rejected without giving a proper reason.

15. Whether 100 % Penalty can be imposed if a Show Cause Notice is issued under section 73?

No, the Honorable Madras High Court in the case of K.S. Janarthanam v. Deputy State Tax Officer [W.P. No. 1848 of 2024 dated January 31, 2024] disposed of the writ petition, thereby holding that, a 100 percent penalty cannot be imposed when Show Cause Notice is issued under Section 73 of Tamil Nadu Goods and Services Act, 2017.

The Honorable Madras High Court opined that the Impugned Order is required to be interfered with as a 100 percent penalty is imposed on the SGST dues when notice is issued under Section 73 of the TNGST Act and Held that the Impugned Order is quashed, thereby disposing of the writ petition.

Author’s Comments:-

Infraction of the law triggers the imposition of penalty. Dispensation of a penalty in section 73(5) even in the face of an infraction of law places a burden on Revenue to bring the infraction of law beyond mere ‘non-payment of tax or inadmissible claim of credit’. In other words, not every demand will automatically and irrefutably attract a penalty unless it can be shown that there was a necessary ingredient of animus or intent to commit such an infraction of law.

Penalty cannot be imposed mechanically. Imposition of a penalty specified under section 73(11) i.e. 10 percent, in all cases is itself liable to be struck down as a mechanical application of penalty.

A 100 percent penalty cannot be imposed when SCN is issued under section 73.

16. Who is authorized to continue proceedings in case of parallel proceedings initiated by both SGST and CGST departments on the same subject matter?

The Honorable Jharkhand High Court in the case of Vivek Narsaria v. State of Jharkhand & Ors. [Writ Petition(T) No. 4491 of 2023 dated January 15, 2024] held that since all the proceedings are interrelated, the State Authorities to continue the proceedings as per Section 6(2)(b) of the Central Goods and Services Tax Act, 2017, read with Notification No. 39/2017-Central Tax dated October 13, 2017 and the clarification bearing D.O.F. No. CBEC/20/43/01/2017- GST(Pt.) dated October 5, 2018. Further, directed both the Preventive Wing of the CGST and Directorate General of GST Intelligence Wing of the CGST to forward all their investigation carried out against the Petitioner and inter-related transactions to the State Authorities, who shall carry out further proceedings against the Petitioner in accordance with law and also, directed to take decision immediately on de-freezing of bank accounts of the Petitioner.

The Honorable Court observed that the entire proceedings were initiated by the inspecting team of SGST, based upon which, certain deposits have also been made and the State has also issued summons and notices from time to time. The Honorable Court opined that on a conjoint reading of the above section, notification, and clarification, it clearly denotes and implies that it is a chain of a particular event happening under the Act and every & any inquiry/investigation carried out at the behest of any of the Department are interrelated. Hence, the issues raised by the Petitioner herein manifestly crystalize that since all the proceedings are interrelated, the State Authorities should continue with the proceedings.

The Honorable Court further opined that the bank account attachment by issuing GST DRC 22 prior to any determination or finding of any irregular/inadmissible/wrong availment of ITC under Section 83 of the CGST Act, which conflicts with the notification issued by the CBEC from time to time, concerning guidelines for attachment of Bank, terming the same to be an ‘arm twisting method’ to make the Petitioner succumb to the particular authority.

17. Whether the department can allow payment of Tax and Interest to be made in installments?

Yes, the Honorable Calcutta High Court in the case of Neel Kamal v. Assistant Commissioner, State Tax [Writ Petition Application No. 28930 of 2023 dated January 09, 2024] held that the payment of tax and interest can be made in 10 installments considering that the Petitioner was facing financial hardship and the Respondent delayed in detecting revenue dues.

The Honorable Court held that due to the financial hardship of the Petitioner and the delay on the part of the Respondent in detecting such mistake of revenue dues against the Petitioner, the Petitioner can make payment of the tax dues and interest under Section 50 of the Central Goods and Services Tax Act, 2017 in question by way of ten equal installments under the provision of Section 80 of the CGST Act and directed that each of the installments must be paid within the tenth day of every month and in case of default in any of the installments within the time granted for making payment. This order of installment will lose its force and the Respondent will be free to proceed against the Petitioners in accordance with the law. Hence, the writ petition was disposed of.

Author’s Comment:-

As per Section 80 of the CGST Act, on an application preferred by a taxable person, the Commissioner may, for reasons to be recorded in writing, extend the time for payment or allow payment of any dues in installments not exceeding 24 months. However, in case of default by the taxpayer in payment of any one installment on its due date, the whole outstanding balance payable on such date shall become due and payable forthwith and shall, without any further notice being served on the person, be liable for recovery.

Similar judgments were passed in the case of NirajkumarNareshkumarLakhyani v. State of Gujarat [Special civil application no. 6777 of 2023 dated April 27, 2023] by the Honorable Gujarat High Court to set aside the order of Adjudicating Authority and allow the assessee to make payment of tax liability in installments and thereby lifted the provisional attachment of bank account of the assessee.

18. Whether the Assessment Order liable to be set aside when the Notice is not served physically?

Yes, the Honorable Madras High Court in the case of Jak Communications (P.) Ltd. v. Deputy Commercial Tax Officer [W.P. No. 35453 of 2023 dated December 19, 2023] disposed the writ petition thereby setting aside the Assessment Order passed by the Revenue Department in cases where the Notices were not served physically to the Assessee, even though the Notices were uploaded on the web portal.

The Honorable Madras High Court noted that the Notices and the Impugned Order were uploaded in the web portal in the “View Additional Notices and Orders” column and the same were not physically served to the Petitioner, due to which the Petitioner was unaware of the said notice.

The Honorable Court opined that the aforesaid reason provided by the Petitioner appears to be genuine and no order can be passed without granting sufficient opportunity to the Petitioner. Hence, the Impugned Order is liable to be set aside.

Author’s Comments:-

Although Section 169 of the CGST Act, 2017 specifies 14 different ways/modes of serving any decision, order summons, notice, or order communication under the Act, care must betaken by the authorities not to simply pick and choose any option, rather the best possible option must be chosen by which it is mostly likely to reach the notice. The notice or any other communication cannot be termed to be served until it has reached the intended notice.

A Similar judgement was passed by Honorable Madras High Court in the case of East Coast Constructions and Industries Ltd. v. Assistant Commissioner [W.P. No. 26457 of 2023 dated September 11, 2023]where notice was uploaded in the Dashboard for “View Additional Notices and Orders” instead of drop Menu for “View Notices and Orders”, which was all along since inception and used for communicating notices in various forms and orders.

19. Whether the Assessee is entitled to claim a GST Refund of zero-rated exports of unutilized ITC arising from an Inverted Duty Structure?

Yes, the Honorable Madras High Court in the case of VSM Weavess India (P.) Ltd. v. Assistant Commissioner [Writ Petition No. 960, 964 and 968, of 2024 dated January 10, 2024] held that the refund claim for zero-rated exports does not disentitle the Petitioner from claiming a refund for unutilized ITC. Further, if all the conditions are fulfilled as per Section 54 of the Central Goods and Service Tax Act, 2017 read with Rule 96 of the Central Goods and Service Tax Rules, 2017 the GST refund claim cannot be rejected on the ground that debit entries were not made.

The Honorable Court held that the last reason mentioned in the Impugned Deficiency Memos related to non-submission of supporting documents, it is possible that ITC may accumulate both in respect of input goods that are not affected by IDS and by the purchase of input goods that are so affected. Therefore, it is necessary for the Petitioner to submit all necessary documents to establish that its claim for refund is confined to input goods that are affected by IDS. Hence, the deficiency memos were quashed, and the matter was remanded for reconsideration.

Author’s Comments:-

Para 44 of Circular No. 125/44/2019–GST dated November 18, 2019 states that the substantive benefits of zero-rated supply may not be denied where it has been established that exports in terms of the relevant provisions have been made.

A detailed procedure for filing of LUT has been specified in vides Circular No. 8/8/2017 –GST dated 4.10.2017.

As long as goods are exported or as the case may be, payment is realized in case of export of services, even if it is beyond the time frames as prescribed in sub-rule (1) of rule 96A, the benefit of zero-rated supplies cannot be denied to the concerned exporters. Accordingly, it is clarified that in such cases, on actual export of the goods or as the case may be, on the realization of payment in case of export of services, the said exporters would be entitled to a refund of unutilized input tax credit in terms of sub-section (3) of section 54 of the CGST Act, if otherwise admissible.

20. Whether the GST registration be canceled retrospectively for non-filing of returns?

No, the Honorable Delhi High Court in the case of Aryan Timber Store v. Sale Tax Officer [Writ Petition (Civil) No. 628 of 2024 dated January 18, 2024] held that the GST Registration of an Assessee cannot be canceled with retrospective effect mechanically merely because the returns were not filed. It can be canceled only if the proper officer deems fit to do so on some objective criteria. Hence, the order of cancellation was modified to the extent that the same shall operate with effect from the date when the Assessee first applied for cancellation.

The Delhi High Court observed that in terms of Section 29(2) of the Central Goods and Services Tax Act, 2017, the proper officer may cancel the GST registration of a person from such date including any retrospective date, as he may deem fit if the circumstances set out in the said sub-section are satisfied. Such satisfaction cannot be subjective but must be based on some objective criteria. Merely, because a taxpayer has not filed the returns for some period does not mean that the taxpayer’s registration is required to be canceled with a retrospective date also covering the period when the returns were filed, and the taxpayer was compliant.

The Honorable Court held that the GST Registration will be considered canceled w.e.f. May 06, 2019, i.e. the date when the Petitioner applied for cancellation of the GST registration.

Author’s Comments:-

Section 29(2)(c) of the CGST Act provides for the cancellation of registration where the registered person fails to furnish returns for a continuous period of 6 months. The law has specified five explicit delinquencies in Section 29(2) which can lead to cancellation of registration after following the due process laid down in the legislature.

The proper officer is permitted to proceed with cancellation and pass a speaking order in REG19 and demand all dues, which extend to:

➢ Outstanding tax, interest, late fee, and penalties due;

➢ Due under section 29(5) in respect of credits.

A similar judgment was passed by the Honorable Delhi High Court in the case of Sharda Metal Works v. Commissioner of Central Goods and Services Tax [W.P.(C) NO. 16190 OF 2023 dated January 4,2024] where the Show Cause Notice and Order of Cancellation of GST Registration were set aside as the aforesaid Notice and Order is bereft of any proper reasoning. The Honorable Court further stated that the registration should not be cancelled retrospectively for the period when the returns have been filed and the taxpayer was compliant.

21. Whether the Department is required to serve Notice through other modes of communication if the Assessee fails to respond to a communication sent through Email?

Yes, the Honorable Madras High Court in the case of Sakthi Steel Trading v. Assistant Commissioner [W.P. No. 4122 of 2022 dated January 29, 2024] allowed the writ petition, thereby holding that, the Revenue Department should at least serve notice on Assessee through other modes of communication prescribed if the Assessee fails to respond to summon, order, notice or any other communication sent to them through E-mail.

The Honorable Madras High Court observed that Section 169(1)(c) of the Central Goods and Services Tax Act, 2017 recognizes communication of decision, order, summon, or any other communication through email or address provided at the time of registration or amended from time to time and many of the members of the business community particularly small traders, small service providers and small manufacturers may be technologically challenged to receive and respond to communication on email. The Honorable Court opined that the Respondent should atleast serve notice on such Assessee through another mode of communication prescribed if the Assessee fails to respond to summon, order, notice, or any other communication sent to them through E-mail.

Author’s Comments:-

Although Section 169 of the CGST Act, 2017 specifies 14 different ways/modes of serving any decision, order summons, notice, or order communication under the Act care must be taken by the authorities not to simply pick and choose any option, rather the best possible option must be chosen by which it is mostly likely to reach the notice. The notice or any other communication cannot be termed to be served until it has reached the intended notice.

This particular order needs revisiting because section 169(1)(c) clearly specifies that Email is a valid mode of communication.

22. Whether Penalty can be imposed in the absence of an E-way bill until the department proves the intention to evade tax?

No, the Honorable Allahabad High Court in the case of M/s. Falguni Steels v. State of Uttar Pradesh and Ors. [Writ Tax No. 146 of 2023 dated January 25, 2024] held that mere technical errors, without having any potential financial implications, should not be the grounds for the imposition of penalties. The Court emphasized that there must be an intention to evade tax. Therefore, if a penalty is imposed in the presence of all the valid documents, even if an E-Way Bill has not been generated, and there is the absence of any determination to evade tax, the penalty cannot be sustained.

The Allahabad High Court observed that the Petitioner had provided all the relevant details before the issuance of the Impugned SCN, and the Respondents failed to record concrete evidence substantiating intent to evade tax liabilities. The essence of any penal imposition is intrinsically linked to the presence of mens rea and is absent from the record. The intention to evade tax is a desideratum for the imposition of a penalty. The Impugned Orders were vulnerable to challenge.

The Honorable Court relied on K. Cement Ltd. v. State of Uttar Pradesh. and Others [MANU/UP/2812/2023], Modern Traders v. State of U.P. and Others reported in 2018 SCC OnLine All 6054, M/s. Shyam Sel and Power Ltd. v. State of Uttar Pradesh. and Others [2023: AHC:191074], Axpress Logistics Pvt. Ltd. v. Union of India and Others reported in 2018 SCC Online All 6089, VSL Alloys (India) Pvt. Ltd. v. State of Uttar Pradesh and Another [2018 SCC Online All 6080], the Courts observed that there was no ill intention at the hands of the petitioners therein to evade tax, since the documents accompanying the goods contained all the relevant details. The Courts emphasized the need for a meticulous examination of the facts and circumstances surrounding each case to establish the presence or absence of intentional tax evasion.

The Honorable Court opined that mere technical errors, without having any potential financial implications, should not be the grounds for the imposition of penalties. The burden of proof, therefore, rests on tax authorities to establish the actual intent to evade tax before imposing penalties on taxpayers. This safeguards individuals and entities from punitive measures arising from honest mistakes, administrative errors, or technical discrepancies lacking malicious intent.

Author’s Comments:-

As per Circular No.64/38/2018 dated 14.09.2018, a general penalty under section 125 of the GST Act must be imposed in case of minor breaches or discrepancies.

In the Author’s opinion, all the discrepancies in relation to the movement of goods except the fatal errors like Non issuance of tax invoices are minor discrepancies and no penalty u/s 129 of the GST Act can be imposed. As per Section 129 and Rule 138A of the GST Act, until and unless mens rea exists and is proved, all the errors and omissions have to be termed as non-fatal errors and no penalty U/s 129 can be imposed.

The Honorable Supreme Court of India has decided on the same issue in the case of Assistant Commissioner ST & Ors. Versus Satyam Shivam Papers Pvt. Ltd.[Special Leave to Appeal (C) No(s). 21132/2021 dated January 12, 2022].

Similar orders were passed by the Honorable Tripura High Court in the case of NE Equipment Solutions Pvt. Ltd. Versus The State of Tripura and others [WP(C) No. 577/2021] dated August 24, 2021 and also a similar judgment was passed by the Honorable Gujarat High Court in the case of M/s. Shree Govind Alloys Pvt. Ltd. Versus State of Gujarat (R/Special Civil Application No. 23835 of 2022) dated December 01, 2022.

Conclusion: The March 24 edition of the GST Case Law Compendium encapsulates a diverse array of legal interpretations and rulings that shape the GST landscape in India. From clarifying recipient liabilities to addressing procedural fairness and penalty imposition, these judgments provide valuable insights for businesses, taxpayers, and legal practitioners navigating the complexities of GST compliance and enforcement. By analyzing these rulings, stakeholders can gain a deeper understanding of their rights, obligations, and avenues for legal recourse within the GST framework.