GST- Faulty Initiation Renders Subsequent Proceedings Invalid: Allahabad HC

Wave Distilleries Breweries Ltd. Vs State Of U.P. And 2 Others (Allahabad High Court)

Introduction: In a significant ruling, the Allahabad High Court declared the initiation of proceedings as invalid, leading to the automatic failure of consequential proceedings. The case, Wave Distilleries Breweries Ltd. vs. State of U.P. and Others, involves challenges to orders passed by the authorities related to the Excise Act.

Detailed Analysis:

1. Petitioner’s Contentions:

• The petitioner, represented by Ms. Shivangi Tripathi, contested the impugned orders, highlighting discrepancies in the sampling process conducted by Excise officials.
• Rule 776 of the U.P. Excise Manual, requiring the presence of a distillery representative during sample drawing, was allegedly not followed.
• The petitioner argued that the order under Section 74-A of the Excise Act was issued without a show cause notice, violating natural justice.

2. Swift Action and Deposit Issue:

• The petitioner raised concerns about the hurried recovery of the alleged duty and penalty from the advance duty register immediately after the order dated 18.03.2020.
• The argument emphasized the impact on the petitioner’s right to file a revision, as only 25% of the disputed amount needed to be deposited during revision proceedings.

3. Violation of Natural Justice:

• Ms. Shivangi Tripathi asserted that the penalty order lacked adherence to principles of natural justice, with no notice or opportunity provided to the petitioner.
• The petitioner’s revision before the State Government was allegedly ignored, raising concerns about due process.

4. State’s Response:

• The learned Additional Chief Standing Counsel (ACSC) defended the impugned orders, citing shortages beyond permissible limits detected during inspection and sampling.
• Notably, the ACSC acknowledged non-compliance with Rule 776 and the absence of a notice under Section 74-A(1) of the Excise Act.

5. Court’s Observations:

• The court observed that the defective initiation of proceedings renders consequential actions legally unsustainable.
• Specific queries regarding procedural compliance were posed to the ACSC, who confirmed non-adherence to Rule 776 and the absence of a required notice.

6. Future Steps and Compliance Order:

• The court directed the ACSC to file a counter affidavit within four weeks, with the petitioner allowed to submit a rejoinder a week thereafter.
• A crucial directive involved depositing 25% of the recovered amount in an interest-bearing account, subject to the outcome of the writ petition.
• The Commissioner of Excise Tax, U.P., was ordered to file a personal affidavit within 10 days, detailing compliance with the court’s deposit order.

Conclusion: The Allahabad High Court’s ruling in Wave Distilleries Breweries Ltd. vs. State of U.P. underscores the vital importance of proper initiation in legal proceedings. The court’s meticulous examination of procedural lapses and the subsequent declaration of invalidity emphasize the significance of adherence to due process and natural justice in administrative actions.

FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT

Heard Ms. Shivangi Tripathi, learned counsel for the petitioner and learned ACSC for State – respondents.

While assailing the impugned order dated 01.08.2022 passed by the respondent no. 1 as well as the impugned order dated 18.03.2020 passed by the respondent no. 2, learned counsel for the petitioner submits that the samples were drawn by the Excise officials from the CL – 2/wholesale suppliers, which is not under the control of the petitioner, but under the control of some other entity, i.e., wholeseller under the control of Excise Department. She further submits that while drawing the samples, provision of rule 776 of U.P. Excise Manual were not complied with as no person of the distillery, as required under the said Manual, was present.

She further submits that the impugned order was passed on 18.03.2020 and immediately thereafter, on 23.03.2020, the amount of alleged duty and penalty under section 74-A was withdrawn from the advance duty register.

She further submits that a sum of Rs. 1,49,85,677.20 have been withdrawn from the advance duty register. She further submits that under section 11(2) of the Excise Act, revision can be preferred within one month from the date of order before the State Government and while preferring revision, only 25% of the disputed amount was required to be deposited, but in the case in hand, instead of waiting for at lease a month from the date of passing of the order, action has been taken hurriedly against the petitioner with ulterior motives and recovered the amount rendering the revision virtually infructuous.

She further submits that the order under section 74-A of the Excise Act was passed without even issuing show cause notice. She further submits that the order of penalty has been passed in clear violation of the principles of natural justice without putting the petitioner to notice or opportunity to submit its reply. She further submits that against the impugned order dated 18.03.2020, the petitioner filed revision before the State Government raising specific grounds, but by the impugned order not a word has been whispered about the same, which is bad in law.

Rebutting the said submissions, learned ACSC supports the impugned order and submits that on inspection and after drawing the samples, there were shortage beyond the permissible limit and hence, action has rightly been taken.

On the pointed query to the learned ACSC as to whether the provision of rule 776 of the Manual was adhered to and any notice under section 74-A(1) was given before passing the order, after seeking instruction from Shri Arvind Maurya, Assistant Commissioner of Excise posted at Prayagraj Headquarters, he submits that the provision of rule 776 was not complied with in letter and spirit and no notice under section 74-A(1) of the Act was given.

Once the initiation of the proceedings itself is bad, the consequential proceedings automatically fails in the eyes of law.

Matter requires consideration.

Learned ACSC may file counter affidavit within a period of four weeks from today. Rejoinder affidavit, if any, may also be filed one week thereafter.

List immediately thereafter.

It is provided that after deducting 25% of the amount of Rs. 1,49,85,677.20 realized from the petitioner, which is required for filing revision, the remaining amount shall be kept in a fixed term interest bearing account within a week from today in some Nationalized Bank for an initial period of two years renewable from time to time, which shall be subject to the final outcome of the instant writ petition.

The Commissioner of Excise Tax, U.P., Lucknow shall file his personal affidavit within 10 days from today with regard to the compliance of the aforesaid order.