Adjudication Process under GST Act: Key Insights

Background

1. Under the scheme of GST Act taxable person is liable to pay tax on all supplies of goods or services or both made by him and to obtain registration after exceeding prescribed turnover of supplies. Every registered person is required to self-assess his tax liability and pay due tax and furnish prescribed return. Where a taxable person who is liable to register and failed to obtain registration, proper officer is authorised to pass best judgment assessment u/s 63 of the Act. Proper officer also empowered u/s 62 of the Act to pass unilateral assessment order of registered person who has not filed return despite of notice issued. Proper officer examine the correctness and completeness of returns by way of scrutiny of returns, audits, inspections etc and recover amount of short payment of tax, erroneously granted refund or wrongly availed or utilised input tax credit by issuing adjudication orders. Proper officer is also authorise to issue adjudication orders for non-compliances or the contraventions of provisions of law by the taxable person, by initiating proceeding under the relevant provision of law. These adjudication order may adversely affect the taxable person and are subject to rectification, revision and appeal. Therefore, adjudication is one of the most vital aspect under the GST Act . In this article we will discuss various adjudication proceeding under the provisions of the Act.

General principles of adjudication.

2. Order should be legal and sustainable.

3. In some cases adjudication notices/ orders are issued by creating demand of tax, interest and penalty, without jurisdiction, without affording an opportunity of being heard or by passing non speaking orders. Legality of such orders are challenged in the appeal or court by the aggrieved taxable persons on the various grounds. Therefore, any notice or order issued by the adjudicating authority must be legal, speaking and sustainable.

First case- challenge to order by way of writ petition.

4. In the case of (2022-tiol-450-HC-All-gst) Bharat Mint and Allied chemicals, laid down criteria for the admission of writ against the orders of the any quasi -judicial authority.

5. “15. Article 226 of the Constitution of India confers very vide powers on High Courts to issue writs but this power is discretionary and the High Court may refuse to exercise the discretion if it is satisfied that the aggrieved person has adequate or suitable remedy elsewhere. It is a rule of discretion and not rule of compulsion or the rule of law. Even though there may be an alternative remedy, yet the High Court may entertain a writ petition depending upon facts of each case. It is neither possible nor desirable to lay down inflexible rule to be applied rigidly for entertaining a writ petition. Some exceptions to the rule of alternative remedy as settled by Hon’ble Supreme Court are as under:-

(i) Where there is complete lack of jurisdiction in the officer or authority to take the action or to pass the order impugned.

(ii) Where vires of an Act, Rules, Notification or any of its provisions has been challenged.

(iii) Where an order prejudicial to the writ petitioner has been passed in total violation of principles of natural justice.

(iv) Where enforcement of any fundamental right is sought by the petitioner.

(v) Where procedure required for decision has not been adopted.

(vi) Where Tax is levied without authority of law.

(vii) Where decision is an abuse of process of law.

(viii) Where palpable injustice shall be caused to the petitioner, if he is forced to adopt remedies under the statute for enforcement of any fundamental rights guaranteed under the Constitution of India.

(ix) Where a decision or policy decision has already been taken by the Government rendering the remedy of appeal to be an empty formality or futile attempt.

(x) Where there is no factual dispute but merely a pure question of law or interpretation is involved.

(xi) Where show cause notice has been issued with preconceived or premeditated or closed mind.”

 Care and caution to be taken by the adjudicating authority in the adjudication proceeding .

6. It is well settled principle by the various judicial pronouncement that notice for adjudication and the adjudication order cannot be sustained Where there is complete lack of jurisdiction in the officer or authority to take the action or to pass the order impugned.

Where an order prejudicial to the writ petitioner has been passed in total violation of principles of natural justice.

Where procedure required for decision has not been adopted.

Where Tax is levied without authority of law.

Where decision is an abuse of process of law.

Where show cause notice has been issued with preconceived or premeditated or closed mind.

No collection of tax without authority of law.

7. But Article 265 of Constitution of India lays down that collection of tax has to be by authority of law . If tax is collected without any authority of law, same would amount to depriving a person of his property without any authority of law and would infringe his right under Article 300 A of Constitution of India as well. Thus, except self-assessed tax, no tax under GST Act can be collected without issuing adjudication order.

Second case- No tax without authority of law.

8. Diwakar Enterprises Pvt Ltd Vs CCGST (Dated: March 14, 2023). 2023-TIOL-406-HC-P&H-GST

9. “ GST – The petitioner sought a direction to respondent to refund a sum of Rs.1,99,90,000/- along with interest – As per department, petitioner has deposited impugned amount voluntarily and proper procedure has been followed – But Article 265 of Constitution of India lays down that collection of tax has to be by authority of law – If tax is collected without any authority of law, same would amount to depriving a person of his property without any authority of law and would infringe his right under Article 300 A of Constitution of India as well – No receipt was given by Proper Officer after accepting impugned amount – Thus, the amount deposited by petitioner under protest were liable to be refunded as the petitioner has been deprived of his right – Respondent is directed to refund a sum of Rs.1,99,90,000/- along with 6 % interest: HC

10. In the present case, as per the department, the petitioner has deposited the impugned amount voluntarily and the proper procedure has been followed. But Article 265 of the Constitution of India lays down that collection of tax has to be by the authority of law. If tax is collected without any authority of law, the same would amount to depriving a person of his property without any authority of law and would infringe his right under Article 300 A of the Constitution of India as well. In the present case, no receipt was given by the Proper Officer after accepting the impugned amount. Thus, the amount deposited by the petitioner under protest were liable to be refunded in view of the above mentioned judgments, as the petitioner has been deprived of his right.

11. The Central Board of Indirect Taxes and Customs as well as the Chief Commissioner of Central/State Tax of the State of Gujarat are hereby directed to issue the following guidelines by way of suitable circular/instructions

1) No recovery in any mode by cheque, cash, e-payment or adjustment of input tax credit should be made at the time of search/inspection proceedings under Section67 of the Central/Gujarat Goods and Services Tax Act, 2017 under any circumstances.

(2) Even if the assessee comes forward to make voluntary payment by filing Form DRC-03, the assessee should be asked/advised to file such Form DRC-03 on the next day after the end of search proceedings and after the officers of the visiting team have left the premises of the assessee.

(3) Facility of filing [a] complaint/grievance after the end of search proceedings should be made available to the assessee if the assessee was forced to make payment in any mode during the pendency of the search proceedings.

(4) If complaint/grievance is filed by assessee and officer is found to have acted in defiance of the afore-stated directions, then strict disciplinary action should be initiated against the concerned officer.”

Proper assumption of jurisdiction by the adjudicating authority.

12. Assumptions of proper jurisdiction is important aspect in adjudication proceeding as it goes to the root of case and subject to challenge in the court by writs. Proper officer are the adjudicating authority for the various function as provided in the Act.

13. As per section 2(4) of the Act, “adjudicating authority” means any authority, appointed or authorised to pass any order or decision under this Act, but does not include the Commissioner, Revisional Authority, the Authority for Advance Ruling, the Appellate Authority for Advance Ruling, the National Appellate Authority for Advance Ruling, the Appellate Authority, the Appellate Tribunal and the Authority referred to in sub-section (2) of section 171.Government by way of notifications /circulars declare proper officers and assign them jurisdictions and powers under different sections for issue notice and issue of order. Section 5 and 6 of the Act read with relevant notification delegate power to the Proper officer to issue orders under respective sections. As per Section provisions of Act, generally ” proper officer “ has power to issue notice and issue adjudication order. Section 2 (91) define the term “ proper officer.” It is obligatory to adjudicating authority to confirm whether it has been notified as “ Proper officer” and has jurisdiction to issue SCN. Orders passed without jurisdiction not tenable in the eyes of law and may be challenged in the appeal and courts. It is also needs to confirm whether SCN is issued within prescribed time limit. SCN issued without jurisdictions may be challenged in the court. It is well settled that SCN issued without jurisdiction is invalid and liable to set aside. Before assuming jurisdiction under any section of the Act, it is necessary to satisfy himself that case is covered within meaning of said section. Assumptions of proper jurisdiction is important aspect in adjudication proceeding as it goes to the root of case and subject to challenge in the court by writs. Adjudication order can not be sustained where there is complete lack of jurisdiction in the officer or authority to take the action or to pass the order impugned Observance of principles of natural justice.

14. Principle of natural justice, which is commonly known as audi alteram partem means no one should be condemned unheard, mandate that meaningful and reasonable opportunity should be given to the concerned person before passing in statutory or administrative order.

Opportunity of being heard .

15. The Legislature, keeping in view the well settled principles of natural justice, expressly provided for the opportunity of hearing in the adjudication proceeding. Section 75 (4) of the Act, specifically provides that an opportunity of hearing shall be granted where a request is received in writing from the person chargeable with tax or penalty, or where any adverse decision is contemplated against such person.. It is well settled by court decisions that principle of natural justice should be followed while passing any order by judicial and quasi judicial authorities. Principle of natural justice are those rules which have been laid down by the court being the minimum protection of right of the individual against the arbitrary procedure that may be adopted by judicial, quasi judicial and administrative authorities while making an order affecting those right. The adjudication orders passed by violating principle are unsustainable.

Speaking and well reasoned notice and order.

16. It is settled legal position of law that reasons are heart and soul of the order and non communication of same itself amounts to denial of reasonable opportunity of hearing, resulting in miscarriage of justice. Various courts has expanded the horizon of natural justice and reasons have been treated part of the natural justice.. The absence of reasons renders an order indefensible/unsustainable particularly when it is subject to appeal/revision.

Third case- Speaking order.

17. Kranti Associates v. Masood Ahmed Khan, (2010) 9 SCC 496 = 2010-TIOL-145-SC-MISC

18. In this regard, in the case of Kranti Associates v. Masood Ahmed Khan, (2010) 9 SCC 496 = 2010-TIOL-145-SC-MISC, the Hon’ble Supreme Court after considering various judgments formulated certain principles which are set out below:

“a. In India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially.

b. A quasi-judicial authority must record reasons in support of its conclusions.

c. Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well.

d. Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power.

e. Reasons reassure that discretion has been exercised by the decision maker on relevant grounds and by disregarding extraneous considerations.

f. Reasons have virtually become as indispensable a component of a decision making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies.

g. Reasons facilitate the process of judicial review by superior Courts.

h. The ongoing judicial trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the life blood of judicial decision making justifying the principle that reason is the soul of justice.

i. Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants’ faith in the justice delivery system.

j. Insistence on reason is a requirement for both judicial accountability and transparency.

k. If a Judge or a quasi-judicial authority is not candid enough about his/her decision making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism.

l. Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or ‘rubber-stamp reasons’ is not to be equated with a valid decision making process.

m. It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision making not only makes the judges and decision makers less prone to errors but also makes them subject to broader scrutiny (See David Shapiro in Defence of Judicial Candor (1987) 100 Harvard Law Review 731-737);.

n. Since the requirement to record reasons emanates from the broad doctrine of fairness in decision making, the said requirement is now virtually a component of human rights and was considered part of Strasbourg Jurisprudence. See (1994) 19 EHRR 553 at 562 para 29 and Anya v. University of Oxford, 2001 EWCA Civ 405, wherein the Court referred to Article 6 of European Convention of Human Rights which requires, “adequate and intelligent reasons must be given for judicial decision.”

o. In all common law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for development of law, requirement of giving reasons for the decision is of the essence and is virtually a part of “Due Process”.

19. Thus, the position of law that emerges from the decisions mentioned above, is that assignment of reasons is imperative in nature and the speaking order doctrine mandates assigning the reason which is the heart and soul of the decision and said reasons must be the result of independent re-appreciation of evidence adduced and documents produced in the case.

Application of prescribed procedure.

20. It is well settled principle that any decision or order issued by not adopting prescribed procedure is unsustainable. Therefore, the adjudicating should strictly follow the procedure prescribed under the provision of the Act and Rules. Any violation of the prescribed procedure may result in order bad in law.

Proper and strict interpretation of law.

21. It is well settled by the various pronouncement that authority should pass just, proper and judicious order by application of minds to the facts of the case and interpreting law correctly.

Fourth case- Interpretation of law.

M/s Safari Retreat Pvt ltd ( 2024-TIOL-101-SC-GST ) Dt 3.10.2024

22. In the case of M/s Safari Retreat Pvt ltd ( 2024-TIOL-101-SC-GST ) Dt 3.10.2024. has laid down following rules regarding the interpretation of taxing statutes.

23. Para 25.- Regarding the interpretation of taxation statutes, the parties have relied on several decisions. The law laid down on this aspect is fairly well-settled. The principles governing the interpretation of the taxation statutes can be summarised as follows:

a. A taxing statute must be read as it is with no additions and no subtractions on the grounds of legislative intendment or otherwise;

b. If the language of a taxing provision is plain, the consequence of giving effect to it may lead to some absurd result is not a factor to be considered when interpreting the provisions. It is for the legislature to step in and remove the absurdity;

c. While dealing with a taxing provision, the principle of strict interpretation should be applied;

d. If two interpretations of a statutory provision are possible, the Court ordinarily would interpret the provision in favour of a taxpayer and against the revenue;

e. In interpreting a taxing statute, equitable considerations are entirely out of place;

f. A taxing provision cannot be interpreted on any presumption or assumption;

g. A taxing statute has to be interpreted in the light of what is clearly expressed. The Court cannot imply anything which is not expressed. Moreover, the Court cannot import provisions in the statute to supply any deficiency;

h. There is nothing unjust in the taxpayer escaping if the letter of the law fails to catch him on account of the legislature’s failure to express itself clearly;

i. If literal interpretation is manifestly unjust, which produces a result not intended by the legislature, only in such a case can the Court modify the language;

j. Equity and taxation are strangers. But if construction results in equity rather than injustice, such construction should be preferred;

k. It is not a function of the Court in the fiscal arena to compel the Parliament to go further and do more;

l. When a word used in a taxing statute is to be construed and has not been specifically defined, it should not be interpreted in accordance with its definition in another statute that does not deal with a cognate subject. It should be understood in its commercial sense. Unless defined in the statute itself, the words and expressions in a taxing statute have to be construed in the sense in which the persons dealing with them understand, that is, as per the trade understanding, commercial and technical practice and usage.

Consideration of instructions or directions issued under section 168 .

24. It is provided in section 168 that the Commissioner may, if he considers it necessary or expedient so to do for the purpose of uniformity in the implementation of this Act, issue such orders, instructions or directions to the State tax officers as it may deem fit, and thereupon all such officers and all other persons employed in the implementation of this Act shall observe and follow such orders, instructions or directions. It is clear that said instructions and directions are binding on the authorities under the Act and it should be applied while interpreting the law.

Duties and responsibilities of adjudicating authority.

25. The adjudicating authority exercises quasi-judicial powers and is expected to act in a fair and just manner while conducting adjudication proceedings. He is supposed to grant a reasonable opportunity of being heard to the noticee. He must conducts the hearing before passing the Order. The adjudicating authority must allows cross-examination of witnesses, if requested, by the noticee. The adjudicator is expected to consider the facts, allegations, submissions and evidence in a holistic manner and pass a speaking order. The proceedings culminate in an order fully or partially accepting the submissions of the noticee or all the proposals in the notice may be confirmed. The adjudicating authority cannot proceed beyond the parameters of the allegations leveled in the notice and make out a new case against the notice

Important adjudication proceeding under the Act.

26. First -Section 73 Determination of tax, pertaining to period up to FY 2023-2024, not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any wilful misstatement or suppression of facts

Second -Section 74 Determination of tax, pertaining to period up to FY 2023-2024, not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts

Third- 74A. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason pertaining to Financial Year 2024-25 onwards.

Fourth – Cancellation and revocation of registration

 Fifth – Levy of late fee under section.

Sixth – Interest on delayed payment of tax.

Seventh – Provisional assessment

Eighth – Assessment of non-filers of returns.

Ninth – Assessment of unregistered persons.

Tenth – Summary assessment in certain special cases

Eleventh – Tax collected but not paid to Government

Twelfth- Penalty for certain offences under section 122.

Thirteenth – General penalty under section 125.

Fourteenth -Penalty under section 129(3).

27. First – Determination of tax liability. Adjudication proceeding u/s 73 of the Act.

28. Second – Determination of tax liability. Adjudication proceeding u/s 74 of the Act.

29. Third – Determination of tax liability. Adjudication proceeding u/s 74 A of the Act.

30. All aforesaid adjudication proceeding are having most of the ingredients common hence these are discussed jointly.

Determination of tax liability- Scope of section 73 of the Act.

31. The provisions of this section shall be applicable for determination of tax pertaining to the up to Financial Year 2023- 24 . Section 73 provides mechanism to determine tax liability of taxable person and to adjudicate the case, to recover amount of tax, applicable interest and amount of penalty due as per provision of law. Section 73 is applicable to normal cases where demand is by reason other than fraud, willful statement or suppression of fact to evade tax.

32. Sub- Section (1) of Section 73 empowers the proper officer to serve a notice on a person chargeable with tax where it appears that (i) Any tax has not been paid; (ii) Tax has been short paid; (iii) Tax has been erroneously refunded; or (iv) Input tax credit has been wrongly availed or utilized by reason of other than fraud, willful statement or suppression of fact to evade tax.

33. Sub-Section (1) enables the proper officer to issue a notice to show cause for the recovery of tax, interest payable under Section 50 and the penalty leviable under the provisions of the Act. Sub-Sections (2), (3) and (4) lay down procedural provisions which are to be followed by the proper officer.

34. Secondly, under sub-Section (5) of Section 73, before the service of a notice under sub-Section (1), the person who is chargeable with tax may pay the tax together with interest on the basis of their own ascertainment of the tax or as ascertained by the proper officer and inform the proper officer of the payment having been made upon receipt of the information. Sub-Section (6) stipulates that the proper officer shall not serve any notice under sub-Section (1) in respect of the tax so paid or any penalty payable under the provisions of the Act or the Rules.

35. On the other hand, when the proper officer is of the opinion that the amount which has been paid under sub-Section (5) falls short of the amount which is actually payable, a notice under sub-Section (1) is to issue for the amount which falls short of what is actually payable. Sub-Section (8) contains a stipulation that where a person who is chargeable with tax under sub-Section (1) pays the tax together with interest within thirty days of the issuance of the notice, all proceedings in respect of the notice shall be deemed to be concluded. Under sub-Section (9), the proper officer after considering the representation of the person chargeable to tax is authorized to determine the amount of tax, interest and penalty due and to issue an order. A period of three years is stipulated by sub-Section (10) for the issuance of an order in sub-Section (9) and same is extended by Government issued u/s 168A. Subsection(11) states that notwithstanding anything contained in sub-section (6) or sub-section (8), penalty under sub-section (9) shall be payable where any amount of self- assessed tax or any amount collected as tax has not been paid within a period of thirty days from the due date of payment of such tax.

Determination of tax liability- Scope of section 74 of the Act.

36. The provisions of this section shall be applicable for determination of tax pertaining to the up to Financial Year 2023- 24 .Section 74 provides mechanism to determine tax liability of taxable person and to adjudicate the case, to recover amount of tax, applicable interest and amount of penalty due as per provision of law. Section 73 is applicable to normal cases and 74 covers fraud/tax evasion cases

37. Sub- Section (1) of Section 74 empowers the proper officer to serve a notice on a person chargeable with tax where it appears that (i) Any tax has not been paid; (ii) Tax has been short paid; (iii) Tax has been erroneously refunded; or (iv) Input tax credit has been wrongly availed or utilized by reason of fraud, willful statement or suppression of fact to evade tax.

38. Sub-Section (1) enables the proper officer to issue a notice to show cause for the recovery of tax, interest payable under Section 50 and the penalty equivalent to the amount of tax specified in the notice. Sub-Sections (2), (3) and (4) lay down procedural provisions which are to be followed by the proper officer.

39. Secondly, under sub-Section (5) of Section 74, before the service of a notice under sub-Section (1), the person who is chargeable with tax may pay the tax together with interest and a penalty equivalent to fifteen per cent of the tax on the basis of their own ascertainment of the tax or as ascertained by the proper officer and inform the proper officer of the payment having been made upon receipt of the information. Sub-Section (6) stipulates that the proper officer shall not serve any notice under sub-Section (1) in respect of the tax so paid or any penalty payable under the provisions of the Act or the Rules.

40. On the other hand, when the proper officer is of the opinion that the amount which has been paid under sub-Section (5) falls short of the amount which is actually payable, a notice under sub-Section (1) is to issue for the amount which falls short of what is actually payable. Sub-Section (8) contains a stipulation that where a person who is chargeable with tax under sub-Section (1) pays the tax together with interest and a penalty of twenty-five per cent of the tax within thirty days of the issuance of the notice, all proceedings in respect of the notice shall be deemed to be concluded. Under sub-Section (9), the proper officer after considering the representation of the person chargeable to tax is authorized to determine the amount of tax, interest and penalty due and to issue an order. A period of five years is stipulated by sub-Section (10) for the issuance of an order in sub-Section (9). Sub-Section (11) stipulates that upon service of an order under sub-Section (9), all proceedings in respect of the notice shall be deemed to be concluded upon the person paying the tax with interest under Section 50 and a penalty equivalent to 50 per cent of the tax within thirty days of the communication of an order. These provisions indicate how sub-Sections (5), (8) and (11) operate at different stages of the process. Explanation 2 define the term “suppression” and accordingly “ suppression” shall mean non-declaration of facts or information which a taxable person is required to declare in the return, statement, report or any other document furnished under this Act or the rules made thereunder, or failure to furnish any information on being asked for, in writing, by the proper officer.

Determination of tax liability. Scope of section 74A of the Act.

41. Section 74A shall be applicable for determination of tax pertaining to the Financial Year 2024- 25 onwards. Said section provides mechanism to determine tax liability of taxable person and to adjudicate the case, to recover amount of tax, applicable interest and amount of penalty due as per provision of law. And is applicable to normal cases and also to fraud/tax evasion cases.

Scope of section 74A.

42. Section 74A provides for determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason pertaining to Financial Year 2024-25 onwards. Earlier, there were two separate provisions for determination of tax liability, based on the reason of demand. Said section will applicable to all cases irrespective of reason of demand.

43. Sub- Section (1) of Section 74A empowers the proper officer to serve a notice on a person chargeable with tax where it appears that (i) Any tax has not been paid; (ii) Tax has been short paid; (iii) Tax has been erroneously refunded; or (iv) Input tax credit has been wrongly availed or utilized.

44. It is further provided that no notice shall be issued, if the tax which has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised in a financial year is less than one thousand rupees.

45. Sub-Section (1) enables the proper officer to issue a notice to show cause for the recovery of tax, interest payable under Section 50 and the amount of penalty equivalent to the amount specified in the subsection 5 of the Act. Sub-Sections (2), (3) and (4) lay down procedural provisions which are to be followed by the proper officer.

46. Sub Section 5 provides that amount of penalty payable shall be equivalent to ten per cent. of tax due from such person or ten thousand rupees, whichever is higher , in case where any tax which has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised, for any reason, other than the reason of fraud or any wilful-misstatement or suppression of facts to evade tax.

47. Sub Section 5 further provides that amount of penalty payable shall be equivalent to the tax due from such person, in case where any tax which has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised, for the reason of fraud or any wilful-misstatement or suppression of facts to evade tax.

48. Secondly, under sub-Section (8) of Section 74A, before the service of a notice, or within sixty days from issue of notice under sub section (1), the person chargeable with tax where any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for any reason, other than the reason of fraud or any wilful- misstatement or suppression of facts to evade tax, may pay the tax together with interest on the basis of their own ascertainment of the tax or as ascertained by the proper officer or as per notice respectively and inform the proper officer of the payment having been made upon receipt of the information. Sub-Section (8) stipulates that the proper officer shall not serve any notice under sub-Section (1) in respect of the tax so paid or any penalty payable under the provisions of the Act or the Rules.

49. Thirdly, under section 9 of the Act, the person chargeable with tax, where any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, may,––

50. (i) before service of notice under sub-section (1), pay the amount of tax along with interest payable under section 50 and a penalty equivalent to fifteen per cent. of such tax on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment, and the proper officer, on receipt of such information, shall not serve any notice under sub-section (1), in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder;

51. (ii) pay the said tax along with interest payable under section 50 and a penalty equivalent to twenty-five per cent. of such tax within sixty days of issue of the notice, and on doing so, all proceedings in respect of the said notice shall be deemed to be concluded;

52. (iii) pay the tax along with interest payable thereon under section 50 and a penalty equivalent to fifty per cent. of such tax within sixty days of communication of the order, and on doing so, all proceedings in respect of the said notice shall be deemed to be concluded.

53. On the other hand, when the proper officer is of the opinion that the amount which has been paid under sub-Section 8 and 9 (i) and (ii) falls short of the amount which is actually payable, a notice under sub-Section (1) is to issue for the amount which falls short of what is actually payable. Sub-Section (8) and (9) contains a stipulation that where a person who is chargeable with tax under sub-Section (1) pays the tax together with interest and a prescribed amount of penalty within specified period , all proceedings in respect of the notice shall be deemed to be concluded.

54. It is provided in sub section(10), where the proper officer is of the opinion that the amount paid under clause (i) of subsection (8) or clause (i) of sub-section (9) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub- section (1) in respect of such amount which falls short of the amount actually payable.

55. Under sub-Section (6), the proper officer after considering the representation of the person chargeable to tax is authorized to determine the amount of tax, interest and penalty due and to issue an order.

56. Subsection (7) stipulate that order under sub- section (6) shall be issued within twelve months from the date of issuance of notice specified in sub-section (2). It may extend up to six month with the approval of Commissioner.

57. Sub Section (11) states that notwithstanding anything contained in clause (i) or clause (ii) of sub-section (8), penalty under clause (i) of sub- section (5) shall be payable where any amount of self assessed tax or any amount collected as tax has not been paid within a period of thirty days from the due date of payment of such tax.

58. Explanation 2 define the term “suppression” and accordingly “ suppression” shall mean non-declaration of facts or information which a taxable person is required to declare in the return, statement, report or any other document furnished under this Act or the rules made thereunder, or failure to furnish any information on being asked for, in writing, by the proper officer.

59. DRC FORMS.

DRC 01- Summary of show cause notice.

DRC 1A- Intimation of tax ascertained as being payable under section 73(5)/ 74(5).

DRC02- Summary of statement.

DRC-03 – Intimation of payment made voluntarily or made against the show cause notice (SCN) or statement

DRC-04 – Acknowledgement of acceptance of payment made voluntarily.

DRC-05 – Intimation of conclusion of proceedings.

DRC-06- Reply to show cause notice.

DRC-07 -Summary of the order.

DRC-08 – Summary of Rectification /Withdrawal Order

60. Important stages in the adjudication proceeding under section 73 ,74 and 74A of the Act.

First- Identification of reason and determination of proposed demand of tax basis for initiation of proceeding .

Second – Find out reason for proposed demand to invoke proper section.

Third – Issue notice DRC 1A where necessary.

Forth – Consideration of reply to DRC 1A.

Fifth – Confirmation of voluntary payment made u/s 73(5)/74(5) before issue of notice.

Sixth – Decision to issue notice in respect of unpaid tax S73(7) and 74(7).

Seventh – Identification of ingredients of fraud, fraud, willful statement or suppression of fact to evade tax to decide applicability of section.

Eighth – Issue of show cause notice under section 73(1) or 74(1) DRC 01

Ninth – Confirmation of payment made after issue of notice within 30 days.

Tenth – Issue form DRC 05- Intimation of conclusion of proceedings/ Proceeding deemed to be concluded where applicable.

Eleventh – Consideration of representation/ reply submitted by noticee.

Twelfth – Determination of tax, interest and penalty.

61. Thirteenth – Issue adjudication order.

Fifth Case – Basis for initiation of proceeding u/s 73 or 74 or 74A.

M/s Devi Trader( 2023-TIOL-743-HC-AP-GST )

62. GST -Petitioner submits that without scrutinizing the return for the Assessment Year 2018-19 U/s 61 and without finding any discrepancies and issuing notice to explain discrepancies and most importantly, without passing any reasoned order thereon, the 3rd respondent has directly issued notice U/s 74 of the Act which is per se illegal and without jurisdiction; and consequently petitioner seeks setting aside the show cause notice dated 06.07.2022 and direct the respondents to release the petitioner’s bank account

63. 1) Whether proceedings U/s 74 of APGST Act cannot be independently initiated without having recourse to the scrutiny U/s 61 of the said Act?

64. It should be carefully observed that Section 74 starts with the clause “where it appears to the proper officer that any tax has not been paid” . The word “appears” has a wider amplitude subsuming in it not only Section 61 and 65 but also any other credible information from a different source .If the intendment of legislature is to make Section 74 bound by Section 61 and 65 alone, that fact would have been clearly depicted in Section 74 .However, we will not find any specific reference to Section 61 [Scrutiny of returns] or 65 [Audit by Tax authorities] in Section 74 except the usage “where it appears” .A literal or strict interpretation is essential for fiscal, tax and penal laws and the Court cannot abridge or elongate the meaning of those statutory provisions, particularly, when the language employed therein is plain, unambiguous and simple . In the present case as already stated supra the phrase ” where it appears ” is a free, unfettered and unbound usage made by legislature and, therefore, in our view, the source for the proper officer to proceed under this provision can be held to be either under Section 61 or 65 or some other information but cannot be constricted to Section 61 or 65 alone to reach Section 74 cannot be accepted . Thus in essence, the source for the proper officer to proceed U/s 74 may be either Section 61 or 65 or some other fact.

65. On similar issue , in the case of Mandarina Apartment owners welfare association ( 2024-TIOL-1189-HC-MAD-gst)the High court has observed in para 17.

66. Para 17. On examining the text of Section 73, the provision opens with the words “Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for any reason”. Except for the replacement of the last three words “for any reason” with “by reason of fraud, or any wilful misstatement or suppression of facts to evade tax”, the opening phrases of Sections 73 and 74 are identical. As interpreted by the Andhra Pradesh High Court in Devi Traders, the use of the words ‘where it appears to the proper officer’ indicates that adjudication may be initiated not only as a consequence of scrutiny under Section 61, audit under Section 65, special audit under Section 66 or inspection under Section 67, but also upon receipt of information from other sources. On closely examining both Sections 61 and Section 73, I find no indication in either provision that scrutiny of returns and the issuance of notice in Form ASMT-10 constitute a mandatory pre-requisite for adjudication even in cases where returns were scrutinized.

Basis for Initiation proceedings under section 73 ,74 and &74A. 

67. Section 73, 74 and & 74A stipulate that where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for any reason adjudication proceeding may be initiated under said sections. Words ‘where it appears to the proper officer’ indicates that adjudication may be initiated on the basis of findings of the proceeding conducted under various provisions of the Act, including following proceeding. Where , during the course of above referred proceeding, non payment of tax or short payment of tax or erroneous grant of refund or wrongfully availment or utilisation of input tax credit by taxable person are noticed, then Proper Officer is required to determine tax liability and to pass adjudication order in original u/s 73,74 or 74A of the Act, to recover such dues .

First – Contravention of conditions of composition scheme

Second – Recovery of credit distributed in excess.

Third- Failure to account for the goods or services or both in accordance with the provisions of sub-section 35(1).

Fourth -Failure to deduct and pay TDS.

Fifth -Non compliance of discrepancies in the scrutiny of returns

Sixth – Detection of additional tax liability in the Audit u/s 65.

Seventh – Detection of additional tax liability in the Audit u/s 66.

First- Contravention of conditions of composition scheme.

68. In view of section 10 (5), if the proper officer has reasons to believe that a taxable person has paid tax under sub-section (1) or sub-section (2A), as the case may be, despite not being eligible, such person shall, in addition to any tax that may be payable by him under any other provisions of this Act, be liable to a penalty and the provisions of section 73 or section 74 shall, mutatis mutandis, apply for determination of tax and penalty. And proceeding under section 73 or 74 or 74A may be initiated.

Second – Recovery of credit distributed in excess.

69. It is provided in section 21 that Where the Input Service Distributor distributes the credit in contravention of the provisions contained in section 20 resulting in excess distribution of credit to one or more recipients of credit, the excess credit so distributed shall be recovered from such recipients along with interest, and the provisions of section 73 or section 74, as the case may be, shall, mutatis mutandis, apply for determination of amount to be recovered. And proceeding under section 73,or 74 or 74A may be initiated.

Third- Failure to account for the goods or services or both in accordance with the provisions of sub-section 35(1).

70. Section 35 (6) stipulate that Subject to the provisions of clause (h) of sub-section (5) of section 17, where the registered person fails to account for the goods or services or both in accordance with the provisions of sub-section (1), the proper officer shall determine the amount of tax payable on the goods or services or both that are not accounted for, as if such goods or services or both had been supplied by such person and the provisions of section 73 or section74, as the case may be, shall, mutatis mutandis, apply for determination of such tax. In order to demand and recover tax on unaccounted supplies adjudication proceeding may be initiated under section 73 or 74, or 74A of the Act.

Fourth – Failure to deduct and pay TDS

71. Section 51(6) stipulate that if any deductor fails to pay to the Government the amount deducted as tax under sub-section (1), he shall pay interest in accordance with the provisions of sub-section (1) of section 50, in addition to the amount of tax deducted. And the determination of the amount in default under this section shall be made in the manner specified in section 73 or 74 or section 74A. In order to demand and recover amount of TDS tax , adjudication proceeding may be initiated under section 73 or 74, or 74A of the Act

Fifth -Non compliance of discrepancies in the scrutiny of returns

72. Section 61(3) provides that during the course of scrutiny of returns, in case no satisfactory explanation is furnished within a period of thirty days of being informed by the proper officer or such further period as may be permitted by him or where the registered person, after accepting the discrepancies, fails to take the corrective measure in his return for the month in which the discrepancy is accepted, the proper officer may initiate appropriate action including those under section 65 or section 66 or section 67, or proceed to determine the tax and other dues under section 73 or section 74. In order to demand and recover amount of such tax , adjudication proceeding may be initiated under section 73 or 74, or 74A of the Act.

Sixth – Detection of additional tax liability in the Audit u/s 65.

73. Section 65 (7), stipulate that where the audit conducted under sub-section (1) results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilised, the proper officer may initiate action under section 73 or 74 or section 74A.

Seventh – Detection of additional tax liability in the special Audit u/s 66.

74. Section 66(6) provides that where the special audit conducted under sub-section (1) results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilised, the proper officer may initiate action under section 73 or 74 or section 74A.

Proper assumption of jurisdiction.

75. Government by way of notifications /circulars declare proper officers and assign them jurisdictions and powers under different sections for issue SCN and issue of order. These authorities being proper officers are competent authorities to issue SCN under relevant sections. As per Section 73(1), 74(1) and 74A(1) only” proper officer “ has power to issue SCN and issue adjudication order. Section 2 (91) define the term “ proper officer.” It is obligatory to adjudicating authority to confirm whether it has been notified as “ Proper officer” and has jurisdiction to issue SCN. Orders passed without jurisdiction not sustainable in the eyes of law and may be challenged in the courts. It is also needs to confirm whether SCN is issued within prescribed time limit. SCN issued without jurisdictions may be challenged in the court. It is well settled that SCN issued without jurisdiction is invalid and liable to set aside. Assumptions of proper jurisdiction is important aspect in adjudication proceeding as it goes to the root of case and subject to challenge in the court by writs.

76. Before initiating action under section 73 and 74, Proper officer has to first decide which section is applicable, by taking into accounts all relevant facts and circumstances of the case. If proposed demand is due to fraud or wilful-misstatement or suppression of facts, then section 74 will be applicable and notice is required to be issue under said section. Suppression has been defined in explanation 1 to section 74 (11) as under “Suppression shall means non- declaration of facts or information which taxable person is required to declare in return, statement, report or any other documents furnished under the act or rule made there under, or failure to furnish information on being asked for, in writing by Proper Officer. Accordingly in view of above it is necessary to determine applicable section before issue of notice. In other normal cases section 73 will apply. It is pertinent to note that different time limit and different amount of penalty prescribed in these sections. Wrong applicability of section may create dispute regarding limitation periods also.

77. In Deepak Agro Foods Vrs. State of Rajasthan, (2008) 16 VST 454 (SC) = 2008-TIOL-134-SC-CT , a similar issue has been examined by the apex court and it has been held that assessment orders are not in the nature of judicial proceeding. Irregular assessment orders are curable but assessment orders passed without jurisdiction are null and void. The Supreme Court observed as under:

78. ’11. All irregular or erroneous or even illegal orders cannot be held to be null and void, as there is a fine distinction between orders which are null and void and orders which are irregular, wrong or illegal. Where an authority makes an order which lacks inherent jurisdiction, such an order would be without jurisdiction, null and void ab initio, as the defect of jurisdiction of such authority goes to the root of the matter and strikes at his very authority to pass any order and such a defect cannot be cured even by consent of the parties.

79. 12. At this stage it would be germane to refer to observations made by the Andha Pradesh High Court in the case of MRF Mazdoor Sangh vs. The Commissioner of Labour & Others, reported in 2014 (3) ALT 265, MANU/AP/1685/2013, wherein the matter of cancellation of registration of trade union, it was held that :

80. “The show cause notice should reflect the jurisdictional facts based on which the final order is proposed to be passed. The person proceeded against would then have an opportunity to show cause that the authority had erroneously assumed existence of a jurisdictional fact and, since the essential jurisdictional facts do not exist, the authority does not have jurisdiction to decide the other issues.”

Sixth Case- Assumption of proper jurisdiction

Agrawal Namkeen Vs GST Council 2024-TIOL819-HC-RAJ-GST

81. GST – Petitioner, referring to provisions contained in Section 2 (4), 2 (24), 2 (91), Section 5 and Section 73 of the Act of 2017 would submit that none of the notifications placed on record empowers the Joint Commissioner (Investigation) Enforcement Wing, Rajasthani, Jaipur to exercise powers and functions of adjudicating authority under Section 73 in relation to the case of the petitioner inasmuch as the notifications do not confer power of adjudication under Section 73 on Joint Commissioner (Investigation) Enforcement Wing, Rajasthan I, Jaipur in relation to entire State of Rajasthan including Udaipur as notification dated 25.02.2020 confers jurisdiction to act as adjudicating authority within respective jurisdiction and not beyond that.

82. Held: On prima facie consideration, Bench finds that for the purposes of exercising powers of adjudicating authority under Section 73 of the Act of 2017, proper officer would be one who has been assigned that function as adjudicating authority.While notification dated 25.02.2020 provides that for the purposes of exercising powers under Section 73 of the Act of 2017, the officers of the rank of Joint Commissioner/Deputy Commissioner/Assistant Commissioner would be competent, the notification also clearly says that such power would be exercisable by them within their jurisdiction. Notifications which have been filed by the respondents do not show that in relation to exercise of powers of adjudicating authority under Section 73, the jurisdiction of Joint Commissioner Enforcement Wing, Rajasthani, Jaipur has been extended beyond his jurisdiction including Udaipur jurisdiction. The submissions made by the petitioner requires serious consideration that the respondents did not have jurisdiction under the law to issue notice and to pass the impugned order .Accordingly, respondents are restrained from taking any coercive action against the petitioner pursuant to the impugned order dated 04.01.2024 – Matter to be listed on 12.07.2024: High Court [para 6 to 9]

Applicability of provisions of section 74 .

83. Before initiation of adjudication proceeding proper officer has to first decide which section is applicable. Section 74 gives extended time limit of five year to issue adjudication order. Similarly, it provides penalty equivalent to hundred percent of tax involved in SCN. Due to these two reasons there may be controversies regarding applicability of section 74. Section 74 is applicable if there is allegation of fraud or wilful misstatement or suppression of the facts to evade tax. If these specified ingredients exist to evade tax then period of limitation will be extended and higher penalty will be applicable. In the erstwhile Central Excise Law the term was “ intent to evade payment of duty”. This term is replaced by the term “ to evade tax” in the GST act. Both terms appear import same meaning. It is needless to say that the proper officer has to allege fraud, wilful-misstatement or suppression of fact, if he initiates action under Section 74

84. Supreme Court in the case of Tamilnadu Housing Board v CCE on the term intention to evade duty, observed that “ when the law requires an intention to evade payment of duty then it is not mere failure to pay duty. It must be something more. That is the assessee must be aware that the duty was leviable and it deliberately avoid paying it. The word ‘ evade’ in the context means defeating the provisions of law of paying duty. It is made more stringent by use of word ‘ intent’,. In other words the assessee must deliberately avoid payment of duty which payable in accordance with law.”

85. To evade tax is not mere failure to pay tax. Something positive other than mere inaction or failure on the part of assessee or deliberate holding of information when assessee knew otherwise or suppression as defined in explanation 1(ii) of the act is required before invoking provisions u/s 74 of the act. To attract section 74 of the act, there must be something more than mere failure to pay tax i.e. the assessee must aware that tax was leviable and he must deliberately and wilfully avoid payment of tax. Onus is on proper officer to prove that specified ingredients are exist and provisions of section 74 attracts. Indiscriminate use of power u/s 74 lead to fruitless adjudications, appeals, review and inflate the figure of outstanding demand and above all cause unnecessary harassment to assesses. Therefore, before invoking power u/s 74 , it must be ensured that necessary and sufficient conditions to invoke said section exist.

86. In the case of Cosmic Dye Chemical v. Collector of Central Excise, Bombay, (1995) 6 SCC 117, the Apex court held that “Now so far as fraud and collusion are concerned, it is evident that the requisite intent, i.e., intent to evade duty is built into these very words. So far as mis-statement or suppression of facts are concerned, they are clearly qualified by the word “wilful” preceding the words “mis-statement or suppression of facts” which means with intent to evade duty. The next set of words “contravention of any of the provisions of this Act or rules” is again qualified by the immediately following words “with intent to evade payment of duty”. It is, therefore, not correct to say that there can be suppression or misstatement of fact, which is not wilful and yet constitute a permissible ground for the purpose of the proviso to Section 11-A. Mis- statement or suppression of fact must be willful.”

Time limit to issue notice and order.

87. Section 73 (2) and section 74 (2) speaks about time limit to issue notice. Section 73 (10) and section 74 (10 ) provides time limit to issue orders. Considering nature of cases, different time limit has been prescribed for issuance of notice & order for normal and fraud case. Time limit to issue SCN for normal case (section 73) and fraud case ( section 74) is two years nine months and four year six month respectively from the due date of filing of Annual return for the financial year to which demand pertains or from date of erroneous refund . Time limit for issue of order for normal case and fraud case is three years and five year respectively from due date of filing of Annual return for the financial year to which demand pertains or from date of erroneous refund respectively. It is pertinent to note that time limit is important factor for initiation of proceeding by issuing SCN and issue of order under said section and assumption of jurisdiction. No adjudication proceeding can be initiated and SCN and order can be issued after expiry of prescribed time limit being barred by limitation. The adjudication proceeding shall be deemed to be concluded if the order is not passed within such prescribed time limit..

88. It is pertinent to note that as per section 75(1), Where service of SCN u/s 73 or 74 is stayed by the Court or Appellate Tribunal, the period of such stay shall be excluded while computing limitation period.

89. It is also necessary to exclude the period specified in section 75(11) while determining limitation period. Section 75(11) provides that an issue on which the Appellate Authority or the Appellate Tribunal or the High Court has given its decision which is prejudicial to the interest of revenue in some other proceedings and an appeal to the Appellate Tribunal or the High Court or the Supreme Court against such decision of the Appellate Authority or the Appellate Tribunal or the High Court is pending, the period spent between the date of the decision of the Appellate Authority and that of the Appellate Tribunal or the date of decision of the Appellate Tribunal and that of the High Court or the date of the decision of the High Court and that of the Supreme Court shall be excluded in computing the period referred to in sub-section (10) of section 73 or sub-section (10) of section 74 where proceedings are initiated by way of issue of a show cause notice under the said sections.

90. It is also necessary to consider provision of section 104 of the Act regarding Advance ruling to be void in certain circumstances, while calculating time limit under section 73 and 74 of the Act.

91. It is provided in the section 104 that where the Authority or the Appellate Authority 201 or the National Appellate Authority finds that advance ruling pronounced by it under sub-section (4) of section 98 or under sub-section (1) of section 101 or under section101C of the Central Goods and Services Tax Act has been obtained by the applicant or the appellant by fraud or suppression of material facts or misrepresentation of facts, it may, by order, declare such ruling to be void ab-initio and thereupon all the provisions of this Act or the rules made thereunder shall apply to the applicant or the appellant as if such advance ruling had never been made .The period beginning with the date of such advance ruling and ending with the date of order under this sub-section shall be excluded while computing the period specified in sub-sections (2) and (10) of section 73 or sub-sections (2) and (10) of section 74.

92. Similarly time limit extended by issuing notifications by the Government under168A needs to be consider while determining time limit under section 73 and 74 of the Act.

Payment of tax before Show Cause Notice under section 73(5) & 74(5).

93. Section 73 (5) and 74 (5 ) allows a person chargeable with any tax under subsection 1 , to pay amount of tax and interest payable u/s 50 , before service of SCN on the basis of own ascertainment or tax ascertained by Proper Officer. The said person is required to inform details of payment by way of intimation of payment ( DRC-3). If such amount has paid before service of SCN no penalty will attract u/s 73. However, in case of fraud case penalty equivalent to 15 % of such tax will be applicable u/ 74. In order to provide manner of ascertainment of tax by the Proper Officer, intimation in FORM – GST- DRC -01 A has been prescribed in rule 142 (1A). Earlier, issuance of such intimation to the person was mandatory. However, due to amendment in the rule now it is optional.

Payment of tax after issue of show cause notice.

94. .Where taxable person , after receipt of SCN u/s 73 (1) of the Act , pays amount of said tax and applicable interest , within 30 days from issue of notice no penalty shall be payable . However, in the case of fraud case where notice is issued u/s 74 (1) and payment of said tax and applicable interest and amount of penalty equivalent to 25 % of said tax made within 30 days from the date of issue of SCN , in view of section 74 (8), remaining penalty will be waived . No penalty will attract if case is covered u/s/73. Thereafter, as per section 73 (8) & 74(8) of the Act proceeding in respect of said notice shall be deemed to be concluded. Accordingly, Proper office shall issue intimation of concluding of proceeding in form FORM-GST-DRC-05 . However, where amount of said tax paid without payment of interest and penalty within 30 days from date of service of SCN, proper officer is required to issue notice for levy of interest and for levy penalty only if case cover u/s 74 of the Act

Show cause notice.

95. Issue of show cause notice for giving sufficient and meaningful opportunity of hearing, is the essential precondition for every adjudication proceeding. In fact show cause notice is statutory requirement which should be complied with to satisfy principle of natural justice. It is foundation of matter of levy of tax , interest and penalty. SCN is the foundation on which adjudicating authority has to build up case. SCN offer concerned person an opportunity to submit oral or written submission before adjudicating authority on charges alleged in SCN. Section 73 (1)and 74(1) of the Act provides for issue of SCN, where it appears to the proper officer ( on the basis of findings of various proceedings under the act) that taxable person has not paid tax or short paid or erroneously refund granted or wrongly availed ITC, to the such person requiring him to show cause as to why he should not pay the said amount along with interest and penalty, in the normal case and fraud case respectively. Demand of tax liability as per section 73 and 74 from the person chargeable with tax is made by way of issue of detailed a Show Cause Notice along with summary in form DRC–01 indicating therein charges of violations of provision of law requiring the said person to explain as to why the tax not paid or short paid or amount erroneously refunded or ITC wrongly availed or utilized should not be recovered from the noticee with interest under section 50 and penalty. It must be speaking and well reasoned. Issuance of show cause notice should be with open mind. Taxable person should be of clear view that it is only proposal and his reply will be considered before taking any decision. Issue of SCN is not only to make aware taxable person against whom the action is intended to be taken but must contain brief facts of case and grounds relied upon for proposed action and language in precision, the reading of which makes person understand the case that he has to defend. It should not be issued on assumptions and presumptions. Allegations and finding in SCN should be supported by documentary evidences. In SCN there should be prima facie opinion and not final opinion or conclusions. Primary purpose of SCN is only to put aggrieved person on the notice of the facts and necessary ingredients of charge so as to enable him effectively meet it. If adjudication order passed without issue of SCN order will be liable to set aside being contravention of statutory provisions and violation of principle of natural justice .

96. In the case of M/s Oryx Fisheries Pvt ltd (2011) 266 ELT 422 (SC) the Apex court has observed that “28. It is no doubt true that at the stage of show cause, the person proceeded against must be told the charges against him so that he can take his defence and prove his innocence. It is obvious that at that stage the authority issuing the charge-sheet, cannot, instead of telling him the charges, confront him with definite conclusions of his alleged guilt. If that is done, as has been done in this instant case, the entire proceeding initiated by the show cause notice get vitiated by unfairness and bias and the subsequent proceeding become an idle ceremony.

97. 31. It is of course true that the show cause notice cannot be read hyper-technically and it is well settled that it is to be read reasonably. But one thing is clear that while reading a show- cause notice the person who is subject to is must get an impression that he will get an effective opportunity to rebut the allegations contained in the show cause notice and prove his innocence. If on a reasonable reading of a show-cause notice a person of ordinary prudence gets the feeling that his reply to the show cause notice will be an empty ceremony and he will merely knock his head against the impenetrable wall of prejudged opinion, such a show cause notice does not commence a fair procedure especially when it is issued in a quasi-judicial proceeding under a statutory regulation which promises to give the person proceeded against a reasonable opportunity of defence.”

98. In the case of M/s NKAS Services Pvt. Ltd. vs. State of Jharkhand & Ors., passed in W.P.(T) No. 2444 of 2021( 2021-TIOL-2079- JHA-HC) only summary of SCN in form DRC -1 issued and no show cause notice issued. High court has observed that “In view of the aforesaid facts and the settled preposition of law, the foundation of the proceeding in both the cases suffers from material irregularity and hence not sustainable being contrary to Section 74(1) of the JGST Act; thus, the subsequent proceedings/impugned Orders cannot sanctify the same. Though, the petitioner submitted their concise reply vide letter dated 11-10-2018; the respondent State cannot take benefit of the said action as summary of show cause notice cannot be considered as a show cause notice as mandated under Section 74(1) of the Act. As stated herein above, it is well settled that there is no estoppels against statute. A bonafide mistake or consent by the assessee cannot confer any jurisdiction upon the proper officer. The jurisdiction must flow from the statute itself. The High Court has categorically held that Summary of Show Cause Notice in Form DRC-01 is not a substitute of show cause notice under Section74(1).

Seventh case- Audit finding.

ABT Ltd (2024-TIOL-149-HC-MAD-GST)

99. GST – Show cause notice under Section 74 of the CGST Act on 14.12.2023 in respect of about 5 audit observations was issued and this SCN is the subject of the present challenge – First ground of challenge is that the audit report did not record findings of fraud, wilful-misstatement or suppression of fact in respect of any of the observations made therein and, therefore, in the absence of such findings in the audit report, the proper officer does not have the jurisdiction to proceed under Section 74 – The second ground of challenge is that intimation in Form GST DRC-01A was not issued to the petitioner – Counsel for Revenue submits that Section 65 of the CGST Act does not prescribe that the audit report should contain findings that it is an appropriate case for action under Section 74 of the CGST Act and, therefore, the SCN is in accordance with law; that petitioner should respond to the SCN and raise objections; that, therefore, writ petition is liable to be dismissed.

100. Held: There is nothing in the language of Section 65 to indicate that the audit report should contain such findings of fraud or wilful-misstatement or suppression of facts – On the contrary, subject to the audit report disclosing the aforesaid, sub-section (7) of Section 65 prescribes that the proper officer may initiate action under Section 73 or 74 – Thus, the relevant provision indicates that the proper officer has the option – It is needless to say that the proper officer has to allege fraud, wilful-misstatement or suppression of fact, if he initiates action under Section 74 – It is not the petitioner’s case that such assertions or allegations are not contained in the show cause notice – The show cause notice in Form GST DRC-01A was issued on 14.12.2023, which is subsequent to the date of amendment to Rule 142(1A) [replacing the word ‘shall’ with ‘may’] – Therefore, even if the amendment is prospective, the amendment would apply with regard to the impugned show cause notice – No case is made out to interfere with the impugned show cause notice – Petition dismissed: High Court.

Drafting of Show Cause Notice

101. Show cause notice must be unambiguous, speaking and well reasoned. Non speaking, vague and ambiguous notices are not sustainable in the eyes of law and liable to set aside. Therefore, SCN must be drafted carefully. It is pertinent to note that, both detailed SCN and summary of SCN in form DRC-01 should be served to the taxable person. No form has been prescribed in the rule for detailed SCN . However, summary of such SCN required to be issue in prescribed form u/r 142 (1) GST- DRC-01.

102. CBEC has issued master circular on the issue of SCN ( Cir no 1053/02/2017 CX dated 10/3/2017) which is applicable to the existing indirect tax laws. However, guideline issued in the circular may be applicable to the GST Act. It is stated in para 2.2 of the said circular that “ structure of SCN should ideally comprises following parts though it may vary from case to case. Legal frame work, factual statement and appreciation of evidence, discussion on limitation, calculation of duty and other amount due, statement of charges, and authority to adjudicate.”

103. Speaking SCN may generally contain the following ingredient .Facts of the case . Relevant provisions of law . Discussion on limitation period. Reason for applicability of extended limitation period u/s 74 of the Act. Findings of earlier proceeding and verifications. Cause of proposed action. Grounds relied upon for proposed additional tax liability / actions . Specific allegations / charges with evidences. Basis for rejection, denial of claims or exemptions. Justification for how and why taxable person is liable to pay tax. Consideration and appreciation of evidences produced. Details of contraventions of Act and rules where necessary. Discussions on legal issues. Quantification of proposed tax, interest and penalty. Date of hearing for giving opportunity of hearing. Charging paragraphs.

Nonspeaking and vague SCN is invalid.

104. The notice should not be vague and should clearly spell out the charges against the noticee. It should draw reference to the relevant statutory provisions that are allegedly contravened by the noticee. This would enable the noticee to admit or rebut the allegations and charges contained in the notice. Further the notice should be served on the person chargeable to tax.

105. Show cause notice must be speaking and well reasoned. Nonspeaking, vague and ambiguous SCNs are not sustainable in the eyes of law and liable to set aside. Under GST Act in number of cases High court has held that vague and non speaking SCNs are unsustainable and set aside notices.

Eighth Case – Non-Issue of detailed SCN

106. In the case of M/s NKAS Services Pvt. Ltd. vs. State of Jharkhand & Ors., passed in W.P.(T) No. 2444 of 2021( 2021-TIOL-2079- JHA-HC) only summary of SCN in form DRC -1 issued and no show cause notice issued. High court has observed that

“In view of the aforesaid facts and the settled preposition of law, the foundation of the proceeding in both the cases suffers from material irregularity and hence not sustainable being contrary to Section 74(1) of the JGST Act; thus, the subsequent proceedings/impugned Orders cannot sanctify the same. Though, the petitioner submitted their concise reply vide letter dated 11-10-2018; the respondent State cannot take benefit of the said action as summary of show cause notice cannot be considered as a show cause notice as mandated under Section 74(1) of the Act. As stated herein above, it is well settled that there is no estoppels against statute. A bonafide mistake or consent by the assesse cannot confer any jurisdiction upon the proper officer.The jurisdiction must flow from the statute itself. The High Court has categorically held that Summary of Show Cause Notice in Form DRC-01 is not a substitute of show cause notice under Section74(1).

Ninth Case – Non speaking notice and order.

107. In the case of Aggarwal Dyeing and Printing Works (2022-TIO;-504-HC-AHM-GST ) issue was involved , Whether the show cause notice seeking cancellation of registration and the consequential impugned order cancelling registration under the GST Act, is valid and sustainable in eye of law? Gujrat High Court has held that

108. Held: It is settled legal position of law that reasons are heart and soul of the order and non-communication of same itself amounts to denial of reasonable opportunity of hearing, resulting in miscarriage of justice . Assignment of reasons is imperative in nature and the speaking order doctrine mandates assigning the reason which is the heart and soul of the decision and said reasons must be the result of independent re-appreciation of evidence adduced and documents produced in the case .Wherever an order is likely to result in civil consequences, though the statute or provision of law, by itself, does not provide for an opportunity of hearing, the requirement of opportunity of hearing has to be read into the provision .Show cause notice, though issued in the prescribed form does not elaborate the reasons and the one-line reason mentioned is nothing but the reproduction of either of the reasons provided under rules regarding cancellation of registration. Respondent authority i.e. the Assistant/Deputy Commissioner, State tax Officer ought to have at least incorporated specific details to the contents of the show cause . Any prudent person would fail to respond to such show cause notice bereft of details thereby making the mechanism of issuing show cause notice a mere formality and an eye wash. Respondent authority has failed to extend sufficient opportunity of hearing before passing impugned order, inspite of specific request for adjournment sought for .Even the impugned order is not only non-speaking, but cryptic in nature and the reason of cancellation not decipherable therefrom .Thus, on all counts the respondent authority has failed to adhered to the aforesaid legal position . Bench, therefore, has no hesitation in holding that the basic Principles of natural justice stand violated and the order needs to be quashed as it entails penal and pecuniary .

Tenth Case – Relied upon documents.

Origin B R Digitalsigns Pvt Ltd (2024-TIOL-271-HC-ALL-GST)

109. Petitioner has merely assailed the impugned orders on the ground that the entire exercise was conducted on the basis of the SIB report and it was stated that neither the adjudicating authority nor the appellate authority provided a copy of the SIB report to the petitioner.

110. Held: Entire assessment having been made on the basis of the SIB report it was incumbent upon the the adjudicating authority to have provided a copy of the same to the petitioner while issuing notice to him and not giving a copy of the SIB report has severely prejudiced the case of the petitioner – Court has no hesitation in holding that the proceedings were in gross violation of the principles of natural justice – Orders dated 19.5.2022 passed by respondent No.3 as well as the appellate order dated 25.10.2023 passed by respondent No.2 are arbitrary and illegal and accordingly set aside – Matter is remitted back to the adjudicating authority to provide the petitioner a copy of the SIB report and any other material which forms basis of the demands issued against the petitioner – Matter to be finalised within a period of six months – Petition stands allowed:

111. 10. Undoubtedly, from the aforesaid written instructions it is clear that the SIB report was never given to the petitioner and there is no dispute with regard to the same. Undisputedly, the entire assessment having been made on the basis of the SIB report it was incumbent upon the the adjudicating authority to have provided a copy of the same to the petitioner while issuing notice to him and not giving a copy of the SIB report has severely prejudiced the case of the petitioner and this Court has no hesitation in holding that the proceedings were in gross violation of the principles of natural justice.

112. 11. Wherever any person is asked to give his response and the charges are bases on certain matterial and documents then it is mandated that the delinquent should be provided all the material on the basis of which the said charges are framed and by not giving such materials will severely prejudice the case of a person who is asked to respond to the said charges. In the present case not providing copy of the SIB report has severely prejudiced the case of the petitioner and accordingly on this ground alone the proceedings are arbitrary being in violation of the principles of natural justice.

Service of relied upon documents with SCN.

113. It is settled principal that of valid SCN that all relevant document relied in SCN must be supplied to the assessee so as to afford him a reasonable opportunity to rebut, comment, explain the same.

114. In the case of UOI v T.R. Verma AIR 1957 SC 882 Supreme court has observed that no material should be relied upon against him without being given an opportunity of explaining them.

115. In the case of DSR STEELS (P) Ltd 28 STR 349 Hon Bombay High has observed that copies of relied upon documents by the adjudicating authority must be supplied to the assessee.

Filing of reply to Show Cause Notice.

116. SCN is an opportunity given to taxable person to prove with evidences that he is not liable to pay proposed tax and other amount. This proposal may be likely to be converted in to order if no reply or proper reply, on the grounds relied upon is submitted. Therefore, SCN must be taken seriously and should avail this opportunity to submit detailed ground wise reply along with relevant documentary evidences, interpretation of provisions and case laws in order to minimise amount of tax payable or drop the proceeding. Where, taxable person unable to produce any documentary evidence due to sufficient cause then he must request to the Proper Officer to give sufficient time to produce the same, otherwise it will be difficult to the appellate authority to allow him to produce such evidence and grant relief in appeal in view of restrictions prescribed in rule 112 of the rules . Sometimes taxable person may accept the tax liability as per notice and make the payments. However, if taxable person is not agree with the tax liability and grounds specified in SCN, he has option to submit representation along with documentary evidences, by way of reply in FORM-GST- DRC- 06 . The Proper officer should consider such representation while determining tax liability and passing order. Taxable person may also request for personal hearing before decision. Co joint reading of section 73 (8) and 74 (8) indicate that 30 days time limit is given for either accepting discrepancies and to make consequential payment or to submit reply .Proper Officer is not authorised to take any action till expiry of 30 days from the date of service of SCN . Thus, it seen that 30 days time is available to submit reply to SCN issued u/s 73 or 74 .

Maximum three adjournments.

117. Taxable person gets 30 days time to submit reply to SCN u/s 73 or 74 of the Act . Where, he is unable to produce documents, evidences or submit reply, within stipulated date due to sufficient cause, he may request in writing by stating reasons for adjournment. In view of provision of section 75 (5 ) of the Act, proper officer has power to adjourn proceeding on satisfaction of sufficient cause and by recording reason thereof. However, such adjournment can not be granted more than three times to a person during the proceeding. Hence, taxable person must avail these adjournments to collect documents, evidences which are required to submit along with written reply. It is pertinent to note that provisions of three adjournments have made in Act itself and therefore Proper Officer cannot reject the request of adjournment on if there is sufficient cause.

Opportunity of Personal Hearing.

118. It is settled by various judicial pronouncements that the opportunity of hearing means granting real and meaningful opportunity and adequate time must given to prepare and present the defence . It is one of established principles of Common Law that officials taking action of a judicial nature must give an adequate opportunity of being heard to a person against whom the action is proposed to be taken .The principle seeks to ensure fairness of procedure in dealings between public authorities and citizens and promotes fair play in such dealings. When the statute provides for procedure for hearing Constitutional Courts are duty bound to uphold such procedure and must ensure that meaningful opportunity of hearing must be provided

119. Section 75 (4) of the Act states that an opportunity of personal hearing shall be granted where request is received in writing from person chargeable with tax or where any adverse decision is contemplated against such person . Therefore, taxable person may request in writing to avail opportunity of personal hearing.

120. However, in view of the following judgment, and other similar court decisions , where an adverse decision is contemplated against the person, the Proper Officer is required to grant opportunity of personal hearing even no request was made by taxable person..

Eleventh Case -Personal hearing.

2024-TIOL-211-HC-ALL-GST KEC International Ltd

121. UP GST – The present petition was filed to assail the order passed by Joint Commissioner (Corporate Circle), State Tax, Saharanpur, Without affording any opportunity of hearing and in complete denial of the petitioner’s right to that under Section 75(4) of the Act, 2017, the order in challenge has been passed only to deny the refund that is otherwise due to the petitioner.

122. Held – Section 75(4) of the Act, 2017 gives perfect right to the petitioner to be personally heard before any adverse order may be passed .In light of such fact, the order in question cannot be sustained . Since the statutorily incorporated right of natural justice has been violated for no good reason, it is observed that alternate remedy that otherwise exists may not operate as a bar to entertain the present petition – Besides the fact that the petitioner has a right of hearing, rule of law also commends that obligation to provide such an opportunity be duly enforced on the Revenue authorities as may not give rise to fruitless and wholly avoidable litigation as has arisen in the present petition: HC

123. In the case (2022-tiol-450-HC-All-gst) of Bharat Mint and Allied Chemicals, Allahabad High Courtissue was involved “Whether opportunity of personal hearing is mandatory under Section 75(4) of the CGST Act, held that

124. “From perusal of Section 75(4) of the Act, 2017 it is evident that opportunity of hearing has to be granted by authorities under the Act, 2017 where either a request is received from the person chargeable with tax or penalty for opportunity of hearing or where any adverse decision is contemplated against such person. Thus, where an adverse decision is contemplated against the person, such a person even need not to request for opportunity of personal hearing and it is mandatory for the authority concerned to afford opportunity of personal hearing before passing an order adverse to such person. Thus the legislative mandate of Section 75(4) of the Act to the authorities to afford opportunity of hearing to the assessee i.e. to follow principles of natural justice, has been completely violated by the respondents while passing the impugned order.”

Twelfth Case – Meaningful opportunity of hearing .

2023-TIOL-1633-HC-MAD-GST Sundar Prabhu Deva

125. GST – Petitioner submits that though the show cause notice, dated 04.03.2023, was alleged to have been issued, the same was not served directly to the petitioner by any other modes of communications such as Post, e-mail, etc. but, was only uploaded in the online Portal; that, therefore, the impugned order is liable to be set aside as the same suffers from violation of principles of natural justice.

126. Held : On perusal of the show cause notice dated 04.03.2023, which has culminated in the impugned order, dated 01.06.2023, it is seen that in first sentence of last para, the respondent-Department has called forth reply/objections from the petitioner within 30 days and in the very same para, particularly, in three lines above, the petitioner has been asked to appear for personal hearing on 17.03.2023, which itself is much prior to the date fixed for filing reply, which per se would show that the real intention of the respondent. Department is not to provide fair opportunity to the petitioner to defend their case, but, only to put the petitioner in peril . Opportunities alleged to have been granted to the petitioner are not the real ones, but were the opportunities provided at nominal level and the same cannot be construed as fair opportunities – Impugned order dated 01.06.2023 is set aside and the matter is remanded to the first respondent/State Tax Officer for re-consideration. Bank account attachment order is also set aside .Petition allowed.

Proper officer is not allowed to travel beyond show cause notice.

127. It is well settled by court judgment that adjudicating authorities are not allowed to travel beyond the scope of SCN. It cannot adjudicate the ground which was not mentioned in the SCN. Section 75 (7) of the Act states that, the amount of tax , interest and penalty demanded in the order shall not be in excess of the specified in the notice and no demand shall be confirmed on the grounds other than specified in the notice . In view of the above, it is clear that authority is not allowed to travel beyond scope of SCN.

128. In the case of M/s Saci Allied Product (2005 ) 7 SCC 159 Hon Supreme Court observed that Tribunal was not allowed to go beyond SCN and make out case which was never canvassed and which was assessee had never been required to meet .

129. In the case of Samsung India Electronics Pvt Ltd Vs State of UP (2024-TIOL-468-HC-ALL-GST ) High court of Allahabad has observed that

130. “ While issuing a Show Cause Notice, it is incumbent upon the Department to clearly outline the specific allegations or concerns against the recipient .In no case, the Department can be allowed to traverse beyond the confines of the Show Cause Notice, since the same will trample upon the recipient’s right to defend itself. Any attempt by the issuing authority to expand the scope of inquiry or introduce new allegations beyond those articulated in the show cause notice would constitute a violation of the principles of natural justice. Such actions would not only undermine the recipient’s right to a fair hearing but also erode trust in the integrity and impartiality of the adjudicatory process. Any action taken beyond the confines of the Show Cause Notice, is void ab initio and cannot be sustained .Impugned orders dated October 25, 2021 and February 24, 2023 are palpably erroneous, and cannot be sustained .”

Thirteenth Case – Demand in the order should not more than the amount shown cause notice.

2024-TIOL-745-HC-UKHAND-GST Horizon Packs Pvt Ltd Vs UoI (Dated: April 03, 2024)

131. GST – Petitioner is a Company paying tax under State GST – Petitioner is challenging the order passed under section 73(9) of Uttarakhand Goods and Services Tax Act, 2017 , whereby he has been asked to deposit Rs. 91,95,708/-, as tax, interest & penalty – Petitioner has challenged said order only on the ground that amount mentioned in SCN issued in Form GST DRC-01 is much less, therefore, more amount cannot be ordered to be paid by petitioner – Attention of this Court is drawn to SCN issued in Form GST DRC-01 in which the amount mentioned is Rs. 27,06,340/- only – Impugned order is quashed – However, it shall be open to Proper Officer to initiate proceedings denovo – This Court hopes and expects that final order will be passed by Proper Officer within four months, but only after following the mandate prescribed in Statute: HC

132. GST – Petitioner is a Company paying tax under State GST – Petitioner is challenging the order passed under section 73(9) of Uttarakhand Goods and Services Tax Act, 2017, whereby he has been asked to deposit Rs. 91,95,708/-, as tax, interest & penalty – Petitioner has challenged said order only on the ground that amount mentioned in SCN issued in Form GST DRC-01 is much less, therefore, more amount cannot be ordered to be paid by petitioner – Attention of this Court is drawn to SCN issued in Form GST DRC-01 in which the amount mentioned is Rs. 27,06,340/- only – Impugned order is quashed – However, it shall be open to Proper Officer to initiate proceedings denovo – This Court hopes and expects that final order will be passed by Proper Officer within four months, but only after following the mandate prescribed in Statute:

133. 5. Learned counsel for the petitioner submits that the impugned order dated 06-11-2023 is unsustainable in view of provision contained in sub-section (7) of section 75 of Uttarakhand Goods and Services Act, 2017, which reads as under:-

134. “73(7) The amount of tax, interest and penalty demanded in the order shall not be in excess of the amount specified in the notice and no demand shall be confirmed on the grounds other than the grounds specified in the notice.”

Show cause notice not to be invalid on certain grounds.

135. In view of section 160(1) of the Act, no notice under any provisions of the act shall be invalid or deemed to be invalid merely by reason of any mistake, defect, or omission therein, if such notice is in substance and in effect in conformity with or according to the intents, purpose s and requirements of this act. As per section 160 (2) of the Act, the service of any notice shall not be called in question, if the notice has already been acted upon by the person to whom it is issued or where such service has not been called in question at or in the earlier proceeding commenced, continued or finalised pursuant to such notice.

Show cause notice on observation of audit.

136. During the course of internal audit or CAG audit certain audit observations / objections are raised pointing out discrepancies in the adjudication orders. After examination of such discrepancies on the basis of relevant record and legal provisions, if proper officer is of view that audit objection/ observation is correct, then he may issue intimation of tax u/s 73/74 (5) of the Act to the assessee. Where assessee accept the discrepancy and pays the such amount then question of issue of SCN would not arise. However, where assessee is not agree with the discrepancy and not pays the amount notice may be issued under said respective sections to demand tax liability. However, proper office being quasi-judicial authority must apply his mind independently to the objection and satisfy himself that there is non payment of tax liability. SCN in respect of audit objection should be issued with independent application of mind, otherwise notice may be held as invalid.

Applicability of advance ruling.

137. Taxable person some time rely on the advance ruling issued under the Act and request to apply it while giving decision or issuing order. In view of section 103(1) the advance ruling pronounced by the Authority or the Appellate Authority under this Chapter shall be binding only (a) on the applicant who had sought it in respect of any matter referred to in sub-section (2) of section 97 for advance ruling; and (b) on the concerned officer or the jurisdictional officer in respect of the applicant. The advance ruling referred to in sub-section (1)shall be binding unless the law, facts or circumstances supporting the original advance ruling have changed. Advance ruling on the similar issue in other cases may have persuasive value but it is not binding on the adjudicating authority.

Application of case law.

138. The adjudicating authority need to examine the applicability of the case relied upon by the taxable person by applying principle of stare decisis. Article 141 lays down that “the law declared by the Supreme Court shall be binding on all courts within the territory of India.”This Article embodies the English principle of stare decisis which holds that law must be definite, fixed, known and consistent. Since the Supreme Court is the Apex court of the country and all courts and tribunals are bound by its decisions, Supreme Court judgments become a source of law in themselves.

139. Decisions of the Supreme Court are binding on all courts in India. The Supreme Court is not bound by decisions of High Courts, lower courts or other judicial authorities..

140. A decision of a High Court would have binding force in the state in which the court has jurisdiction but not outside that state. Decisions of the High Court are binding on subordinate courts, authorities and tribunals situated within its jurisdictional territory. It will also be just and proper for the Tribunal to follow a decision of a different High Court when there is no decision of the jurisdictional High Court or no contrary decision of another High Court. Decisions by High Courts of other states hold only persuasive value.

141. Stare decisis’ means that ‘in like circumstances, treatment of law must be alike’. It is for these reasons that decided cases have precedent value so that when facts are similar the treatment is not dissimilar. And unfavourable caselaw may be distinguished on the facts of the case.

142. It is necessary to examine, with specific reference to the facts of the case , whether case law is relevant and binding to the present case. It is found that case law is applicable then order may passed by applying it by recording reason therefor. If it noticed that case law cannot be applied and can distinguished on the facts of the present case, then it is necessary to record such reasons in the order.

143. Binding refers to the jurisdiction of the authority which has rendered the decision. Decision of the Andhra Pradesh High Court is a binding authority in Karnataka when there is no decision on that point from Karnataka High Court. But if there is a contrary decision of Karnataka High Court, then the decision of the Andhra Pradesh High Court will not even have persuasive value in proceedings in Karnataka.

144. In the case of UOI Vs Kamalakshi Finance Corpn. Ltd, 1991 (55) ELT 433 (SC) Supreme court has observed that “It cannot be too vehemently emphasised that it is of utmost importance that, in disposing of the quasi-judicial issues before them, revenue officers are bound by the decisions of the appellate authorities. The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not “acceptable” to the department, in itself an objectionable phrase and the subject-matter of an appeal, can furnish no ground for not following it unless its operation has been suspended by a competent Court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws.”

Adjudication order

145. Section 73(9) & 74(9) provides for passing of adjudication order. After considering reply and documents submitted by such person proper officer should determine amount of tax payable, interest applicable and amount of penalty as per provision of the law and pass order u/s 73 (9) or u/s 74 (9) of the Act within prescribed time limit. Where order is passed in normal case u/s 73 (9) penalty equivalent to ten percent of tax or ten thousand whichever is higher shall attract. However, penalty equivalent to 100 % of tax shall attract in fraud case where order is passed u/s 74 (9) of the act. Proper officer should pass detailed order and no form is prescribed for order. However, summary of such order should electronically uploaded in FORM-GST-DRC-07 specifying therein issue involved and details of demands.

146. It is clearly provided in section 75 (6 ) that proper officer should pass speaking order by stating relevant facts and basis for each decision. The order should contain findings on the issues raised in the notice and contentions and submissions made by the noticee. The order should specifically address the contentions urged by the noticee including judicial decisions cited. The adjudicating authority should apply his mind to the facts, issues, contentions urged by the noticee and evidence on record and reach a finding which forms the substance of his responsibility before passing the order

147. It is expected that he must give basis and reason for decision and it should be sufficient to indicate the application of mind. Taxable person has to know why decision has gone against him. Now it is well settled that non speaking order are not tenable in the eyes of law. This may be reason for making specific provision made in the Act for speaking order.

148. In the case of M/s Chandra Udhyog & ANR vs ACST ( 2022-TIOL-937-HC-KOL-GST) Kolkata High court has observed that order does not deals with objections and contentions raised by the petitioner against SCN and set aside order being nonspeaking.

Penalty under section 73 and 74 of the act.

149. Section 127 of the act gives powers to the proper officers to impose penalty. Section 127 of the state that where the proper officer is of the view that a person is liable to a penalty and the same is not covered under any proceedings under section 62 or section 63 or section 64 or section 73 or section 74 or section 129 or section 130, he may issue an order levying such penalty after giving a reasonable opportunity of being heard to such person. In view of above and considering provisions of section 122(2) it is seen that first of all persons who have committed offence should be liable to penalty under relevant section. Thereafter, if such person covered under proceeding under section 73 or 74, then such penalty should be recover and impose during the course of said proceedings by invoking provisions of section 122(2). Section 73 or 74 are important provisions which main intention is to demand and recover tax due and amount refund erroneously granted, from a person chargeable with tax. Maximum adjudication orders will be passed u/s 73 or 74 of the Act. Provisions of section 73 and 74 of the act deals with demand and recovery of tax and consequential interest and penalty due from the taxable person. It provides for determination of tax not paid or short paid or erroneously refunded or ITC wrongly availed or utilised. These section empower the proper officer to demand and recover tax along with applicable interest u/s 50 of the Act and where necessary to impose penalty leviable under the provisions of the act. It is expressly provided in section 73(1) that proper officer should demand tax due and consequential interest u/s 50 and penalties leviable under the act. Further, it is expressly provided in section 74(1) that penalty equivalent to tax due as per notice. Similarly section 73(9) state that proper officer should determine amount of tax due and interest u/s 50 and penalty equivalent to ten percent of tax or ten thousand whichever is higher and issue order. Both these sections provides concessions in amount of penalty if tax due paid along with interest ( and certain percent of penalty in case section 74) within prescribed time limit. Such express provisions has been made in relevant subsections. However, nowhere in these section expressly provided that person shall be liable to penalty. It appears that it provides mechanism to recover amount of penalty while demanding and recovering due tax from the person and therefore quantum of penalty has been specified. Despite of specific insertion of ingredient of offences, which are applicable to section 122(2), in the section 73 and 74, it cannot be said that penalty can be imposed independently under said section without invoking provisions of section 122(2) of the Act. No express provisions has been made in section 73 and 74 which makes person liable for penalty and to enable proper officer to impose penalty. Co joint reading of section 122(2), 127, 73 and 74 of the act, indicate that during the course of proceeding under 73 and 74 penalty should be imposed where necessary, by exercising powers u/s 122(2) and notice and order should be under 122(2) and 74/74 of the Act. Quantum of penalty applicable to normal case and fraud/ suppression case also prescribed in section 73 and 74 of the Act respectively. However, where penalty has not imposed during the course of proceeding under these sections, penalty may be imposed under section 122 of the act.

150. It is pertinent note that penalty under section 73 or 74 of the Act is mandatory and by default applicable when any order passed under said sections. Quantum of penalty prescribed for issue of order under section 73 (9) of the Act is ten thousand or ten percent of tax due , whichever is higher. However, in view of section 73(8) of the Act, if taxable person pays amount of tax u/s 73(5) or in response to notice within 30 days within thirty days of issue of notice then no penalty shall be payable.

151. However, in respect case covered under section 74 of the Act, quantum of penalty is equal to the amount of tax due from such person as a result of order. Taxable person is required to pay penalty equivalent to fifteen percent of tax , where payment of tax and applicable interest is made u/s 74(5) before service of notice. However, where payment of tax , applicable interest is made within thirty days of issue of notice, quantum of penalty will be twenty five percent of tax. Where taxable person after service of order u/s 74(9) of the Act, but within thirty days of communication of such order, pays tax along with interest payable thereon u/s 50, then require to pay amount of penalty equivalent to fifty percent of tax of such tax. Onus is on revenue to establish that short payment of tax or erroneous grant of refund or wrongful availment or utilisation of ITC is by reason of fraud, or wilful misstatement or suppression of the facts to evade tax, before initiation of proceeding under section 74 of the Act. It is pertinent to note that such concession and incentives prescribed in amount of penalty are not available where penalty proceedings are initiated separately under section 122(1) and (2) of the Act.

Fourteenth Case -Non consideration of reply in order.

152. 2024-TIOL-668-HC-GST Larsen And Toubro Ltd Vs Commissioner of Delhi GST (Dated: March 22, 2024)

153. GST – Petitioner impugns order dated 28.12.2023, whereby the impugned Show Cause Notice dated 23.09.2023, proposing a demand of Rs.55,23,524.00 against the Petitioner has been disposed of and a demand including penalty has been raised – Petitioner submits that they had filed a detailed reply dated 18.10.2023, however, the impugned order dated 28.12.2023 does not take into consideration the reply submitted and is a cryptic order – The order records that the reply uploaded by the taxpayer is not satisfactory and, therefore, the proper officer is left with no option but to create demand ex parte .

154. Held: The observation in the impugned order dated 28.12.2023 is not sustainable for the reasons that the reply filed by the Petitioner is a detailed reply – Proper Officer had to at least consider the reply on merits and then form an opinion whether the reply was unsatisfactory – He merely held that the reply is not satisfactory which ex-facie shows that Proper Officer has not applied his mind to the reply submitted by the petitioner -Further, if the Proper Officer was of the view that any further details were required, the same could have been specifically sought from the Petitioner – However, the record does not reflect that any such opportunity was given to the Petitioner to clarify its reply or furnish further documents/details – In view thereof, the order cannot be sustained and the matter is liable to be remitted to the Proper Officer .

Proceedings deemed to be concluded.

155. Separate limitation period has been prescribed to issue SCN and to pass adjudication order in section 73 or 74 of GST Act 2017 . Sometimes, due to various reasons it may happen that after issue of SCN orders are not passed within limitation periods. In such cases Proper officer is not authorise to pass orders for lack of jurisdiction. In this regard specific provision has been made in section 75 (10 ) of the Act . Accordingly, such adjudication proceeding shall be deemed to be concluded if orders are not passed within limitation periods as prescribed in section 73 (10 ) and 74 (10) of the act . Thereafter, proper officer cannot recover demand involved in such SCN.

Issuance of Multiple Notices.

156. Plain reading of the section 73 or 74 of the Act makes clear that the Proper Officer may issues SCN more than one times on different ground on satisfaction of specified ingredients within limitation period. Therefore, it appears that there is no bar on issue of SCN on more than one times, if limitation period permit. However, it is pertinent to note that it is not allowed to issue notice on the same grounds on which already order has passed . It is seen that orders under said sections are restricted to limited grounds and it is not comprehensive assessment of taxable person of any tax period. It is issue based SCN to demand and recover amount involved therein. Hence, it can be said that sections permit to issue SCN on multiple times within limitation period for any tax period.

Issuance of second notice on same ground.

157. In view of provisions of section 73 or 74 of the Act it appears that issue of second SCN by the proper officer on the same ground amount to review of its earlier order. The proper officer is not authorise to review its own order or decision. Hence, the proper officer can not issue second notice for same period on same ground. Similarly no SCN can be issued for subsequent period , when notice and adjudication order for previous period quashed by Court or Tribunal .

158. In the case of India Tourism Development Corportion Ltd (2017) 52 STR 229 Delhi High Court has held that quasi- judicial authority can not review its earlier decision unless power of review is conferred by statute . Second SCN after gap of five years can not be issued once first SCN is adjudicated ,became final and accepted by both parties .

159. In the case of Prince Gutka Ltd (2017 ) 52 STR 83 (SC) , Cestat has held that there could not have been second show cause notice on the same cause of action on which adjudicating authority had dropped the earlier demand . Supreme court has held that issue of second SCN on same cause of action is not permissible and that there was no error on Tribunal ‘s order setting aside demand under second SCN .

Whether PO has power to waive or reduce quantum of penalty specified under section 73 or 74?

160. It is mandatory penalty and proper officer has no power to waive penalty. Similarly, it has no discretion to reduce the amount of penalty. He has to impose the penalty as provides in the said provisions.

Whether penalty is mandatory u/s 73(11) when self assessed tax paid before issue of notice .

161. As per the provisions of section 73(11) of the CGST Act, penalty is payable in case self-assessed tax or any amount collected as tax has not been paid within a period of thirty days from the due date of payment of such tax.

Fifteenth Case – Penalty 73(11).

162. 2023-TIOL-1543-HC-KERALA-GST M/s GLOBAL PLASTO WARES

163. GST – The Assessee filed the present appeal to challenge an order in which penalty had come to be imposed upon it. The penalty was imposed on grounds that entire tax dues owed by the Assessee were not paid within 30 days from the date of Show Cause Notice that informed it of the fact that differential tax was due from it .The Assessee claimed that while the Show Cause Notice intimating it of the differential tax dues was issued in Feb 2022, it had paid the tax dues by March of 2022 within 30 daya. The Assessee further claimed that the Show Cause Notice did not specifically refer to the provisions of Section 73(11) of the CGST/SGST Act but had proceeded on the assumption that what the appellant was liable to was only a penalty under Section 73(8) of the CGST/SGST Act, which, on the facts of the instant case, did not apply.

164. Held – It is not in dispute that the differential tax amount demanded from the Assessee pertains to transactions covered by invoices in which the appellant had clearly shown the price of the goods and also the tax amounts due from the customer concerned . While paying the tax due to the State along with the returns filed by the appellant, the Assessee had failed to include the tax amounts covered by the invoices considered by the Assessing Authority for the issuance of the demand for differential tax, and it was under those circumstances that the demand for differential tax came to be made as against the Assessee. While it may be a fact that the notice issued to the Assessee did not specifically refer to Section 73(11) of the CGST/SGST Act, when we find that, on the admitted facts, the Assessee had not paid tax due to the State despite collecting the same from its customers, then, as per the statutory provisions, it is the provision of Section 73(11) and not the provision of Section 73(8) that will apply to determine the penal liability of the Assessee – The Assessing Authority, having found that as per the provisions of Section 73(11) of the CGST/SGST Act, the Assessee would be liable to penalty in view of the non-payment of tax collected from its customers, we see no reason to interfere with the findings of the Single Judge that upheld the order of the Assessing Authority laying down the correct position in law . Merely because the show cause notice issued to the Assessee did not refer to a particular statutory provision, the Assessee cannot be said to have been prejudiced when the facts leading to the invocation of the statutory provision concerned were admitted by the Assessee – Hence there is no merit in the present appeal: HC

Circular No. 76/50/2018-GST

165. Whether penalty in accordance with section 73 (11) of the CGST Act should be levied in cases where the return in FORM GSTR-3B has been filed after the due date of filing such return?

166.  1. As per the provisions of section 73(11) of the CGST Act, penalty is payable in case self-assessed tax or any amount collected as tax has not been paid within a period of thirty days from the due date of payment of such tax.

167.  2. It may be noted that a show cause notice (SCN for short) is required to be issued to a person where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised for any reason under the provisions of section 73(1) of the CGST Act. The provisions of section 73(11) of the CGST Act can be invoked only when the provisions of section 73 are invoked.

168. 3. The provisions of section 73 of the CGST Act are generally not invoked in case of delayed filing of the return in FORM GSTR-3B because tax along with applicable interest has already been paid but after the due date for payment of such tax. It is accordingly clarified that penalty under the provisions of section 73(11) of the CGST Act is not payable in such cases. It is further clarified that since the tax has been paid late in contravention of the provisions of the CGST Act, a general penalty under section 125 of the CGS Act may be imposed after following the due process of law

Conversion of notice issued u/s 74 to 73 as per direction of Appellate authority.

169. It is provided in the section 75(2) that where any Appellate Authority or Appellate Tribunal or court concludes that the notice issued under sub-section (1) of section 74 is not sustainable for the reason that the charges of fraud or any wilful misstatement or suppression of facts to evade tax has not been established against the person to whom the notice was issued, the proper officer shall determine the tax payable by such person, deeming as if the notice were issued under sub-section (1) of section 73.

170. It is pertinent to note that CBIC has issued Circular 185/17/2022-GST 27-12-2022 and issued clarification with regard to applicability of provisions of section 75(2) of Central Goods and Services Tax Act, 2017 and its effect on limitation.

Time limit to issue consequential order as per direction of the Appellate authority.

171. It is provided in the section 75(3) that where any order is required to be issued in pursuance of the direction of the Appellate Authority or Appellate Tribunal or a court, such order shall be issued within two years from the date of communication of the said direction. Thus , consequential order, as result of appeal should pass within two years from the date of communication of the said appeal order.

Recovery of self-assessed tax under section 75(12).

172. Section 75(12) state that notwithstanding anything contained in section 73 or section 74, where any amount of self- assessed tax in accordance with a return furnished under section 39 remains unpaid, either wholly or partly, or any amount of interest payable on such tax remains unpaid, the same shall be recovered under the provisions of section 79. It is explained that for the purposes of this sub-section, the expression “self-assessed tax” shall include the tax payable in respect of details of outward supplies furnished under section 37, but not included in the return furnished under section 39.

173. Single notice for multiple period.

174. Co joint reading of section 73 and 74 and rule 142 reveals that notices and adjudication orders under said section should be issued for one financial year and bunching of period in one notice is not permissible.

Sixteenth Case – Single notice for multiple period.

TITAN COMPANY LTD 024-TIOL-131-HC-MAD-GST

175. GST Petitioner seeks issuance of writ directing the first respondent to consider and pass orders on the representation dated 25.10.2023 submitted by the petitioner before proceeding with the adjudication of show cause notice dated 28.09.2023; that the petitioner is aggrieved by the fact that the respondent had issued bunching of show cause notices dated 28.09.2023 for five Assessment Years starting from 2017-18 to 2021-22 and which is impermissible in law; that an order determining the tax from a person should be passed within three years from the due date for furnishing of annual return for the financial year to which the tax due relates to and, therefore, they submit that determination of tax due under Section 73 is with reference to a financial year and the limitation date to complete the proceedings and issue an order is three years from the due date to file annual return for that particular financial year; that the petitioner has made a representation to split the show cause notices and to adjudicate the same independently and the said representation is not disposed of till date and hence, the petitioner is constrained to approach this Court by filing the present Writ Petition.

176. Held: By issuing bunching of show cause notices for five Assessment Years starting from 2017-18 to 2021-22, the respondents are trying to do certain things indirectly which they are not permitted to do directly and the same is not permissible in law – If the law states that a particular action has to be completed within a particular year, the same has to be carried out accordingly – The limitation period of three years would be separately applicable for every assessment year and it would vary from one assessment year to another – It is not that it would be carried over or that the limitation would be continuing in nature and the same can be clubbed – The limitation period of three years ends from the date of furnishing of the annual return for the particular financial year – Therefore, issuing bunching of show cause notices is against the spirit of provisions of Section 73 of the Act – Bench finds fault in the process of issuing of bunching of show cause notices and the same is liable to be quashed – The first respondent is directed to dispose of the representation dated 25.10.2023 made by the petitioner – Respondent is directed to defer all the proceedings, until the date of disposal of the representation of the petitioner to split up the show cause notices for each year separately – Petition disposed of:

177. “ 15. Therefore, issuing bunching of show cause notices is against the spirit of provisions of Section 73 of the Act and the Constitution Bench of the Hon’ble Apex Court in the decision reported in AIR 1966 SC 1350, State of Jammu and Kashmir and Others v. Caltex (India) Ltd has held that where an assessment encompasses different assessment years, each assessment year could be easily split up and dissected and the items can be separated and taxed for different periods. The said law was laid down keeping in mind that each and every Assessment Year will have a separate period of limitation and the limitation will start independently and that is the reason why the Hon’ble Supreme Court has held that each assessment year could be easily split up and dissected and the items can be separated and taxed for different periods. The said principle would apply to the present case as well. Therefore, I find fault in the process of issuing of bunching of show cause notices and the same is liable to be quashed. “

Fourth – Cancellation and revocation of registration.

178. Analysis of legal provisions.

179. Section 29 states that the proper officer may, either on his own motion or on an application filed by the registered person, cancel the registration where the business has been discontinued, transferred fully for any reason and contravened provisions of law and other reasons specified in the said section. It is further provided that proper officer shall not cancel the registration without giving the person an opportunity of being heard.

180. It is provided in the section 129(5) that every registered person whose registration is cancelled shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock or capital goods or plant and machinery on the day immediately preceding the date of such cancellation or the output tax payable on such goods, whichever is higher, calculated in such manner as may be prescribed

181. Provided that in case of capital goods or plant and machinery, the taxable person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery, reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery under section 15, whichever is higher.

182. The amount payable under sub-section (5) shall be calculated in such manner as may be prescribed

183. Section 30 of the act provides for revocation of cancellation of registration. Accordingly , any registered person, whose registration is cancelled by the proper officer on his own motion, may apply to such officer for revocation of cancellation of the registration within 90 days. Rule 21(a) state the registration granted to a person is liable to be cancelled, if the said person, does not conduct any business from the declared place of business

184. The proper officer has power, either revoke cancellation of the registration or reject the application. However, the application for revocation of cancellation of registration shall not be rejected unless the applicant has been given an opportunity of being heard.

185. It is provided in rule23(2) (a) that Where the proper officer is satisfied, for reasons to be recorded in writing, that there are sufficient grounds for revocation of cancellation of registration, he shall revoke the cancellation of registration by an order in FORM GST REG-22 within a period of thirty days from the date of the receipt of the application and communicate the same to the applicant.

186. It is further provided in rule 23 (2) (b) that the proper officer may, for reasons to be recorded in writing, under circumstances other than those specified in clause (a), by an order in FORM GST REG-05, reject the application for revocation of cancellation of registration and communicate the same to the applicant. And the proper officer shall, before passing the order referred to in clause (b) of sub-rule (2), issue a notice in FORM GST REG-23 requiring the applicant to show cause as to why the application submitted for revocation under sub-rule (1) should not be rejected and the applicant shall furnish the reply within a period of seven working days from the date of the service of the notice in FORM GST REG-24 .

187. Co joint reading of the aforesaid provisions makes clear that registration should not be cancel without giving the person an opportunity of being heard. Similarly, an application for revocation of cancellation of registration should not be rejected without giving notice ie an opportunity of hearing. Rule 21(a) state the registration granted to a person is liable to be cancelled, if the said person, does not conduct any business from the declared place of business.

Seventeenth Case- Non-speaking show cause notice and order of cancellation are liable to set aside.

C P Pandey And Company Vs Commissioner of State Tax (Dated: July 31, 2023

188. GST – Cancellation of registration – Petitioner seeks quashing and setting aside of the impugned orders of suspension of GST registration and is subsequent cancellation order – Petitioner’s submission is that the cancellation of the petitioner’s registration is not on the ground as contained in the show cause notice; that although an appeal has been filed on 28 May 2022, however, till date the said proceedings have, in no manner moved forward, although more than one year has lapsed; that there is a serious prejudice which is being caused to the petitioner due to the illegal cancellation of the registration; that considering the settled principles of law that an order cannot be passed on a ground which is not a ground in the show cause notice, as no opportunity was available to the petitioner to meet such grounds, which emerged for the first time in the orders passed, at the final adjudication of the show cause notice, the impugned order needs to be quashed and set aside.

189. Held: Bench is of the opinion that there is substance in the contention inasmuch as there appears to be no dispute that the impugned order cancelling the registration of the petitioner appears to be on the ground completely outside the scope of show cause notice issued to the petitioner – This would certainly cause prejudice to the petitioner as the petitioner was never granted an opportunity of being confronted with such grounds in the show cause notice, so as to have an opportunity to meet such case of the department – In the absence of such opportunity, certainly the principles of natural justice would become applicable and any order of such nature as passed, would be required to be held to be in breach of the principles of natural justice – The impugned order dated 12 July 2021 is required to be quashed and set aside, with liberty to the respondent to issue a fresh show cause notice to the petitioner as permissible in law and after according an opportunity of a hearing to the petitioner, pass an appropriate order in accordance with law – Registration of the petitioner would be required to be restored and the same be done within one week – Petition allowed

In the case of M/s SK ENTERPRISES(2024-TIOL-159-HC-DEL-GST) High court observed that

190. “The petitioner’s GST registration was suspended w.e.f. date of SCN, that is 05.07.2023 .A plain reading of SCN indicates that it does not set out any specific reason for proposing to cancel petitioner’s GST registration .Although it is alleged that petitioner has obtained registration by means of fraud, wilful misstatement or suppression of facts .It neither specifies alleged fraud nor the misstatement alleged to have been made by petitioner . It also provides no clue as to the facts allegedly suppressed by petitioner .A SCN must clearly set out the allegations on basis of which an adverse action is proposed, to enable the noticee to meaningfully respond to the same . Clearly, SCN fails to satisfy the said standard . Impugned order is also not informed any reason and it merely mentions that same has been issued in reference to SCN. Petitioner’s registration has been cancelled with retrospective effect from 23.05.2023 . Neither the SCN nor impugned order provides any reasons for doing so. The respondent is directed to forthwith restore the petitioner’s GST registration .The SCN as well as impugned order are set aside.”

191. In the case of M/s RS Wires Industries (2024-TIOL-37-HC-DEL-GST)the petitioner has challenged the Cancellation of registration and rejection of application for revocation of order, on the ground that the SCN was defective inasmuch as it did not give details of alleged wrongful availment or utilisation of ITC. High court has observed that

192. “Neither the show cause notice nor the orders rejecting the revocation application contain any details or reasons . There is nothing available on record, either in the show cause notice or the orders as to the alleged wrongful availment or utilization of input tax credit . On this ground alone, the show cause notice as well as the order dismissing the application seeking revocation are not sustainable .The registration cannot be cancelled with retrospective effect mechanically .It can be cancelled only if the proper officer deems it fit to do so . Consequently, the show cause notice and the impugned orders are quashed being bereft of requisite details and reasons. The petition is allowed. However, respondent is given liberty to initiate appropriate proceedings in accordance with law after giving a proper show cause notice containing complete details, if so advised”.

193. In the case of M/s DRS Woods product 023-TIOL-920-HC-ALL-GST Hon High Court of Allahabad has observed as under.

194. “18. A perusal of the show-cause notice at the first instance, clearly depicts the opaqueness of the allegations levelled against the petitioner, which were only to the ground that ‘tax payer found non-functioning/non-existing at the principal place of business’. The said show-cause notice did not propose to rely upon any report or any inquiry conducted to form the opinion and on what basis was the allegation levelled that the tax payer was found non-functioning; it does not indicate as to when the inspection was carried. A vague show-cause notice without any allegation or proposed evidence against the petitioner, clearly is violative of principles of administrative justice. Cancellation of registration is a serious consequence affecting the fundamental rights of carrying business and in a casual manner in which the show-cause notice has been issued clearly demonstrates the need for the State to give the quasi-adjudicatory function to persons who have judicially trained mind, which on the face of it absent in the present case. The order of cancellation of the registration on the ground that no reply was given is equally lacking in terms of a quasi-judicial fervor as the same does not contain any reasoning whatsoever.”

Fifth- Levy of late fee under section

195. Section 47(2) of the Act provides for levy of late fee. Accordingly, any registered person who fails to furnish the return required under section 44 by the due date shall be liable to pay a late fee of one hundred rupees for every day during which such failure continues subject to a maximum of an amount calculated at a quarter per cent. of his turnover in the State.

196. Co joint reading of the above referred sections indicate that where registered person failed to furnish annual returns within prescribed period such person may be liable for late fee as prescribed in section 47(1). Late fee is in the nature of penalty. It is necessary to issue show cause notice and to grant opportunity of personal hearing before levy of late fee. Therefore, general principle related to penalty required to be considered before levy of such late fee. Relevant section 126 is reproduced here under.

Sixth – Interest on delayed payment of tax

197. Scope of charging of interest under section 50 of the Act.

198. Section 50 of the Act deals with levy of interest on delayed payment of tax. Rule 88B, which is inserted vide notification number 14/2022 Central Tax, prescribe manner of calculation of interest on delayed payment of such tax.

199. Section 50 is independent section to levy interest. Proper officer is empowered to levy interest on delayed payment of tax if taxable person does not pay interest payable on his own. Order under said section is appealable. Errors in the said order can be rectified u/s 161 of the act by the proper on his own motion or on an application of the assessee, where such errors are apparent on the face of record. It is also subject to review under section 108 of the act by reviewing authority if order is found erroneous and prejudicial to the interest of revenue.

200. Section 50 provides for determination of liability to pay interest on delayed payment of tax and wrongly availed and utilised ITC. Plain reading of said section 50 (1) of the act makes clear that every person who is liable to pay tax as per provisions of Act or rule, has failed to pay tax within prescribed period, should pay interest @18 per annum for the period of delay of such unpaid tax. Where there is delay in payment of tax and filing of return for any tax period, as per proviso which is inserted wef 1-7-2017, interest is payable on amount of net tax liability, which is discharged by debiting electronic cash ledger, from the due date of return till the date of debit to cash ledger.

201. Section 50 (2) provides for manner and method of calculation of interest under section 50 and accordingly rule 88B has been inserted vide notification 14/2022 Central Tax.

202. As per section 50(3) every registered person, who has wrongly availed and utilised amount of ITC should pay interest and same interest shall be calculated on the amount of input tax credit wrongly availed and utilised, for the period starting from the date of utilisation of such wrongly availed input tax credit till the date of reversal of such credit or payment of tax in respect of such amount. . Interest is consequential liability and has to be discharged by person on his own whenever there is default in payment of tax beyond due date.

203. In view of the above it appears that liability of interest is automatic and mandatory and requires to pay on his own by concerned person. Where person liable to pay interest has not paid the interest, the proper officer has powers to demand and recover such interest by issuing order under section 50 of the act.

Interest on unpaid tax as per return.

204. Section 50 (1) of the Act provides to levy interest on the delayed payment of unpaid taxes under the act. This tax means tax by way of any order issued under the provisions of the Act or rule or self assessed tax admitted in the returns. If person has failed to pay due tax and furnish return for any tax period within due date of such return, interest will attract and he should pay the interest on his own @ 18% p.a.. The registered person, who furnish return for tax period within prescribed period, may discharge his tax liability due as per return, either by debiting electronic credit ledger or electronic cash ledger.

205. However, where the registered person files return and pays tax for any tax period belatedly, proviso to section 50(1) will be applicable. Accordingly, the interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, shall be payable on that portion of the tax which is paid by debiting the electronic cash ledger. As per said proviso interest shall be payable on net tax liability which is paid by debiting cash ledger. However, benefit of proviso ( levy of interest on net tax liability) is applicable only to the extent of supplies which are made during a tax period and declared in the return for the said period furnished after the due date. In other word, where supplies related to earlier tax period are declared in the return of current tax period benefit of the said proviso can not be granted. Similarly, benefit of the said proviso can not be extended to cases where proceeding u/s 73 or 74 has been already initiated. Therefore, care should be taken by the registered person to declare all supplies made in the return correctly while filing return for the said tax period. The registered person who has declared supplies of earlier tax period in the next tax period, interest will be payable on gross tax payable of such supplies of earlier period , in view of said proviso

Interest on differential tax due as per order.

206. Under the provision of Act, proper officer issues adjudication and assessment orders and create demand of tax, which commonly known as differential tax dues. As a result of such orders taxable persons are liable to pay such additional tax and consequential interest. Such tax is liable to pay as per provisions of the Act and hence comes within ambit of section 50 of the act. Such interest should be calculated at the notified rate ( 18 %) from the day succeeding the day on which such tax was due to be paid till the date of order.

207. In the case of Gammon India Ltd. (2013) 298 ELT 171 the Bombay High Court has held that liability to pay interest on short payment of duty is absolute and reasons for such short payment were not germane.

Interest on ITC wrongly availed and utilised.

208. As per substituted subsection 50 (3) of the act, interest is applicable only where ITC is wrongly availed and utilized. In order to attract interest u/s 50(3) of the act both components of wrong availment and utilization must be present. Where ITC is claimed wrongly in the return but lying in the electronic credit ledger as it as without utilisation, interest will be not payable. Interest should be calculated as per manner prescribed in rule 88B. Accordingly, an interest shall be calculated on the amount of input tax credit wrongly availed and utilised, for the period starting from the date of utilisation of such wrongly availed input tax credit till the date of reversal of such credit or payment of tax in respect of such amount, at such rate as may be notified under said sub-section (3) of section 50. Rule 88B (3) read with explanation 1 & 2 , prescribes the criteria for deciding issue of wrong utilisation of ITC and determination of quantum of such utilised ITC and date of utilisation. The proper officer and taxable person is required to decide first whether there is wrong utilisation of ITC and if there is wrong utilisation , then required to determine quantum and date of such utilisation of ITC by applying the criteria prescribed in the said rule. The registered person is required to pay interest accordingly. It was proposed to reduce rate of interest applicable u/s 50 (3) of the Act to 18 % from 24 % in the Finance Act 2022. Where, registered person has failed to pay such interest u/s 50 (3), the proper officer is required to issue order under said section to recover such interest , after giving opportunity to the registered person to prove non applicability of said interest and present his case.

While calculating interest u/s 50 actual days of delays are required to be consider.

209. In the case of BPL Mobile Cellular Ltd (2005) 183 ELT 324 (Cestat Chennai) the Tribunal has held that actual days of delays are to be considered for interest payment, if delay comes to only some days of month, whole of that month could not constitute delayed period.

210. In the case of Pepsi Co India Holding Ltd ( 2011-TIOL-36-SC-CT) Supreme Court has held that once it has been confirmed that the tax is payable under the Act, the same becomes payable from the date when it was due and not from the date when judicial verdict was pronounced (unless and until, in a case, court specifies a particular date from which it shall be payable).

211. In the case of India Yamaha Motors Pvt Ltd ( 2022-TIOL-1186-HC-MAD-GST) the Madras High Court has held that” date of debit to cash ledger would be date of payment. credit can not prior to avaiment be taken construe to construe payment. Unless an assessee actually files a return and debit the respective ledger the authority cannot expect to assume that available credit will be set off against tax liability. It is only when remittance that is effected by way of debit an assessee would be protected from levy of interest.

Levy of interest on payment by instalment.

212. Section 80 of the act provides facility to the taxable person to pay tax and other dues in instalment. Commissioner has power to grant monthly instalment up to 24 months. However, such instalments are subject to payment of interest u/s 50 of the act. Therefore, payment of tax which was delayed due to instalment order are also subject to interest.

213. In the case of Premier Ltd (2014) 309 ELT 3 the Bombay High Court has held that assessee is liable to pay interest on the amount of tax paid in instalments as per order of Supreme court

Levy of interest automatic and mandatory.

214. As per section 50(1) of the Act,every person who is liable to pay tax should pay interest on his own on the delayed unpaid tax as per notified rate. It is seen that interest contemplated under section 50 is automatic and mandatory. In other word it is not necessary to issue order to demand and recovery of interest on delayed payment of tax. However, where person liable to pay interest does not pay the prescribed amount of interest, the proper office is required to issue such order for recovery of interest. Thus, sub clause (1) of Section 50 clearly mandates that assessee should pay the interest on his own for the period for which the tax or any part thereof remains unpaid. The liability to pay interest is evidently fastened on the assessee and the same has to be discharged on his own. Thus, there cannot be any two views on the liability. In each and every case, it is not mandatory to issue order to demand and recover interest.

215. Section 75(8) of the Act states that where the Appellate Authority or Appellate Tribunal or court modifies the amount of tax determined by the proper officer, the amount of interest and penalty shall stand modified accordingly, taking into account the amount of tax so modified.

216. Similarly, section 75(9) of the act provides that the interest on the tax short paid or not paid shall be payable whether or not specified in the order determining the tax liability. These express provision makes clear that levy of interest is automatic.

217. In the case of Daejung Moparts (P) Ltd (2021) 116 taxmann.com 372, question was raised “ whether interest on delayed payment of tax as contemplated u/s 50 of the GST act is automatic or same is to be determined after considering the explanation offered by assessee ? “ Madras High court has held that though the liability of interest under section 50 is automatic, quantification of such liability shall have to be made by doing the arithmetic exercise, after considering the objections of the assessee. Important observation made in para 27 & 29 are reproduced .

218. Para 29. A careful perusal of sub Sections (2) and (3) of Section 50 thus would show that though the liability to pay interest under Section 50 is an automatic liability, still the quantification of such liability, certainly, cannot be by way of an unilateral action, more particularly, when the assessee disputes with regard to the period for which the tax alleged to have not been paid or quantum of tax allegedly remains unpaid. Likewise, whether an undue or excess claim of input tax credit or reduction in output tax liability was made, is also a question of fact which needs to be considered and decided after hearing the objections of the assessee, if any. Therefore, in my considered view, though the liability fastened on the assessee to pay interest is an automatic liability, quantification of such liability certainly needs an arithmetic exercise after considering the objections if any, raised by the assessee. It is to be noted that the term “automatic” does not mean or to be construed as excluding “the arithmetic exercise”. In other words, though liability to pay interest arises under section 50 of the said Act, it does not mean that fixing the quantum of such liability can be unilateral, especially, when the assessee disputes the quantum as well as the period of liability. Therefore, in my considered view, though the liability of interest under section 50 is automatic, quantification of such liability shall have to be made by doing the arithmetic exercise, after considering the objections of the assessee.

219. In the case of Rajasthan Spinning and Weaving Mill (2009) 238 ELT 3 (SC) the Supreme Court held that levy of interest is automatic and compensatory and when duty is paid belatedly, interest is automatically payable.

Requirement of notice and opportunity of hearing.

220. It is clear from the section 50 that levy of interest is automatic and mandatory. And no express provision has been made in the said section to issue notice and afford opportunity of hearing before charging of interest and issue of order. Similarly, no form has been prescribed in the rules for such notice. While quantifying an amount of interest applicable disputes may arise depending upon facts of the case regarding quantum of unpaid tax, period of delay, period of tax period under default, applicability of interest, utilisation of wrong ITC, date of such utilisation thereof. In such cases in order to decide liability and determine correct amount of interest it is necessary to give opportunity of hearing by issuing notice on the points of disputes for compliance of principle of natural justice. Interest must be calculated and intimated to assessee by way of such notice, so as afford him opportunity to present his case. In number of cases High courts have held that interest levied u/s 50 without issue notice and affording opportunity of hearing are not sustainable in the eyes of law.

221. In the case of Mahadeo Construction Co (2021) 41 GSTJ 307 Jharkhand High Court has held that notice is required to be issued even for recovery of interest u/s 50 of the GST Act on short payment of or non payment of tax.

222. In the case of Godavari Commodities Ltd (2019) 3 GSTJ Online 638 the High Court of Jharkhand held that show cause notice should be issued for recovery of interest even though the tax amount has already been paid voluntarily.

Modification in interest

223. It is provided in the section 75(8) where the Appellate Authority or Appellate Tribunal or court modifies the amount of tax determined by the proper officer, the amount of interest and penalty shall stand modified accordingly, taking into account the amount of tax so modified. Section 75(9 ) further provides that The interest on the tax short paid or not paid shall be payable whether or not specified in the order determining the tax liability. However, where payment of modified interest not made by the taxable person, then proper officer is required to levy such interest after giving an opportunity of being heard.

No interest on interest.

224. Section 50 of the act clearly state that interest is payable only on delayed payments tax. It does not provide to levy interest on delayed payment of interest. Hence, no interest can be levied on late payment of interest irrespective of period of delay.

225. In the case of VBC Industries Ltd (2011) 270 ELT 314 the Madras High Court has held that issue of payment of interest on belated payment of interest does not arise in case of indirect taxation as there is no provision of payment of interest on delayed payment of interest.

226. Eighteenth Case- calculation of interest under section 50(3).

M/s Deepak Sales Corporation2023-TIOL-1585-HC-P&H-GST 21-09-2023

227. Fact of the case

228. During the month of August 2017, the petitioner was entitled to avail ITC to the extent of Rs. 1,40,57,836/-. However, while making entry in the electronic credit ledger and filing return for the month of August 2017, inadvertently the petitioner typed the amount of ITC as Rs. 14,05,78,663/- instead of Rs. 1,40,57,836/- thereby claiming excess ITC to the tune of Rs. 12,65,20,827/-. For that particular month, the central tax liability of the petitioner was to the tune of Rs. 1,61,71,190/- and after discharging it by using its ITC, the balance in the electronic credit ledger account of the petitioner was left as Rs. 13,26,03,037/-. The petitioner came to know about the error made in entering the amount of ITC only while filing return on 28-12-2017 therefore, ultimately, the petitioner could reverse the excess ITC while submitting its return for the month of July 2018.

229. It was further submitted by the petitioner that an audit of its record was conducted by GST Department during 27-7-2020 to 29-7-2020. The petitioner was questioned with regard to reversal of excess ITC and thereafter a show cause notice dated 27-10-2020 was issued upon it by respondent No. 5 demanding interest of approximately of Rs. 1,46,62,551/- @ 18% on entire amount of excess ITC, for a period of 235 days. Penalty was also proposed to be imposed upon the petitioner. The petitioner submitted reply to the notice. The respondent No. 3 vide order dated 31-3-2021 confirmed the demand of interest at the same rate but the proposal for imposing penalty had been dropped

230. The petitioner challenged the order dated 31-3-2021 by filing an appeal before the respondent No. 4 who partly allowed the appeal vide order dated 29-4-2022 thereby holding that interest was payable on the amount of Rs. 21,13,354/- which was alleged to be wrongly utilized by the petitioner and also imposed penalty on the same.

231. Observation of Court

232. 12. On a perusal of Annexure P-5 which is extract of electronic credit ledger during the period from August 2017 till December 2018, it is revealed that an amount of Rs. 14,05,78,663/- was entered as amount of ITC accrued through inputs as in August 2017. As on that date, an amount of Rs. 81,95,564/- was already lying as balance ITC. It is also revealed that during the month of August 2017, the petitioner had central tax liability of Rs. 1,61,71,190/- which it discharged using its ITC and thereafter a balance of Rs. 13,26,03,037/- was reflected as balance ITC during the month of August 2017. Meaning thereby that the petitioner did not utilize the excess ITC of Rs. 12,65,20,827/- during the month of August 2017. Similarly, till August 2018, the balance of ITC available in the electronic credit ledger of the petitioner was never below the sum of Rs. 12,65,20,827/- which shows that till August 2018 when the petitioner reversed the excess ITC amount, it had never utilized the same. The respondent No. 4 is, however, shown to have ignored the fact while passing the impugned order dated 29-4- 2022 that by including the amount of Rs. 81,95,564/- in the ITC available to the petitioner for the month of August 2017, amount more than the excess ITC amount was still there. This fact had obviously been wrongly overlooked by respondent No. 4 and once it was proved that the amount of excess ITC though entered in the ledger in excess, was never utilized by the petitioner and since it was reversed prior to utilizing, therefore, in our considered opinion, in view of the ratio of law as laid down in Jagatjit Industries Ltd.’s case (supra), Grasim Bhiwani Textile Ltd.’s case (supra) & M/s Commercial Steel Engineering Corporation’s case (supra), the demand of interest as well as penalty was not at all tenable andnthe petitioner could not be burdened with the same. Accordingly, the appeal is allowed. The impugned order dated 29-4-2022 is set aside and it is held that the petitioner was not liable to pay the amount of interest or penalty on the excess ITC wrongly entered by it in its electronic credit ledger for the relevant period.

Seventh – Provisional assessment under section 60 of the Act.

233. While making self -assessment, registered person has to determine turnover of supply , amount of tax payable and amount of ITC admissible and tax liability. For this purpose he has to first determine rate of tax and value of supply . In certain situations it is difficult for the registered person to determine rate of tax and value correctly due some reasons and to self -assess tax payable and furnish returns . In this background, provision of provisional assessment has been made in section 60. In other words provisional assessment provides method for determining the tax liability in case correct tax liability can not be determined at the time of supply.

234. CBEC has published flyer on the topic of provisional assessment in GST act and thereby clarified purpose and intention behind this concept . Same is reproduced hereunder .

235. “ A supplier come to know the extent of his tax liability which has to be discharged on continuous and regular basis only after assessment . Assessment means determination of tax liability and includes self assessment , reassessment , provisional assessment , summary assessment and best judgment assessment . The major determinant of the tax liability are generally applicable tax rate and value . There might be situation when these determinant might not be readily ascertainable and maybe subject to outcome of process that requires deliberation and time . Hence , like under previous law , when due to various circumstances it might not be always possible , at that point of time , to carry out an assessment and determine exact tax liability GST act also provide for provisional assessment . “

236. Application for provisional assessment.

237. A taxable person who is unable to determine the value of supply of goods or service , or rate of tax applicable thereto is eligible for provisional assessment . He has to submit an application electronically on common portal , in FORM GST- ASMT -01 ,with request to give decision on rate of tax or value of supply , by giving reason with supporting documents , for payment of tax on provisional basis . No application can be entertained without reasons . Registered person or person liable for registration under the GST Act is eligible for provisional assessment subject to fulfillment of prescribed conditions .

238. Order for payment of tax on provisional basis

239. After receipt of an application , Proper Officer may issue notice in FORM- GST – ASMT 02 requiring the applicant to furnish additional information and documents in support of his request . An applicant should file reply in FORM –GST – ASMT – 03 and may attend to the proceeding if he so desire . There after Proper Officer shall pass an order u/s 60 (1) of the act ,in FORM – GST- ASMT-04 , allowing the payment of tax on provisional basis indicating , value or the rate or both on the basis of which the assessment is to be allowed on provisional basis and the amount for which the bond is to be executed and security to be furnished not exceeding twenty five percent of the amount covered under bond . Section 60 (1) provides that such order should be passed within 90 days from the date of receipt of an application .

240. Bond and security

241. An applicant has to execute BOND in the FORM – GST- ASMT -05 and furnish security in the form of Bank Guarantee for amount mentioned in the order passed u/s 60 (1) . This is obtained to protect differential tax liability arising from final order of assessment passed u/s 60 (3) of the act . If the applicant failed to execute bond and furnish security within stipulated period , then order passed u/s 60 (1) would be null and void as if no such order has been passed . Therefore , it is necessary to furnish bond and security within stipulated date , in order avoid cancellation of order passed for payment of tax on provisional basis .

242. Security in the form of bank guarantee is taken to secure the differential tax dues on the supply of good or services in respect of which have been allowed to pay tax on provisional basis .Proper Officer will be at liberty to invoke Bank guarantee , where Person failed to furnish required documents and information to facilitates the finalization of provisional assessment . In view of above it is most important to submit compliance as per notice on or before appointed date .

243. Payment of tax as per order u/s 60 (1) .

244. After completion of bond and security process , supplier registered person can supply the goods or services and pay tax at the rate or on the value that has been indicated in the order . On the basis of this order , the applicant is required to self assess tax payable and to furnish prescribed valid returns as per provision of the act .

245. Final assessment order u/s 60 (3) .

246. Proper officer will give opportunity of hearing by issuing notice to produce information and record required for finalization of assessment . After considering facts and circumstances of the case and provisions of the act , Proper Officer has to determine rate of tax applicable on such supply or value of such supply and to pass final assessment order u/s 60 (3 ) of the act , in FORM – GST- ASMT- 07 , before six months from the date of communication of order passed for payment of tax on provisional basis u/s 60 (1 ) of the act . After receipt of this order , the applicant registered person has to take corrective actions as per provision of the act .

247. Time limit – final assessment order

248. As per section 60 (3) of the act , Proper Officer shall should pass order for final assessment within six month from date of communication of provisional order passed u/s 60 (1 ) . It is further provided in the section that on sufficient cause being shown and for reason to be recorded in the writing , time limit be extended by Joint commissioner and Additional Commissioner for further period not exceeding six month and by the Commissioner for such further period not exceeding four years. Thus maximum time limit is four years . This order is not binding on any other authority . It is subject to review u/s 108 of the act by superior authority if found erroneous , improper and prejudicial to the interest of revenue.

249. Liability of interest u/s 50

250. If as result of final assessment order , any tax amount becomes payable , then interest u/s 50 will be payable by registered person from first day of payment of tax till the date of actual payment , whether such payment is made before or after issuance of order for final assessment .

251. Interest on refund

252. If registered person is entitled for refund , as a result of final assessment order ( subject to eligibility of refund and absence of unjust enrichment s 54 -8 ) then he is also eligible for interest on refund u/s 56 of the act .

Eighth- Assessment of non-filers of returns under 62 of the Act.

253. It is provided in section 62 and rule 100 that, where a registered person fails to furnish a return under section 39 or section 45, a notice in FORM GSTR-3A shall be issued, electronically requiring him to furnish such return within fifteen days. If within 15 days the returns are not furnished, the proper officer will make an order of assessment and it shall be issued electronically in FORM GST ASMT-13. This order of assessment shall be made by the proper officer to the best of his judgement taking into account all the relevant material which is available or which he has gathered and issue an assessment order within a period of five years from the date specified under section 44 for furnishing of the annual return for the financial year to which the tax not paid relates.

254. Applicability of section.

255. Section 62 can invoked only in the cases of non-filers of returns. It is applicable only to registered person.

256. No requirement of opportunity of being heard .

257. There is no express provision of issue any notice to the non-filer for completion this unilateral assessment.

258. Assessment order.

259. Notice in FORM GSTR-3A shall be issued, electronically requiring him to furnish such return within fifteen days. If within 15 days the returns are not furnished, the proper officer will make an order of assessment and it shall be issued electronically in FORM GST ASMT-13. This order of assessment shall be made by the proper officer to the best of his judgement taking into account all the relevant material which is available or which he has gathered and issue an assessment order within a period of five years from the date specified under section 44 for furnishing of the annual return for the financial year to which the tax not paid relates. It is pertinent to note that even though case of non-filer may cover under section 73 or 74 or 74A unilateral assessment should be completed under section 62.

260. Assessment order shall be deemed to have been withdrawn.

261. If the registered person furnishes a valid return within sixty days of the service of the said assessment order shall be deemed to have been withdrawn but the liability for payment of interest under sub-section (1) of section 50 or for payment of late fee under section 47 shall continue. Passing of assessment order under this section is discretionary. It is not mandatory to pass such order in each and every cases.

262. Provided that where the registered person fails to furnish a valid return within sixty days of the service of the assessment order under sub-section (1), he may furnish the same within a further period of sixty days on payment of an additional late fee of one hundred rupees for each day of delay beyond sixty days of the service of the said assessment order and in case he furnishes valid return within such extended period, the said assessment order shall be deemed to have been withdrawn, but the liability to pay interest under subsection (1) of section 50 or to pay late fee under section 47 shall continue.

Nineteenth Case – Assessment of non-filers.

2021-TIOL-1127-HC-TELANGANA-GST Golden Mesh Industries.

263. GST – Petitioner did not file GSTR-3B return for the month of November, 2018 and notice was issued on 29-01-2019 u/s 46 of the GST Act, 2017 warning the petitioner that if it did not file its return within 15 days, tax liability would be assessed u/s 62 based on the relevant material available with the 1st respondent along with interest and penalty – Since petitioner did not comply, a best judgment came to be passed by the first respondent viz. Assistant Commissioner of State Tax as – Your Average monthly SGST Tax is Rs.50,000/-. Therefore your turnover under SGST, CGST and IGST are arrived to the best of my judgment to be 3 times the monthly Average and the Tax for the above tax period i.e. SGST Rs. 1,50,000/-, CGST Rs. 1,50,000/- and IGST Rs. 1,50,000/-. – 100% penalty has also been levied without indicating the provision under which it is imposed – Petitioner challenges this order as being arbitrary and not based on any principle of law.

264. Held: Counsel for Revenue is unable to point out what is the principle followed by the 1st respondent in doing best judgment assessment in the manner indicated above i.e. multiplying 3 times the monthly average SGST, and adopting it as a basis for assessing the petitioner to tax for the month of November, 2018; also could not indicate under which provision of law 100% penalty is levied on the petitioner – Since the impugned order appears to be prima facie arbitrary and contrary to the provisions of the Telangana GST Act, 2017 , same is set aside; the matter is remitted back to the 1st respondent for fresh consideration; the 1st respondent shall issue notice to the petitioner indicating the method of assessment under the best judgment assessment provision; grant a personal hearing to the petitioner; and then pass a reasoned order both with regard to levy of tax but also with regard to interest and penalty afresh within eight weeks.

Twentieth Case – Assessment of non-filers.

2023-TIOL-1541-HC-MAD-GST M K N COCONUT INDUSTRIES

265. The Assessee merely asked for further time for filing returns – Meanwhile, the Assessee sent a request for further time to pay tax and file returns pursuant to notice issued on 01.07.2019 under Section 46 of the TNGST Act, 2011 r/w 100 TNGST Rules, 2017 – However, the Assessee still failed to pay either the tax or file the returns – Thus, the impugned orders came to be passed on 15.10.2019.

266. Held – Reading of the orders in challenge, indicates that the tax liability determined is the net liability after adjustment of ITC in GSTR-2A – Therefore, even on this count there is no case made out for interfering with the Assessment Orders – If the Assessee had furnished a valid return within thirty days of the service of the aforesaid assessment orders under sub-section (1) of section 62 of the Act, the said assessment orders would have been deemed to have been withdrawn under sub-section (2) of Section 62 of the Act but the liability for payment of interest under Sub-section (1) of Section 50 or for payment of late fee under Section 47 was to continue – Thus, there is no scope for interfering with the orders – Therefore, these writ petitions are liable to be dismissed – However, liberty is given to the Assessee to seek time from the Revenue for discharging the tax liability in installments which shall be considered: HC

267. 24. The petitioner has filed returns and paid tax dues for the month from September 2017 to November 2017 alone. Therefore, the Assessing Officer passed the impugned orders both dated 15.10.2019 and assessed the tax liability of the petitioner under Section 62 of the TNGST Act 2017 to the best of his judgment based on the materials gathered during the inspection and available with the department.

268. 25. Reading of the impugned orders also indicates that the tax liability determined is the net liability after adjustment of ITC in GSTR-2A. Therefore, even on this count there is no case made out for interfering with the Impugned Assessment Orders.

269. 26. If the petitioner had furnished a valid return within thirty days of the service of the aforesaid assessment orders under sub-section (1) of section 62 of the Act, the said assessment orders would have been deemed to have been withdrawn under sub-section (2) of Section 62 of the Act but the liability for payment of interest under Sub-section (1) of Section 50 or for payment of late fee under Section 47 was to continue. Thus, there is no scope for interfering with the impugned orders.

270. In the case of M/s Abra Film International (2020) 4 GSTJ Online 320 Kerala High Court has observed that order u/s 62 (1) are automatically recalled if the assessee file returns within 30 days of service of date of the said assessment order.

Ninth – Assessment of unregistered persons 63 of the Act.

271. It is provided in the section 63 that notwithstanding anything to the contrary contained in section 73 or section 74,where a taxable person fails to obtain registration even though liable to do so or whose registration has been cancelled under sub-section (2) of section 29 but who was liable to pay tax, the proper officer may proceed to assess the tax liability of such taxable person to the best of his judgment for the relevant tax periods and issue an assessment order within a period of five years from the date specified under section 44 for furnishing of the annual return for the financial year to which the tax not paid relates. Provided that no such assessment order shall be passed without giving the person an opportunity of being heard.

272. Applicability of section 63.

273. It is applicable to the unregistered persons. Assessment under said section may be completed of taxable person who has failed to obtain registration even though liable to do so or whose registration has been cancelled under sub-section (2) of section 29 but who was liable to pay tax.

274. Opportunity of being heard is mandatory condition.

275. It is expressly provided in the section itself that no such assessment order shall be passed without giving the person an opportunity of being heard. For the purpose of invoking proceeding under said section, show cause notice in form ASMT 14 required to be issued.

276. Time limit to issue order.

277. In view of provisions contained in section 63, assessment order in Form ASMT 15 should be issued within a period of five years from the date specified under section 44 for furnishing of the annual return for the financial year to which the tax not paid relates.

278. In view of notwithstanding clause, it is pertinent to note that even though case of non-filer may cover under section 73 or 74 or 74A assessment of unregistered person should be completed under section 63.

279. Application of principles of best judgment assessment.

280. Section 62 and 63 of the Act provides for best judgment assessment of the non-filer registered persons and unregistered persons. While making the said for best judgment assessments principles settled by various judicial pronouncements required to be applied. It is well settled by catena of decisions that in such cases best judgment assessment could made by considering the returns, results of previous assessment, proportion of disallowance in earlier period and it should be fair and just.

Twenty first Case – principles of Best judgment assessment.

281. In the case of state of Kerala vs Velukutty 17 STC 465 (SC) High court of Keral has held that

282. “He (the assessing authority) must not act dishonestly, or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee’s circumstances, and his own knowledge of previous returns by and assessments of the assesse, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work. In that sense, too, the assessment must be to some extent arbitrary.”

283. Under section 12(2)(b) of the Act, power is conferred on the assessing authority in the circumstances mentioned thereunder to assess the dealer to the best of his judgment. The limits of the power are implicit in the expression “best of his judgment”. Judgment is a faculty to decide matters with wisdom truly and legally. Judgment does not depend upon the arbitrary caprice of a judge, but on settled and invariable principles of justice. Though there is an element of guess- work in a “best judgment assessment”, it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case. Though sub-section (2) of section 12 of the Act provides for a summary method because of the default of the assessee, it does not enable the assessing authority to function capriciously without regard for the available material.”

284. In the case of CST vs H.M.Esufali H.M. Abdulali (1973 ) 32 STC 77 (SC) Hon Supreme court has observed that

285. “In estimating any escaping turnover, it is inevitable that there is some guess work. The Assessing authority while making best judgment assessment, no doubt should arrive at his conclusion without any bias and on rational basis. He should not be vindictive or capricious. If the estimate made by authority is bona fide estimate and based on rational basis then order is tenable.”

286. In the case of M/s Hindustan Max G.B SA 508 to 513 of 2013 dt 28-11-2014 books of accounts not properly preserved and ex party best judgment assessment completed. The Maharashtra Sales Tax Tribunal Tribunal has held that in such cases assessment should be based on result of prior year.

Tenth -Summary assessment in certain special cases under section 64.

287. Summary assessment is in the nature of protective assessment. It is procedure where quick and fast assessment of tax liability is made. Section 64 deals with summary assessment in certain special cases to protect the interest of the revenue. It gives special powers, in exceptional circumstances, to the proper officer to assess tax without giving any notice or opportunity of hearing.

288. Scope of summary assessment

289. Section 64 empower the Proper officer to proceed summary assessment to protect the interest of revenue, where Proper officer has evidence that person has incurred a liability to pay tax and has sufficient ground to believe that delay in passing order will adversely affect the interest of revenue. In such cases proceeding required to be initiated with previous permission of jurisdictional Additional Commissioner or Joint Commissioner. It appears from the proviso that provisions of summary assessment are applicable only in respect to supply of goods. Summary assessment completed in order to immediate recovery of tax from the potential tax defaulter. It is not substitute for any order passed under other provisions of the act.

290. Requirements to invoke provisions of summary assessment.

291. All taxable persons are not liable to be assessed under section 64 of the act. Where, during the course of any proceeding under the act, the proper officer has noticed that unaccounted goods are lying in the godown or vehicle and concerned taxable person is not able to account for these goods or produce any documents showing details of the goods and is of opinion that tax is payable on these goods, he may proceed to assess to tax under section 64 of the act. However, before initiation of such proceeding, there must be evidence of tax liability and the authority should have sufficient ground to believe that delay in assessment may adversely affect the interest of revenue.

292. Competent assessing authority

293. The Proper officer is the assessing authority for the summary assessment. However, these powers are to be exercised, with previous permission of jurisdictional Additional Commissioner or Joint Commissioner. It is pertinent to note that these powers can not be exercised without permission of specified higher authorities.

294. Deemed taxable person

295. Where any person came forward to claim the ownership of the unaccounted goods and to pay tax thereon, for that purpose he will be taxable person. However, where taxable person is not ascertainable, in view of proviso to section 64(1) of the act , the person in charge of such goods shall be deemed to be the taxable person liable to be assessed and to pay tax under this section.

296. No requirement of issue of notice

297. Neither section 64 nor rule 100 provides for issue of any notice before passing of summary assessment. Neither any form of show cause notice is prescribed. However, opportunity to produce documents showing details of goods and to prove that such goods are accounted is given during the course of said proceeding.

298. Assessment order

299. The proper officer assess tax liability and pass assessment order u/s 64(1) in form GST-ASMT -16. No any time limit has been prescribed for passing of the order. It is necessary to pass speaking order containing introduction, discussion and finding, conclusion and assessed/payable amount. While passing order applicable interest and penalty required to be levied. Composite order under all act CGST/SGST/IGST should be passed.

300. Withdrawal of assessment order.

301. Summary assessment order is subject to rectification and review. Section 64 (2) provides to withdraw erroneous summary assessment order. Apart from the above legal remedy taxable person may avail legal remedy for withdrawal of such order if found erroneous. Taxable person against whom summary assessment order passed can apply (form GST-ASMT-17)for withdrawal of said order, to jurisdictional Additional Commissioner or Joint Commissioner person within thirty days of receipt of order. After considering grounds if said officer found order erroneous, he can withdraw it and direct to proper officer to determine tax liability as per provisions of section 73 or 74 of the Act. Where ,such request of taxable person is not accepted he may file appeal against said order u/s 107 of the act. The jurisdictional Additional Commissioner or Joint Commissioner may take similar course of action on his own motion if he find summary assessment order to be erroneous.

Eleventh – Recovery of Tax collected but not paid to Government.

302. Registered persons and unregistered persons both are prohibited to collect unauthorised tax in contravention of provision of section 32 of the Act in respect of supplies effected by him . Every person who has collected tax on supplies is required to pay the it to the Government as per provisions of the law. Section 76 has been provided to forfeit excess / illegal collection of tax and to recover amount representing tax from person who has collected but not paid . It is independent section and no time limit has been prescribed to initiate proceeding.

303. Scope of section 76 of the Act.

304. Section 76 of the Act deals with tax collected but not paid to Government. It is provided that every person who has collected any amount representing the tax, and not paid to the Government, shall pay said amount immediately, irrespective of whether supply is taxable or not. Detailed procedure has been prescribed to pass order and to recover such amount. It is provided in subsection 10 and 11 that where any surplus ( excess collection of tax /illegal collection of tax ) is left after adjustment, amount of such surplus shall be credited to Consumer Welfare Fund established u/s 57 or refunded to the person who has born the incidence of such amount and such person may apply for the refund of the same under section 54 of the act.

305. Under existing law , especially under state vat act , there was provision for forfeiture of excess or illegal collection of tax by registered dealers or unauthorised collection of tax by unregistered dealer and accordingly mechanism was provided to recover such amount or to refund the same to persons from whom was such amount recovered . Though , word forfeiture is absent in the section 76 , it is in the nature of forfeiture of unauthorised collection any amount representing tax . Moreover , it covered the cases where tax has been collected and not paid to the Government . Generally , chances of such cases are rare , because such unpaid taxes would recovered by initiating proceeding under other provisions of the Act and by passing orders under section like 54 ,61, 62, 63 and 73 & 74 of the GST Act within three year / five year . However , after five year no order could be passed under section 74 and unable to recover such unpaid amount collected as tax , as barred by limitation . In such cases this section will play important role as no time limit is prescribed to issue notice and to intitate proceeding. Thus , it appears that section is inserted with dual intention , to forfeit unauthorised collection of tax and to recover tax collected but not paid .

306. These are following few example where this section is applicable.

a) unregistered person has collected tax on supplies made to consumers and did not paid such amount to the Government.

b) registered person has supplied goods to unregistered persons (B to C ) and collected tax at higher rate than applicable rate and neither refunded to the recipient nor paid amount of excess collection of tax to the Government

c) registered person has supplied exempted goods and collected tax and neither refunded to recipient nor paid to the Government

d) registered person person who is paying tax at composition rate under section 10 collected tax on supplies from consumers and neither refunded same to the consumer nor paid to the Government.

e) registered person supplied goods to registered recipient , who is not claiming ITC on inward supplies and collected tax @12 % thereon paid to the Government . However ,after Advance ruling in his own case tax is exigible @ 5 % and without refunding excess collection of tax to the recipient filed application for refund of excess payment of tax.

307. Notice under section 76(2).

308. Every person who has collected any amount as tax is required to pay such amount immediately to the Government , irrespective of whether such supply is taxable or not . However , if no such amount found paid by person , then proper officer may issue show cause notice to the person giving details of amount collected along with summary in FORM-GST-DRC 01 directing him to show cause as why said amount should not be recovered from him and as to why penalty equivalent to the said amount should not be imposed on him . After receipt of notice , if person has disputes on certain grounds and do not agree with notice or partly agree may submit representation in form FORM-GST-DRC-06 . He may also request in writing for giving opportunity of hearing and proper should grant such opportunity of hearing before passing any order .There is no time limit prescribed to issue notice .

309. Order under section 76(3).

310. After receipt of representation from the person to whom notice is served and after giving an opportunity of hearing where request is received in writing , proper Officer should consider representation and points raised in hearing and determine amount due and pass order u/ 76 (3 ) of the act . He is required to issue summary of order in FORM-GST-DRC-07. It is clearly provided in section 76 (8) that proper officer should pass speaking order by stating relevant fact and the basis for the decision. This order is appealllble . If such person is aggrieved by order he may file appeal u/s 107 to the prescribed Appellate authority.

311. Payment of interest.

312. Section 76 (3) provides where person has not paid amount within prescribed time , he is liable to pay interest in addition to such amount and penalty , under section 50 of the Act from the date of such amount collected to the date of payment.

313. Time limit to issue order and notice.

314. It is significant to note that no time limit has been prescribed in this section for issue of notice . It is independant section and hence time limit prescribed in the section 73/74 is not applicable to this section . However, as per section 76 (6) proper office should pass order within one from the date of issue of notice . If such order is not passed within said period order can not be passed being barred by limitation . Thus , time limit is only applicable for passing of order after issue of notice and no time limit prescribed to issue notice .

315. Adjustment of amount of refund.

316. An amount paid to the Government after initiating proceeding u/s 76 shall be adjusted against tax payable if any by the person in relation to impugned supplies . If amount paid is in respect of supplies on which tax collected legitimately , then it would be adjusted toward such tax liability . Where , after adjustment of amount as above , if any surplus is left it shall be either be credited to consumer welfare fund or refunded to the person who has borne the incidence of such amount.

317. Refund of amount to the recipient.

318. As per provision of the Act , supplier is permissible to collect tax from the recipient person . However , he has to collect tax at applicable notified rate . In case wrongly tax had collected at higher rate such excess amount required to be refunded to the recipient within prescribed time and if not refunded it should be paid to the Government immediately , otherwise it will result in an unjust benefit to him . It is provided in section 76 (10 ) & (11) of the act that such amount shall be refunded to the person who has borne the incidence of such amount . Such person may file an application for refund under section 54 of the Act within two year from the date of payment of such amount . If recipient person came to know that order under section 76 passed regarding forfeiture of excess collection then only he may file application for refund of such amount . It appears that there is no provision in the Act and rule to intimate to concerned person . Unless any such intimation received from Proper Officer concerned person may not be in position to claim refund within prescribed time . Under Maharashtra Value Added Tax act 2002 there was such provision to send intimation to the person from whom such excess amount was recovered and on that basis he may claim refund .

Twelfth – Penalty for certain offences under section 122

Power to impose penalty in certain cases.

319. Penalty is in addition to tax and is liability under the Act. Penalty is statutory liability and without clear, unambiguous and express enactment, it cannot be imposed. Thus, penalty cannot be imposed without authority of law and in absence of specific provisions. Section 127 of the state that, where the proper officer is of the view that a person is liable to a penalty and the same is not covered under any proceedings under section 62 or section 63 or section 64 or section 73 or section 74 or section 129 or section 130, he may issue an order levying such penalty after giving a reasonable opportunity of being heard to such person. Section 10, 52, 122, 123, 125, 127, 129 and 130 empower proper officer to impose penalty where specified offence is committed. While imposing penalty proper assumption of jurisdiction has great significance. Orders passed without jurisdiction are always subject to challenge and not sustainable in the eyes of law. Therefore, the taxable person is required to examine whether penalties has been imposed under appropriate sections and proper officer has proper jurisdiction to impose such penalties. Similarly, Proper officer is required to assume proper jurisdiction by initiating penalty proceeding by invoking appropriate section of the act.

320. Meaning and scope of penalty under section 122.

321. This section 122 provides to impose penalty for the specified offences. As stated in earlier para offences liable for penalty have been prescribed. Section 122(1) deals with penalty applicable to the taxable persons and prescribe fixed percentage of penalty which linked to the amount involved in relevant offence. This is mandatory penalty and authority has no discretion in not levy penalty or in quantum of penalty.

322. Penalty under section 122(2) will attract to registered persons who supplies goods or services and there is short payment of tax, erroneous grant of refund or wrong availment or utilisation of ITC due to reason of fraud suppression or any other reasons. This penalty is also mandatory and quantum of penalty has been prescribed which has direct nexus with the amount tax due. The ingredients of offences contained in section 122(2) (a) and 122(2)(b) has been inserted in section 73 and 74 of the Act respectively, which enable to avail concession in amount of penalty by making early payment and impose penalty during said proceeding where necessary.

323. Penalty under section 122(1A) is applicable to the persons, who has retained benefit of transactions covered under following clauses (i), (ii), (vii) or clause (ix) of sub-section (1) and at whose instance such transaction conducted. Said person shall be liable to a penalty of an amount equivalent to the tax evaded or input tax credit availed of or passed. Such persons who are not covered under definition of taxable person or registered person are now liable for mandatory penalty under this subsection.

324. Penalty under Section 122(3) will be applicable to the other persons who are not taxable persons but who aid or abet the specified offences and involved in other specified activities. This penalty is discretionary and may be extended up to Rs 25,000/.

325. Thus this section provides to impose penalty on taxable persons, registered persons and other persons subject to committing specified offences .

326. Penalty u/s 122(1) of the Act .

327. Section 122(1) deals with penalty for certain offences. The said sub section provides for imposing penalty on taxable person who has committed specified offence. Accordingly, a taxable person who has committed specified offence, shall be liable to pay a penalty of ten thousand or an amount equivalent to the tax evaded or the tax not deducted under section 51 or short deducted or deducted but not paid to the Government or tax not collected u/s 52 or short collected or collected but not paid to the government or input tax credit availed of or passed on or distributed irregularly, or refund claimed fraudulently, whichever is higher. This penalty is applicable to taxable person, and in view of section 2(107) registered person and person liable for registered are known as taxable persons. Thus, scope of section 122(1) is very wide. Once the taxable person commit any default prescribed u/s 122(1), he shall be liable to penalty and proper officer has power to impose penalty after giving opportunity of hearing. This is mandatory penalty and proper officer has no discretion regarding not to levy of or in quantum of penalty.

328. Penalty u/s 122(1A) of the act

329. Penalty under this subsection is applicable to persons other than taxable persons who are not covered within ambit and scope of 122(1), (2) and (3) of the act. This subsection (1A) has been inserted by Finance act 2020 and made effective from 1-1- 2021 by notification no 92/2020 CT dt 22-12-2020. This penalty is applicable to the persons, who has retained benefit of transactions covered under clauses (i), (ii), (vii) or clause (ix) of sub-section (1) and at whose instance such transactions conducted. Such persons shall be liable to a penalty of an amount equivalent to the tax evaded or input tax credit availed of or passed. It is pertinent to note that above referred persons are not covered under definition of taxable person and therefore specific provision has been made to impose penalty on such person to protect the interest of revenue and curb evasion. Section 127 of the act gives powers to the proper officer to impose penalty in such cases. This is mandatory penalty and proper officer has no discretion regarding not to levy of or in quantum of penalty. However, no penalty shall be imposed on any person without giving him opportunity of being heard.

Twenty second Case – Penalty u/s 122(1A)

SHANTANU SANJAY HUNDEKARI 2024-TIOL-518-HC-MUM-GST

330. GST – Petitioners, employees of a shipping company, along with other noticees are called upon to show cause as to why penalty equivalent to the tax alleged to be evaded by M/s. Maersk amounting to Rs.3731,00,38,326/- as detailed in paragraph 5.19.1 of the said notice, be not imposed upon the petitioners inter alia applying the provisions of section 122(1A) and Section 137 of the Act, 2017 – Petitioner in his capacity as a Taxation Manager rendered assistance to Maersk in its compliances with taxation laws including the GST – Petitioner has categorically contended that there was no question of the petitioner personally availing the benefit of any ITC, nor does the show cause notice allege that any personal benefit is achieved by the petitioner; that the said provisions of the CGST Act, as invoked, per se do not apply to the petitioner, absent a suggestion that any personal benefit was availed by the petitioner – Counsel for respondent Revenue would submit that the petitioner needs to respond to the show cause notice by raising all such contentions; Hence, the show cause notice needs to be taken forward and adjudicated – For such reason, the writ petition is not maintainable and would deserve rejection.

331. Held: Question before the Court is whether the invocation of the provisions of Section 122(1-A) of the CGST Act as also Section 137(1) and 137(2) would stand attracted in their applicability to the petitioner, so as to confer jurisdiction on respondent no. 3, to issue the impugned show cause notice against the petitioner, who is merely an employee of MLIPL and a power of attorney of Maersk – A person who would fall within the purview of sub-section(1-A) of Section 122 is necessarily a taxable person as defined under section 2(107) of the CGST Act read with the provisions of section 2(94) of the CGST Act and a person who retains the benefits of transactions covered under clauses ( i ), (ii), (vii) or clause (ix) of sub-section (1) of Section 122 – Section 122(1-A) also cannot be attracted qua the person, in a situation when any person does not retain the benefit of a transaction covered under clauses ( i ), (ii), (vii) or clause (ix) of sub-section (1) and/or it is applicable at whose instance such transactions are conducted, could be the only person, who shall be liable to a penalty of an amount equivalent to the tax evaded or input tax credit, wrongly availed of or passed on – In the absence of these basic elements being present, any show cause notice of the nature as issued, would be rendered illegal, for want of jurisdiction as also would stand vitiated by patent non-application of mind – Hence, there was no question of respondent no. 3 invoking section 122(1-A) against the petitioner – As to how Section 137 can form part of any invocation against the petitioner that too along with the provision of Section 122(1-A), qua the petitioner cannot be comprehended – It is highly unconscionable and disproportionate for the concerned officer of the Revenue to demand from the petitioner an amount of Rs.3731 crores, which, in fact, is clearly alleged to be the liability of Maersk, as the contents of the show cause notice itself would demonstrate – The petitioner would not be incorrect in contending that the purpose of issuing the show cause notice to the petitioner who is merely an employee, was designed to threaten and pressurize the petitioner – Petition accordingly succee

332. 26. A plain reading of section 122 clearly implies that it provides for levy of penalty for “certain offences” by taxable person. Such taxable person would render himself liable for a penalty for acts provided in clauses (i) to (xxi) of sub-section (1). Insofar as sub-section (1-A) of Section 122 is concerned, it provides that any person (who would necessarily be a taxable person), retains the benefit of the transactions covered under clauses (i), (ii), (vii) or clause (ix) of sub-section (1), and at whose instance, such transaction is conducted, “shall be liable to a penalty of an amount equal to the tax evaded or input tax credit availed of or passed on”. This necessarily implies that sub-section (1-A) applies to a taxable person, as it specifically speaks about the applicability of the provisions of clauses (i), (ii), (vii) or clause (ix) of sub-section (1), with a further emphasis added by the words as underscored by us. This clearly depicts the intention of the legislature that a person who would fall within the purview of sub-section(1-A) of Section 122 is necessarily a taxable person as defined under section 2(107) of the CGST Act read with the provisions of section 2( 94) of the CGST Act and a person who retains the benefits of transactions covered under clauses (i), (ii), (vii) or clause (ix) of sub-section (1) of Section 122.

333. 27. Further, as noted above, Section 122(1-A) also cannot be attracted qua the person, in a situation when any person does not retain the benefit of a transaction covered under clauses (i), (ii), (vii) or clause (ix) of sub-section (1) and/or it is applicable at whose instance such transactions are conducted, could be the only person, who shall be liable to a penalty of an amount equivalent to the tax evaded or input tax credit, wrongly availed of or passed on. The relevant provisions as discussed hereinabove would show that such person can only be a taxable person as defined under Section 2(107) of the CGST Act read with the provisions of section 2(94) of the CGST Act, who would be in a legal position, to retain the benefit of tax on the transaction covered under clauses (i), (ii), (vii) or clause (ix) of sub-section (1), and at whose instance, such transaction is conducted. In the absence of these basic elements being present, any show cause notice of the nature as issued, would be rendered illegal, for want of jurisdiction as also would stand vitiated by patent non application of mind

Penalty u/s 122(2) of the act.

334. It is pertinent to note section 122(2) is applicable to only registered persons. Since registered persons is also taxable person, provisions of section 122(1) may be attracted. However, only the registered persons who supplies goods or services on which tax not paid or short paid or erroneously refunded or ITC wrongly availed or utilised , comes within ambit and scope of said subsection. And other registered persons who have committed offences under section 122(1) shall be liable to pay penalty under section 122(1).

335. Plain reading of section 122(2) reveal that, any registered person who supplies any goods or services or both on which any tax has not been paid or short-paid or erroneously refunded, or where the input tax credit has been wrongly availed or utilized,-

336. (a) for any reason, other than the reason of fraud or any willful misstatement or suppression of facts to evade tax, shall be liable to a penalty of ten thousand rupees or ten per cent. of the tax due from such person, whichever is higher;

337. b) for reason of fraud or any willful misstatement or suppression of facts to evade tax, shall be liable to a penalty equal to ten thousand rupees or the tax due from such person, whichever is higher.

338. It is pertinent to note that same ingredient of said offences have been inserted in section 73 and 74 of the Act, which gives powers to impose penalty during the course of proceeding initiated and issue order under said sections. However, said sections are not independent section to impose penalties. Section 122(2) read with section 127 authorise to the proper officer to impose penalty during the course of proceeding under section 73 or 74. Section 73 and 74 section provides mechanism for demand and recovery of due tax from taxable person and consequential interest and penalties is required to be levied under respective section 50 and 122(2) respectively. It is true that section 127 allows to impose penalties during the proceeding 73 or 74, it should be require to impose by invoking provisions of 122(2) and section 73 or 74. And therefore relevant notice and order to impose penalty should be under both said sections. It is significant note that section 122(2) is enabling provision to impose penalty.

Penalty under section 122(3) of the act.

339. This section applicable to the persons other that taxable and registered persons. Section 122(3) provides for imposing penalty on following persons who committed the specified default. Accordingly, any person who

(a) aids or abets any of the offences specified in clauses (i) to (xxi) of sub-section (1);

(b) acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with any goods which he knows or has reasons to believe are liable to confiscation under this Act or the rules made thereunder ;

(c) receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of this Act or the rules made thereunder ;

(d) fails to appear before the officer of State tax, when issued with a summon for appearance to give evidence or produce a document in an inquiry;

(e) fails to issue invoice in accordance with the provisions of this Act or the rules made thereunder or fails to account for an invoice in his books of account, shall be liable to a penalty which may extend to twenty five thousand rupees. There is discretion regarding quantum of penalty. In view of section 126 of the act, which contain general discipline related to penalty, the penalty imposed under this section shall depend on the facts and circumstances of each case and shall commensurate with the degree and severity of the breach and when a person voluntarily discloses to an officer under this Act the circumstances of a breach of the tax law, regulation or procedural requirement prior to the discovery of the breach by the officer under this Act, the proper officer may consider this fact as a mitigating factor when quantifying a penalty for that person.

340. Whether penalty is mandatory.

341. In Section 122(1), (1A), (2) and section 73 and 74 of the Act clearly specified quantum of penalty either fixed sum or fixed percentage. Plain reading of the provisions of subsection 1, (1A), 2, of section 122 and section 73 and 74, of the Act reveals that penalties under said section are mandatory and adjudicating authority has no discretion regarding not to impose penalty or to reduce quantum of penalty. Therefore, it appears that proper officer has no discretion in quantifying amount of penalty. And penalty is required to be imposed if the other necessary requirements are in existence. Section 126 lay down certain principles for determination of quantum of penalty while imposing discretionary penalties. However, it is clearly stated in the section 126(6) that the provisions of this section shall not apply in such cases where the penalty specified under this act is either fixed sum or expressed as a fixed percentage. In view of above it is clear that penalty under said section are mandatory and neither the adjudicating authority nor the appellate authority/ the appellate Tribunal has any kind of discretion in the said penalty proceeding. The provisions of penalty u/s 122(2) and 73 and 74 GST act are Pari Materia with section 11AC read with proviso to section 11(A) of the Central Excise Act and therefore following judgments under said act may be applicable to the GST act.

342. In the case of Dharmendra Textile Processors (2008) 13 SCC 369 the Supreme Court has held that penalty under section 11AC of Central Excise Act is mandatory and adjudicating authority or appellate authority has no discretion to reduce penalty for any reason.

343. Supreme court in the case of Rajasthan Spinning and Weaving Mills (2009) 13 SCC 448 held that the decision in Dharmendra Textiles must, therefore, be understood to mean that though the application of section 11-AC would depend upon the existence or otherwise of the conditions expressly stated in section, once the section is applicable in a case the Authority concerned would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub section (2) of section 11-A of Central Excise act.

344. Discretionary penalties under the act.

345. It is seen from the relevant penalty provisions that in the following penalty proceedings the proper officer has discretion to impose penalty and in quantum of penalty after considering the facts of the case and general principals laid down in section 126 of the act. In all following section it is clearly stated that penalty may be imposed and may extend up to specified limit. This makes clear that these penalties are not mandatory.

346. Penalty proceeding in the case of persons specified in section 122(3) clause (a) to (e) of the act.

347. Penalty proceeding u/s 123 of the Act in the cases of persons who have failed to furnish information returns.

348. Penalty proceeding under section 125 of the Act to impose penalty on persons who have contravened provisions of act or rules for which no separate penalty is provided.

349. Section 126 of the act provides for general disciplines applicable to penalty and fee under the Act. Subsection 1 of said section state that no officer under this Act shall impose any penalty for minor breaches of tax regulation and procedural requirements. Further subsection 2 state that the penalty imposed under this Act shall depend on the facts and circumstances of each case and shall commensurate with the degree and severity of the breach. As per subsection 5, When a person voluntarily discloses to an officer under this Act the circumstances of a breach of the tax law, regulation or procedural requirement prior to the discovery of the breach by the officer under this Act, the proper officer may consider this fact as a mitigating factor when quantifying a penalty for that person.

350. In the case of M/s Hindustan steel ltd 25 STC 211 Hon Apex Court on the issue of levy of penalty observed that “ An order imposing penalty for failure to carry out a statutory obligation is the result of quasi criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.”

351. Requirement of notice.

352. It is well settled principle of law that no penalty can be imposed without following principle of natural justice. Express provision to issue show cause notice has been made in section 73,74. Similarly rule 142(1) provide that proper officer shall serve along with notice under section 52,or 73 or 74 or 76 or 122 or 123 or 124 or a25 or 127 or 129 or 130 , a summary thereof electronically in FORM GST DRC 1. Section 127 which enable to impose penalty u/s 122,123 and 125 also contain express provision that penalty should not be imposed without giving opportunity of being heard to such person. Most importantly specific provision has been made in section 126(3) that no penalty shall be imposed on any person without giving him an opportunity of being heard. Therefore, proper officer should issue speaking and reasoned show cause notice and give reasonable opportunity of hearing before imposing penalty. It is necessary to mention relevant facts, details of offence, nature of breach and applicable law, regulation or procedure under which amount of penalty for the breach is proposed in the notice. Vague, ambiguous and non-speaking SCN are not sustainable in the eyes of law and in number of cases High court has quashed such notices and orders based on it.

353. No penalty for minor breaches.

354. It is settled principle of law by judicial pronouncement that no penalty should be imposed for technical or minor breaches. These principles have been incorporated in the section 126 of the Act under heading ‘Genaral discipline related to penalty .

355. In view of section 126 (1) of the Act no officer is authorise to impose penalty for minor breaches. The said section states that no officer under this Act shall impose any penalty for minor breaches of tax regulations or procedural requirements and in particular, any omission or mistake in documentation which is easily rectifiable and made without fraudulent intent or gross negligence. It is clarified vide Explanation, for the purpose of this sub-section,–– (a) a breach shall be considered a ‘minor breach’ if the amount of tax involved is less than five thousand rupees; (b) an omission or mistake in documentation shall be easily rectifiable if the same is an error apparent on the face of record.

356. However, it is clearly stated in the section 126(6) that the provisions of this section shall not apply in such cases where the penalty specified under this Act is either fixed sum or expressed as a fixed percentage. Therefore, this will applicable to only discretionary penalties under section 122(3), 123 and 125 and not to other penalty provisions.

357. No penalty under two sections for same offence.

358. It is well settled that penalty cannot be imposed under two sections for same offence. It is expressly provided in section 75(13) of the Act that where any penalty is imposed under section73 or 74 , no penalty for the same act or omission shall be imposed on the same person under any other provision of the this act. Accordingly, no penalty can be imposed under two sections for the same offence.

359. Exemption from penalty to other persons.

360. It is seen from the provisions of the Act that where penalty proceeding initiated u/s 122(1) or (2) against taxable person or registered person for committing specified offence u/s 122(1), penalty proceeding may be initiated against other persons in the same case and for same offence u/s 122(1A) or 122(3). Thus there are penalty proceeding against main person and other persons. As per section 73 (8) and 74 (8) of the Act if taxable person pays amount of tax along with interest in response to notice within 30 days within thirty days of issue of notice then no penalty shall be payable and all proceeding in respect of said notice shall be deemed to be closed. Further section 74 (8) of the act state that if taxable person pays amount of tax along with interest and penalty equal to twenty five percent of tax in response to notice within 30 days within thirty days of issue of notice then no penalty shall be payable and all proceeding in respect of said notice shall be deemed to be closed. Similar provisions are also made in section 74(11). Sometimes, where notice are issued to main person and notices are also issued in same proceeding to other persons to impose penalty. In such situation, as per clause (ii) of explanation 1 appended to section 74 of the act , where the notice under same proceeding is issued to the main person liable to tax and some other persons, and such proceeding against the main person have been concluded under section 73 or 74 , the proceeding against all the persons liable to pay penalty under section 122 and 125 are deemed to be concluded.

361. Order of penalty.

362. It is now settled principle of law that every order passed by any authority should speaking order. After considering the representation of the taxable person and giving him an opportunity of being heard, it is necessary to confirm whether said person has committed any specified offence which is liable for penalty. The proper officer shall while imposing penalty in an order for breach of law, specify the nature of the breach and applicable Act, rules under which penalty the amount of penalty for breach has been specified. As per section 126 of the act amount of discretionary penalty shall always depend on the facts and circumstances of the case and it should be commensurate with the degree and severity of the breach. Therefore, where penalty is discretionary, it is mandatory to state all the facts and to give reasons for imposition of penalty or not to impose penalty or lesser amount of penalty. Non speaking, nonreasoned, cryptic, ambiguous orders are not sustainable in the eyes of law and in number of cases High Courts has quashed such orders.

363. Penalty under IGST Act.

364. As per provisions of the CGST, SGST& IGST Act proper officer has been cross empowered to pass any order in respect of assessee under his jurisdiction under these acts . Therefore, composite order under all three act where applicable are being passed. Section 20 of the IGST act states that provisions pertaining to impositions of penalty under CGST Act shall mutatis mutandis applicable to IGST Act also. According all penalty provisions of Central Act shall apply to Integrated tax. Quantum of penalty u/s 73or 74 read with section 122(2) has direct nexus with tax due as per order, therefore amount of penalty under said section be linked to the quantum of integrated tax demanded, which would naturally be twice of CGST or SGST. Accordingly, while imposing penalty under section 20 of IGST act read with section 73 of CGST Act , it should be ten percent of IGST due as per order or 10000 whichever is higher. Example- Amount of penalty would be Rs 15,000/ where amount of IGST is 150,000/ as per order passed u/s 122(2) read with section 20 of IGST act and 73 of CGST act.

Thirteenth -General penalty u/s 125 of the act.

365. Section 125 of the Act provides to impose general penalty on a person, where such person has contravened provisions of the Act and rules made thereunder for which no penalty is separately provided for in this Act. Said penalty may be imposed up to maximum twenty-five thousand rupees. Thus, it is discretionary penalty and not mandatory. This is discretionary penalty and required to impose by considering principles stipulated in section 126. It is mandatory to issue notice in form DRC-1 before imposing penalty.

Twenty third Case – Penalty u/s 125

2023-TIOL-350-HC-MAD-GST M/s SUVARNA FIBROTECH PVT LTD

366. There are three heads of defects contravention and they are, (a)alleged sales suppression; (b) contravention of statutory provisions [3 in number being (i) non-maintenance of particulars of name/complete address of suppliers qua goods and services chargeable to tax; (ii) non-maintenance of particulars of name/complete address qua entities to whom goods and services were supplied and (iii) monthly production accounts showing quantitative details of raw materials used in the manufacture and quantitative details of goods manufactured including the waste and by-products not maintained qua sub-Rule(12) of Rule 56 of C-G & ST and TN-G & ST Rules] and (c) GSTR -1 filed upto 2019 but GSTR 3 B not filed, tax collected but not paid to the Government. And the Original imposing a penalty equivalent to Rs.25,000/ for said three non compliances.

367. A careful perusal of Section 125 makes it clear that it is more in the nature of a residuary provision. In the case on hand, as there are three specific non-compliances qua statutory requirements, it was well open to the Original Authority to invoke Section 125 with regard to each of the non-compliances and levy Rs.25,000/- each, which would have added upto Rs.75,000/-. However, in the case on hand, Original Authority has levied penalty of only Rs.25,000/- for all three non-compliances put together. Therefore, it cannot be gainsaid that maximum penalty to which a general penalty under Section 125 can extend, has been exercised in the case on hand.

Fourteenth- Penalty u/s 129 of the Act.

368. Scope of penalty u/s 129.

369. The provisions of Section 129 of the CGST/SGST Acts provide for the detention, seizure and release of goods, conveyance and documents. It provides that when a person transports any goods or stores any goods while they are in transit in contravention of the provisions of the Act of the Rules made thereunder, such goods, documents and conveyance used as a means of transport shall be liable to detention or seizure and also provides for the procedure to be followed for release of goods following such detention or seizure.

370. a) on payment of penalty equal to two hundred per cent. of the tax payable on such goods and, in case of exempted goods, on payment of an amount equal to two per cent. of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods comes forward for payment of such penalty;

371. (b) on payment of penalty equal to fifty per cent. of the value of the goods or two hundred per cent. of the tax payable on such goods, whichever is higher, and in case of exempted goods, on payment of an amount equal to five per cent. of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods does not come forward for payment of such penalty;]

372. (c) upon furnishing a security equivalent to the amount payable under clause (a) or clause (b) in such form and manner as may be prescribed:

373. Section 129(3) provides that the proper officer detaining or seizing goods or conveyance shall issue a notice within seven days of such detention or seizure, specifying the penalty payable, and thereafter, pass an order within a period of seven days from the date of service of such notice, for payment of penalty under clause (a) or clause (b) of sub-section (1).]No penalty] shall be determined under sub-section (3) without giving the person concerned an opportunity of being heard.

374. A reading of sub-section (3) of Section 129 of the CGST/SGST Acts, the provisions of Rule 142 referred to above and the provisions of the circular, cumulatively, indicate that whether or not a person opts to make payment under section 129(1)(a) or to provide security under Section 129(1)(c), the responsibility of the officer to pass an order under sub-section (3) of Section 129 and to upload a summary of the order/demand in Form MOV 7 continues.

375. Opportunity of being heard.

376. Sub section 4 stipulate that no penalty shall be determined under sub-section (3) without giving the person concerned an opportunity of being heard. It is necessary to issue notice in prescribed form before levy of penalty.

377. Consequences of non- payment of penalty.

378. It is provided in sub section (6) that where the person transporting any goods or the owner of such goods fails to pay the amount of penalty under sub-section (1) within fifteen days from the date of receipt of the copy of the order passed under sub-section (3), the goods or conveyance so detained or seized shall be liable to be sold or disposed of otherwise, in such manner and within such time as may be prescribed, to recover the penalty payable under sub-section (3). It is further provided that the conveyance shall be released on payment by the transporter of penalty under sub-section (3) or one lakh rupees, whichever is less. Provided further that where the detained or seized goods are perishable or hazardous in nature or are likely to depreciate in value with passage of time, the said period of fifteen days may be reduced by the proper officer.

379. Intention to evade tax is a per-requisite for imposition of penalty.

380. Co joint reading of section 129 and 130 indicate that intention to evade tax is a per-requisite for imposition of penalty under Section 129 of the Act.

Twenty fourth Case – Penalty u/s 129.

2023-TIOL-1296-HC-ALL-GST Balaji Traders Vs State of UP (Dated: October 06, 2023

381. GST – Present writ petition has been filed assailing the impugned order 25.11.2022 affirming the penalty order under section 129(1) of the UPGST Act passed by the respondent no. 2 as well as the impugned order dated 24.03.2023 passed by the respondent no. 3 rejecting the appeal of the petitioner – A further prayer has also been made for a direction to refund the entire penalty amount of Rs. 5,58,286/- to the petitioner along with interest at the rate of 8% per month – Petitioner is engaged in the business of trading cigarette, pan-masala & food spices – In its normal course of business, the petitioner received an order of supply from one Vaishya Distributors, Nashik (Maharashtra) – In pursuance thereof, invoice no. 1406 dated 18.11.2022 was generated – The goods were supposed to be sent through railway – The goods were intercepted on 18.11.2022 outside the railway station, which were loaded in e-rickshaw and confiscated by the GST officials – The petitioner submitted reply to the show cause notice and also deposited a penalty amount; whereupon, the goods were released – When the goods were intercepted, the e-rickshaw driver duly informed to the GST authorities that the owner of the goods, along with paper, is inside the railway station for getting the Railway Receipt prepared, but without waiting or cross-checking the said fact, the respondent – authorities not only confiscated the goods, but also issued show cause notice on 24.11.2022 – He further submits that a detailed reply was given by the petitioners narrating the said facts, but without considering the same, the impugned penalty order has been passed – He further submits that since there was a technical glitch, e-way bill was not generated, but after coming to know that the goods have been confiscated, e-way bill, along with necessary tax invoices, were shown to the authorities, but the same have not been considered.

382. Held: Admittedly, the goods were intercepted and confiscated outside the railway station – The goods were loaded in e-rickshaw and the driver of the e-rickshaw had duly informed the authorities that the owner of the goods, along with documents, is inside the railway station and requested for waiting, but the respondents, in their wisdom, have neither cross-checked the said fact nor waited for the Proprietor of the petitioner – firm to come out – The record further reveals that at the time of issuing notice or passing the order under section 129(3) of the SGST Act, not a word has been whispered with regard to intention to evade payment of tax – The impugned order 25.11.2022 passed by the respondent no. 2 as well as the impugned order dated 24.03.2023 passed by the respondent no. 3 are hereby quashed – The writ petition is allowed with a cost of Rs. 1,000/- – Fine/penalty, if any, deposited by the petitioners pursuant to the impugned order shall be refunded to the petitioners within a period of 15 days from the date of receipt of a certified copy of this order, failing which the petitioners shall be entitled to interest @ 9% per annum – respondents – Authorities are at liberty to recover the cost from the erring Officer concerned – Petition allowed: High Court [para 8, 9, 16, 17, 19]

383. 12. This Court in the case of M/s Shyam Sel & Power Limited (supra) has held as under:-

384. 10. For invoking the proceeding under section 129(3) of the CGST Act, section 130 of the CGST Act was required to be read together, where the intent to evade payment of tax is mandatory, but while issuing notice or while passing the order of detention, seizure or demand of penalty, tax, no such intent of the petitioner was observed. Once the dealer has intimated the attending and mediating circumstances under which e-way bill of the purchasing dealer was cancelled, it was a minor breach. The authority could have initiated proceedings under section 122 of the CGST Act instead of proceedings under section 129 of the CGST Act. Section 129 of the CGST Act must be read with section 130 of the said Act, which mandate the intention to evade payment of tax. Once the authorities have not observed that there was intent to evade payment of tax, proceedings under section 129 of the CGST Act ought not to have been initiated, but it could be done under section 122 of the CGST Act in the facts & circumstances of the present case. It is also not in dispute that after release of the goods, the same were sold to P.L. Trading Company.

385. 11. Section 129 of the CGST Act deals with detention, seizure and release of goods in case violation of the provisions of the CGST Act is found. Section 130 deals with confiscation of goods or conveyance and levy of penalty. Both the sections revolve around a similar issue and provide for the proceedings available at the hands of the proper Officer upon him having found the goods in violation of the provisions of the Act, Rule 138 of the Rules framed under the CGST Act being one of them. Upon a purposive reading of the sections, it would sufice to state that the legislation makes intent to evade tax a sine qua non for initiation of the proceedings under sections 129 and 130 of the CGST Act.

386. 12. This aspect is no more res integra and the same stands finalized in the judgement of the Apex Court in M/s Satyam Shivam Papers Private Limited (supra); wherein, it has been categorically stated that:-

387. “As notices hereinabove, on the facts of this case, it has precisely been found that there was no intent on the part of the writ petitioners to evade tax and rather, the goods in question could not be taken to the destination within time for the reasons beyond th

388. Penalty order should be passed within seven days.

389. In the case of M/s Deepam Roadways 48GSTJ561 High court of Madras, by considering earlier decisions, held that penalty order passed beyond seven days from the date of service of notice is contrary to the section 129(3) and set aside order.

390. Whether an appeal can filed against order of penalty under 129(3).

391. In the case of M/s HINDUSTAN STEEL AND CEMENT HC Kerala 18.7.2022, High court of Kerala held that, section 107 of the CGST Act is widely worded and provides that any person aggrieved by any decision, or order passed under the CGST/SGST Acts or Union Territory Goods and Services Tax Act, by an adjudicating authority, may appeal to such appellate authority as may be prescribed, within three months from the date on which such decision or order is communicated to such a person and appeal under section 107 may be filed against the order of penalty u/s 129(3).

Conclusion

392. The adjudication under the Act plays a vital role in the effective administration of law. The adjudicating authorities are notified by the Government as Proper officer for the various sections. It is original authority in the adjudication and has vast power under the Act in compare to Revision authority and Appellate authority. Being, original authority he can compel to produce and examine all records, documents and evidences during the course of proceedings. He must follow judicial discipline and due procedure of law while collecting legitimate tax. Being, quasi-judicial authority the adjudicating authority must exercises quasi-judicial powers judiciously and fair and just manner while conducting adjudication proceedings. Arbitrary, non -speaking and illegal order are subject challenge in the High court by way of writ. He should pass reasoned and speaking order after assuming proper jurisdiction and applying principle of natural justice and the principle of strict interpretation . Adjudication order is subject to rectification and revision. Aggrieved person, including proper officer has a right to file appeal against the such order. In the adjudication proceeding there should not be any injustice to the taxable person and similarly, order should not be prejudicial to the interest of revenue. Where order involve the substantial question of law it may go up to Supreme Court. And such case law my be precedent for the future.

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Motiram Kanadje | Retired Joint Commissioner of State Tax | Author can be reached via email Email momakanadje@gmail.com

Disclaimer: Nothing contained in this document is to be construed as legal opinion or view of author whatsoever and the content is to be used strictly for informational and educational purposes. While due care has been taken in preparing this article, certain mistakes and omissions may creep in. The author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this article nor for any action taken in reliance thereon.