The GST Case Law Compendium for July 2024 offers a detailed examination of significant judgments delivered by various courts across India. This compendium is designed to provide both practitioners and businesses with a comprehensive understanding of the latest legal developments in the realm of Goods and Services Tax (GST) compliance. The cases cover a wide range of issues that are pivotal for anyone involved in GST administration and litigation.
One of the key areas addressed is the authority of officers from the Directorate General of GST Intelligence (DGGI) to issue Show Cause Notices (SCNs) post-inspection or audit, especially in instances where a contrary circular has been issued by the State. Another critical issue is the procedural rights of taxpayers, such as the necessity of granting a fresh opportunity for a personal hearing when an SCN is inadvertently sent to an outdated address. The compendium also explores the condonation of delays in filing appeals, particularly in cases where a rectification petition has been filed.
Further topics include the imposition of penalties under section 129 following search and seizure operations, the validity of assessment orders issued to deceased persons, and the conditions under which documents can be seized from premises not covered by a search warrant. The compendium examines the implications of replies furnished by taxpayers not being considered in orders, the validity of payments through blocked Electronic Credit Ledgers, and the constitutional validity of sections 16(2)(c) and 16(4).
Other noteworthy issues include the validity of notifications extending the limitation period for issuing SCNs due to force majeure, the alteration of grounds raised in SCNs based on new information, and the extension of time limits for filing appeals under sections 129 and 130. The compendium also addresses the necessity of personal hearings, the validity of unsigned SCNs and forms, and the requirements for claiming refunds of unutilized ITC.
1. Whether DGGI Officer of CGST is empowered to issue SCN post inspection, audit when contrary circular is issued by the State?
Yes, the Honorable Madras High Court in the case of Famina Shopping Mall (P.) Ltd. v. Assistant Commissioner of GST and Central Excise [W.P. (MD) No. 19284 of 2021 dated March 14, 2024] dismissed the writ petition and held that the officer of Directorate General of GST Intelligence (“DGGI”) is a proper officer for issuance of Show Cause Notice. The petitioner stated that circular No.23/2021 dated 04.10.2021 issued by the Commissioner of Commercial Tax, Government of Tamil Nadu, wherein, it is stated that the show cause notice can be issued only by the jurisdictional proper Officer concerned and not by the Inspecting officers. The Honorable Madras High Court noted that, as per Circular No. 31/05/2018 – GST dated February 09, 2018, the officer of DGGI have the power to issue show cause notice. The Honorable Court opined that the submissions made by the Petitioner are not acceptable. Also, the Impugned proceedings are at the stage of pre-show cause notice only and the writ petition is dismissed.
Author’s Comments
Circulars are issued to avoid administrative anarchy where divergent treatment is being extended by different Proper officers. Circulars issued under section 168 are binding on Proper officer. Also, circulars issued without reference to section 168 are no less binding. Issue arises where central authorities and state authorities have issued divergent circulars on the same subject matter. Circulars issued by CBIC are binding on the Central tax officers and Circulars issued by state authorities are binding on the state tax officers.
Further, Pre-notice consultations in Form GST DRC-01A issued under section 73(5)/74(5) read with Rule 142(1A) by no measures of standard is a Show Cause Notice required to create any demand under chapter XV of the CGST Act. Therefore, it was pre-mature to challenge jurisdiction basis Form DRC-01A. The petitioner could have waited for the SCN and could have explored better line of defense.
2. Whether fresh opportunity be granted for personal hearing when SCN was inadvertently sent to old address of the Petitioner?
Yes, the Honorable Madras High Court in C. Ekambaram v. Assistant Commissioner of GST And Central Excise [W.P. No. 12380 Of 2024 dated June 7, 2024], held that fresh opportunity be granted for personal hearing and filing of reply when Show Cause Notice was inadvertently sent to old address of the petitioner. The Honorable Court noted that the petitioner has placed on record the sale deed for purchase of a house on 07.11.2023. Upon such purchase, the petitioner asserts that he shifted to such address. In these facts and circumstances, it is just and necessary that an opportunity be provided to the petitioner to contest the tax demand on merits, albeit by putting the petitioner on terms. The Honorable Madras High Court allowed the writ petition subject to the condition that the petitioner remits a sum of Rs.50,000/- towards the tax demand within a maximum period of three weeks from the date of receipt of a copy of this order. Hence, the Impugned Order was set aside and the Petitioner was directed to file reply after the receipt of SCN.
Author’s Comments
Although Section 169 of the CGST Act, 2017 specifies 14 different ways/modes of serving any decision, order, summons, notice, or other communication under the Act, care must be taken by the authorities not to simply pick and choose any option, rather the best possible option must be chosen by which it is mostly likely to reach the intended noticee. The notice or any other communication cannot be termed to be served until it has reached the intended noticee.
Violation of principles of natural justice is a failure of due process. This violation renders the process arbitrary and when executive action is arbitrary it violates articles 14, 19, and 21 of the Constitution. Reference may be made to the jurisprudence in the case of Menaka Gandhi v. UOI AIR 1978 SC597, which illuminates understanding about the ‘role’ of a valid notice in any proceeding, however obvious the conclusion and consequent treatment might be.
In the author’s considered opinion, validity of service of SCN must have been disputed and must have allowed the revenue to discharge the burden of proof to show service of notice was done as per the law. Any failure to discharge this burden could have been fatal to the demand confirmed. This kind of relief is no relief at all.
3. Whether delay in filing of appeal due to filing of rectification petition can be condoned?
Yes, the Honorable Madras High Court in case of Tvl. SKL Exports v. Deputy Commissioner (ST)(GST)(Appeal) [W.P. No. 6825 of 2024 dated March 14, 2024], held that the delay in filing appeal before the Appellate authority due to the reason that the assessee preferred a rectification application should be condoned and directed the appellate authority to dispose the case on merits. The Honorable Madras High Court noted that the petitioner has explained the reasons for such delay by pointing out that rectification petitions were filed and that appeals were filed shortly after such rectification petitions were rejected. The impugned appellate orders indicate that appeals were filed about 21 to 24 days beyond the period for which appeal could be condoned by the appellate authority and directed the appellate authority to dispose the appeal of the Petitioner on merits without going into the question of limitation.
Author’s Comments
Section 107 and Section 161 are two independent provisions and remedies available to the taxpayer post decision/order by the authority. Section 107 remedy is a statutory right and the time limit to file appeal before FAA operates as “prescription” where the right itself will be lost, if appeal not filed within time limit prescribed.
Section 161 has very limited scope and it allows for rectification of any error or mistake which is apparent from the record. It is important to note that ‘apparent on the face of record’ is not one that involves (i) a conclusion that cannot be reached without taking new facts on record during rectification proceedings or (ii) requiring application of mind to existing facts or interpretation already adopted in reaching the conclusion already reached.
A time limit of 3 months is allowed for the affected person to bring to attention any such error or mistake. This time limit does not apply to the very officer who has passed the said order (containing the apparent error) and voluntarily made the necessary rectification.
Taxpayers have to be extremely cautious that they do not lose the sight of 3+1 month time limit provided under section 107 to prefer an appeal before FAA, when rectification application is filed before the PO.
4. Whether penalty under section 129 can be imposed pursuant to Search and Seizure proceedings?
No, the Honorable Allahabad High Court in the case of M/s. Gopi Chand Batra Traders v. State of Uttar Pradesh [Writ Tax No. 1632 of 2018 dated February 23, 2024] quashed the Penalty Order and Appellate Order, holding that search and seizure of godown cannot result in penalty proceedings under Section 129 of the Central Goods and Services Tax Act, 2017.The Honorable Court noted that the proceedings under Section 129(3) of the Uttar Pradesh Goods and Services Tax Act, 2017 have been initiated subsequent to search of the business premises of the petitioner and relied on the Coordinated Bench of the Allahabad High Court in the case of Mahavir Polyplast Pvt. Ltd. v. State of U.P. and 2 others (2022 U.P.T.C. [VOL.112] – 1514) where it was held that search and seizure of the godown cannot result in penalty proceedings under Section 129 of the CGST Act. The Court held that the proceedings were not justified, and accordingly the Impugned Orders were quashed and set aside.
Author’s Comments:
In the statute, there is a Proper officer for every section and every action under the law. The officer authorized under section 67 to conduct inspection, search and seizure proceedings is not the Proper officer authorized for imposing penalty under section 129. Moreover, section 67 proceedings are to be limited only to the ‘contraventions’ listed in form INS-01, and after discovery is strictly not allowed in this intrusive action. Section 129 is limited to Detention, seizure, and release of goods and conveyances in transit only.
The law of administration states that when power is given to do a particular thing, that thing must be done in that particular manner or not at all. Taxpayers before replying to any proceedings, ‘Validity of Jurisdiction’ must be tested and confirmed. And if there is any doubt, the Proper officer must explain the exercise of jurisdiction when validity is questioned in the view of mandate in section 160(2) of the Act.
5. Whether an assessment order can be issued to a dead person?
No, the Honorable Madras High Court in Munusamy Nagabushanam (deceased) v. The Deputy Commercial Tax Officer [W. P. Nos. 14718 & 14723 of 2024 dated June 13, 2024] set aside the order issued to the deceased person and held that Revenue department is left open to initiate proceedings against the legal heirs of the deceased taxpayer. The Honorable Madras High Court noted that all the relevant communications, including the impugned assessment orders issued by the Revenue authorities are of later date than the date of death of the taxpayer and issued to a dead person.
Author’s Comments
Extremely important to draw attention to the fact how the service of notice and order was made and the legal heir submitted to it (doctrine of acquiescence). The petitioner could have chosen to object to the validity of proceedings basis service of notice and order.
The Order XXII Rule 1 of the Code of Civil Procedure1908, which is reproduced for reference as follows:
“(1) the death of a plaintiff or defendant shall not cause the suit to abate if the right to sue survives.”
Due to the death/demise of a person, all the proceedings against such person stand abated. Further as per section 169 of the CGST Act 2017, service of any notice, order, or communication against such person is neither validly served to said person nor it must be accepted on account of such person by another person.
The Apex Court in the case of CIT v. Scindia Steam Navigation Co. Ltd.1961 AIR SC 1633, held that:
“…it is well settled that no mandamus will be issued unless the applicant had made a distinct demand on the appropriate authorities for the very reliefs which he seeks to enforce by mandamus and that had been refused.”
6. Whether Revenue Authorities may determine if documents can be seized from the premises of an Assessee not subject to the search warrant
The Honorable Delhi High Court in the case of Savinder Sharma v. Director General, Directorate of Revenue Intelligence [Writ Petition (Civil) No.7307of 2024 dated May21,2024] disposed of the writ petition and directed the Revenue Authorities to decide the petitioner’s representation seeking copies of seized documents in accordance with law within 2 weeks. The Counsel for petitioner stated that the search was started on the first floor of the building for the reason that he second floor was found locked and the firm in respect of which the search was sought to be conducted had an office on the first floor, this was fortified by the fact that the sign board of the said firm was also found on the first floor of the said premise. Thus, the search was illegal. The Honorable court noted that the petitioner has preferred an application dated May 11, 2024 for providing of copies of the said documents that were seized from the premises of the Petitioner and directed the Revenue Authorities to decide the petitioner’s representation within two weeks.
Author’s Comments
The authorized officers do not have the jurisdiction and authority to travel beyond the places specified in form INS-01 to conduct inspection and/or search proceedings. Inspection at unauthorized places, however the compelling reasons of evasion of tax emerges, does not allow authorized officers to travel beyond their authorization in INS-01. If unauthorized action is taken, then all the proceedings will be tainted and illegal for abuse of authority granted.
Moreover, section 67(2) not only confers authority to seize but also specifies the limits to the exercise of this authority. Form INS-02 lays down the ‘identity’ of seized articles. But care must be taken to note that (i)goods liable to confiscation which are secreted and detected during the search and (ii) documents, books or things which are also secreted and detected during search, can only be seized. What is not ‘secreted’, cannot be ‘seized
7. Whether the Order is liable to be set aside when reply furnished by the taxpayer is not taken into consideration?
Yes, the Honorable Delhi High Court in the case of Samsung India Private Limited v Union of India [WP (CJ No. 7351 of 2024 dated May21, 2024) allowed the writ petition and set aside the Impugned Order on the ground that the reply and documents filed by the petitioner with the special auditor appointed under section 66 of the Act are not taken into consideration. The Honorable Delhi High Court noted that if the Proper Officer is of the view that further details are required, the said details could have been specifically sought from the Petitioner which has not been sought by the Respondent. The Honorable Court opined that the Impugned Order is not sustainable for the reason that the Proper Officer has not taken into consideration the detailed reply along with the documents filed by the Petitioner as the Impugned Order just states that reply filed by the Petitioner is not substantial to counter the observations of the Auditor and held that the Impugned order is set aside and the Proper Officer shall re-adjudicate the Show Cause Notice after giving an opportunity of personal hearing and shall pass a fresh speaking order in accordance with law within the period prescribed under Section 75(3) of the Act.
Author’s Comments
Whether to celebrate such an order that remands back the case to the Proper officer for another round of adjudication (re-adjudication) is a matter of choice and strategy. In author’s considered opinion, such orders are unable to fetch the desired relief because SCN is not vacated; only a short term relief (at a cost) is provided in this long battle.
The petitioner could have disputed the cause-of-action (2A v 3B) invoked, and burden to proof would have been on the revenue to prove their case. Important to mention that mismatch/ linear comparison of two data sets (GSTR-2A-whose authorship is not with taxpayer v GSTR-3B) is meaningless in GST. Yes, it could raise suspicion, but without evidence, it is impossible to bring home the allegations leveled against the taxpayer.
8. Whether the pre-deposit amount can be paid through blocked Electronic Credit Ledger?
No, The Honorable Madras High Court in the case of KOG-KTV Food Products (India) (P.) Limited v. Joint Commissioner (Appeals) [W.P. (MD) No. 21581 of 2022 dated April 17, 2024] dismissed the writ petition and held that the Appellant is liable to pay the amount of pre-deposit through Electronic Cash Ledger when Electronic Credit Ledger is blocked due to denial of ITC.
The Honorable High Court noted, although the petitioner would rely on the decision of this Court rendered in W.P.Nos. 24577 and 24579 of 2023 vide order dated 21.08.2023 in the M/s. Larsen & Toubro Ltd Vs. The Joint Commissioner (ST) to state that the petitioner is not required to pre-deposit any amount disputed. The dispute is in relation to the denial of Input credit ledger, therefore the Petitioner cannot deposit the amount from Electronic Credit Ledger blocked. However, liberty is given to the petitioner to deposit the amount required under section 107of the Act as pre-deposit either through cash or through its electronic credit ledger within a period of 30 days from the date of receipt of a copy of this order.
Author’s Comments
There are only five (5) reasons for which the pre-emptive and emergency power under Rule 86A can be invoked. And if there are any other reasons, not falling with these, the use of this exceptional power would be contrary to law. Blocking the use of input tax credit, which is a vested and indefeasible right in the nature of the property of a Registered Person, would be institutionalized theft. Passion to protect the interests of Revenue does not authorize bypassing the law.
As soon as these pre-emptive and emergency powers are invoked, an application must be preferred to call for reasons to believe by the Commissioner or any other officer authorized.
Pursuant to exercise of these powers, if the SCN is issued, then the pre-emptive blocking of credit ledger shall cease to exist. If permitted to continue post issuance of SCN, then it will turn out to be a form of recovery before the adjudication is completed, which has no place under the law (Article 265).Moreover, this decision by the Commissioner or any other authorized officer is a non-appealable decision, although not specified under section 121 of the Act.
9. Constitutional validity of Section 16(2)(c) and 16(4) upheld and due date for availing ITC has been extended retrospectively to 30th November from FY 2017-18 onwards
The Honorable Kerala High Court in M/s. M. Trade Links v. Union of India [W.P. (C) NO. 31559 of 2019 dated June 4, 2024] has upheld the constitutional validity of Section 16(2)(c) and Section 16(4) of the CGST/SGST Act. After acknowledging the difficulties during the initial implementation years of GST, the Honorable Court extended the time limit to avail input tax credit to November 30 from the FY 2017-18 onwards. The Honorable Kerala High Court noted that the ITC is a concession or entitlement, which is not an absolute right and is subject to the conditions and restrictions as per the scheme of the GST legislation. In the GST regime, the tax collected has to be assigned to the jurisdiction where the consumption takes place. The ITC, therefore, crosses a State during inter-State supplies. Without Section 16(2)(c) of the CGST Act, where the inter-state supplier in the originating State defaults payment of tax (SGST+CGST collected) and the inter-state supplier is allowed to take credit based on their invoice, the originating State Government will have to transfer the amounts it never received in the tax period in a financial year to the destination States, causing loss to the tune of several crores in each tax period. This renders the whole GST laws and schemes unworkable. Therefore, as contended, the conditions cannot be said to be onerous or in violation of the Constitution. Section 16(2)(c) of the CGST Act is neither unconstitutional nor onerous on the taxpayer. Further, noted that the non-obstante clause in the negative sentence in Section 16(2) of the CGST Act restricts the eligibility under Section 16(1) of the CGST Act for entitlement to claim ITC. Section 16(2) of the CGST Act is the restriction on eligibility and Section 16(4) of the CGST Act is the restriction on the time for availing of ITC. These provisions cannot be read to restrict other restrictive provisions, i.e., Section 16(3) and 16(4) of the CGST Act. If Section 16(2) is read in the manner as contended by the learned counsel for the Petitioners, i.e., once the conditions under Section 16(2) of the CGST Act are met, the timeline provided for availing the ITC under Section 16(4) of the CGST Act is arbitrary and unsustainable and cannot be accepted.
The Honorable Court opined that considering the difficulties in the initial stage of the implementation of the GST regime, its understanding, and compliance, the Legislature effected the amendment and extended the time for filing the return for September to 30th November in each succeeding Financial Year. The amendment is only procedural to ease the difficulties initially faced by the dealers / Taxpayers and hence it must be given retrospective effect therefore – the time limit for furnishing the return for the month of September is to be treated as 30th November retrospectively i.e. in each financial year with effect from July 01, 2017, in respect of the petitioners who had filed their returns for the month of September on or before 30th November, and their claim for ITC should be processed, if they are otherwise eligible for ITC.
Further, liberty has been granted to the Petitioners who can claim the benefit of the two Circulars, namely, Circular No. 183/15/2022-GST dated December 27, 2022, and Circular No. 193/05/2023-GST dated July 17, 2023, to make their claim within one month before the appropriate authority who shall examine the claim of the individual dealer and process the claim.
Author’s Comments:
This is a major blow to the taxpayers contesting the condition of section 16(2)(c)and restriction under section 16(4) of the Act. There is always a presumption of the constitutional validity of legislation, with the burden of showing the contrary, lying heavily upon someone who challenges its validity.
It must be noted that the vires of Section 16(4) of the CGST Act is currently under challenge in the Honorable Supreme Court of India in the case of Shanti Motors v. Union of India [SLP(C) No. 4410 of 2024] alongside other SLPs.
The GST Council in its 53rd meeting has taken cognizance of the relief granted in the present writ petition regarding availment of ITC till 30th November in each financial year starting from 2017 and has recommended the time limit to avail input tax credit w.r.t. any invoice or debit note under Section 16(4) of CGST Act, through any GSTR 3B return filed upto 30.11.2021 for FY 2017-18, 2018-19, 2019-20 and 2020-21, may be deemed to be 30.11.2021.
10. Whether the notifications issued under section 168A due to force majure, extending the period of limitation for issuance of Show Cause Notice valid?
Yes, the Honorable Kerala High Court in the case of Faizal Traders Private Limited v. Deputy Commissioner, Central Tax and Central Excise, Palakkad [WP (C) No. 24810 of 2023 dated February 07, 2024] upheld the Notifications relating to extending the period of limitation due to COVID-19 for issuance of Show Cause Notice by invoking the powers under Section 168A of the Central Goods and Services Tax Act, 2017.The Honorable Kerala High Court observed that the Impugned Notifications were issued by the Central Government based on the recommendations of the GST Council relating to the effect of COVID-19 pandemic as the Department had to work with reduced staff and based on the recommendation, the limitation under Section 73 of the CGST Act was extended relating to FY 2017-2018 for issuance of order in relation to demand with respect to the due date of annual return till September 30, 2023 as per the powers envisaged under Section 168A of the CGST Act, 2017.
The Honorable Court opined that the Government is empowered to extend the limitation period for conducting the proceeding under Section 73 of the CGST Act by issuance of Impugned Notifications under Section 168 of the CGST Act as the COVID-19 is a force majeure event and held that the writ petition is dismissed with respect to challenging the Impugned Notification.
Author’s Comments:
Important to mention that an appeal has been filed against the Impugned Order before the Division Bench of the Honorable Kerala High Court in the case of Faizal Traders Private Limited v. Deputy Commissioner, Central Tax and Central Excise, Palakkad [WA No. 393 of 2024]. The Petitioner in the aforesaid case has prayed for stay on operation of this order. Further, challenge to these notifications based on force-majure is pending before various other High Courts wherein extension of the time period for issuance of SCN has been challenged on the ground that there were no restrictions or challenges posed by COVID-19 and therefore, Impugned Notifications could not be issued by relying upon the powers enumerated under Section 168A of the CGST Act.
The petitioner could have resorted to different line of defense to fetch the desired relief. The reply submitted by the petitioner that input tax credit was omitted to be reported in GSTR-3B is an admission of fact regarding ineligibility of credit. Therefore, the Proper officer was justified in confirming the demand. The concept of “Revenue Neutrality” has no place in the statute.
11. Whether delay in filing Appeal after the prescribed period of limitation be condoned?
Yes, the Honorable Calcutta High Court in the case of Sushil Kumar Hazra v. State of West Bengal [Writ Petition Application No. 11649 of 2024 dated May 16, 2024] condoned the delay in filing the appeal as the petitioner was prevented by medical reasons for filing an appeal on time and held that an appeal can be accepted after one month from the prescribed period of limitation. The Honorable Calcutta High Court observed that the condonation of delay was sought for medical reasons and the Respondent did not disbelieve the medical certificate but concluded the proceedings since the Petitioner could carry on business. There was no reason for the Petitioner not to file the appeal within the prescribed period. The Respondent proceeded to dismiss the appeal by holding that there is no provision laid down under Section 107 of the Central Goods and Services Tax Act, 2017 to accept an appeal after one month from the prescribed period of limitation. The Honorable Court relied on the case of S.K. Chakroborty & Sons [2023 SCC Online Cal. 4759] wherein the Appellate Authority had failed to exercise jurisdiction in refusing to condone the delay despite taking note of the explanation given by the petitioner that he was otherwise prevented by sufficient cause from filing the appeal within the time prescribed. The Honorable Court opined that once the Respondent had accepted the medical certificate, there was nothing on record for the Respondent to conclude since the Petitioner could carry on business despite illness by submission of FORM GSTR-1 and FORM GSTR-3B in due time, the illness could not be a reason for the Petitioner not to file the appeal in time. The Petitioner cannot be penalized for complying with the statutory obligations. Since, on the disclosure made by the Petitioner it was apparent that the Petitioner was prevented by medical reasons from filing the appeal in time, the Respondent ought to have, by considering the same condoned the delay. The discretion exercised by the Respondent in refusing to accept the explanation did not appear to be justifiable, rather arbitrary. Hence, the delay in preferring the appeal was condoned.
Author’s Comments:
If the appeal is filed after the period of condonation permitted in section 107(4) (3+1 months), the Appellate authority does not have statutory authority to condone the delay, not even if the reasons are ample and deserve to be entertained. The appeal must be dismissed for being fatally belated because the Legislature has allowed Appellate authority this much authority and not more.
The Honorable Supreme Court has decided in Singh Enterprises v. CCE 2008 (221) ELT 163 that where the period of limitation is specifically provided in the statute, admitting appeals albeit for ‘sufficient cause’ would render statutory provisions impossible. And Appellate Authority thus being the denuded of authority to condone (due to lapse of maximum time permitted) is barred from examining the cause and condone the delays even for a “good and sufficient” reason.
The Honorable Allahabad High Court in the case of M/s. Yadav Steels v. Additional Commissioner and Anr. [Writ Tax No. 975 of 2023 dated February 15, 2024] and in the case of M/s. Abhishek Trading Corporation v. Commissioner (Appeals) and Anr. [Writ Tax No. 1394 of 2023 dated January 19, 2024] has decided that the Central Goods and Services Tax Act, 2017 is a special statute and a self-contained code in itself and Section 5 of the Limitation Act is not applicable to give power to First Appellate authority to condone the delay beyond statutory time limit allowed.
12. Whether the grounds raised in SCN can be altered if new information emerges?
No, the Honorable Madras High Court in the case of M/s. Vela Agencies v. Assistant Commissioner, State Tax [Writ Petition No. 11030 of 2024 dated April 26, 2023] held that an order should proceed based on the Show Cause Notice issued to the assessee. Further, the demand mentioned in the Show Cause Notice cannot be modified in the order. A fresh Show Cause Notice must be issued to modify the demand. The Honorable Madras High Court observed that the Petitioner was called upon to show cause concerning a sum of INR 8,27,252/-, which was arrived at on an assumption that there was sales suppression. However, the Impugned Order imposed a tax liability of INR 14,97,072/- by comparing the FORM GSTR-3B return and the FORM GSTR-2A and an equal amount of penalty. The Impugned Order did not proceed based on the SCN. It was also noticeable that the Petitioner’s electronic credit ledger was debited to the extent of INR 7,52,047/-. In these circumstances, the Impugned Order cannot be sustained. The Honorable Court held that if the Respondent intended to modify the tax proposal in light of the Petitioner’s reply, a fresh Show Cause Notice should have been issued. Hence, the Impugned Order was set aside by leaving it open to the Respondent to issue fresh proceedings by issuing a fresh Show Cause Notice to the Petitioner, and the present writ petition was disposed of.
Author’s Comments
Section 75(7) of the CGST Act clearly specifies that the “grounds” on which SCN is issued, an Adjudication order has to be passed on the same very “grounds”. Where any notice is issued on certain grounds, those grounds are exhaustive terms of the lis that can neither be expanded in case of deficiencies nor cured in case of defects, in adjudication.
This principle has been decided by the Apex Court in case (a) CCE v. Brindavan Beverages (P) Ltd (213)ELT 487(S) and (b) Oryx Fisheries (P) Ltd v. UOI 2011 (266) ELT 422(SC).
The Honorable Supreme Court has ruled in cases like Commissioner of Customs, Mumbai v. Toyo Engineering Ltd., [(2006) 7 SCC 592], Commissioner of Central Excise, Bhubaneshwar v. Champdany Industries Ltd., [(2009) 9 SCC 466], Commissioner of Central Excise, Chandigarh v. Shital International (2011) 1 SCC 109 and Jitendra Kumar v. State of Uttar Pradesh and Anr. [2023 SCC Online All 2837] wherein it was established that the authorities cannot raise new grounds or arguments that were not part of the SCN.
13. Whether the orders issued under section 129 and 130 are covered under the notification extending time limit to file appeal?
No, the Honorable Allahabad High Court in the case of Tenet Network (P.) Ltd v. GST Council [Writ Tax No. 361 of 2024 dated March 13, 2024] directed the Revenue Department to take into consideration the submission made by the Petitioner that the benefit of Notification No. 53/2023-Central Tax dated November 02, 2023 for extended time period for filing of appeal for orders passed under Section 73 and 74 of the CGST Act, should also be extended to orders passed under Section 129 and 130 of the CGST Act. Notification No. 53/2023-Central Tax dated November 02, 2023 issued by the Central Board of Indirect Taxes and Customs, Ministry of Finance, dated November 2, 2023, wherein the time to file appeal under sub-section (1) of Section 107 of the Central Goods and Services Act, 2017 has been extended till January 31, 2024. However, this notification only deal with the orders passed under Sections 73 and 74 of the Act and does not take into account the orders passed under Sections 129 and 130 of the Act.
14. Whether the Order is valid when reply filed by the taxpayer in response to the discrepancies raised in returns has not been taken into consideration?
No, the Honorable Madras High Court in Perfect Assayers(P.) Ltd. v. State Tax Officer (ST) [W.P. No. 12083 of 2024 dated June 03, 2024) allowed the writ petition and set aside the Order-in-Original when reply filed by the taxpayer in response to the discrepancies raised in returns has not been taken into consideration. The Honorable Madras High Court noted that the Operative part of the Impugned Order is bereft of any proper reasoning as the explanation provided in relation to discrepancies as per the SCN by way of reply filed has not been taken into consideration and has not discussed properly the explanation and recorded the reason for rejecting the petitioner’s explanation in the Impugned Order.
The Honorable Court held that the Impugned Order is set aside and the matter is remanded back for reconsideration.
Author’s Comments
There is an urgent need to understand that the linear comparison of two different data sets is meaningless in GST. Yes, it may raise suspicion but no adverse inference can be made regarding non-payment, short-payment, or evasion of taxes.
In this particular case, Output tax (GSTR-1 not matching GSTR-3) is demanded citing data differences without stating (i) the nature of supply (ii) the taxability of the same (iii) the HSN code (iv) the time of supply, and (v) the place of supply. Without these taxing ingredients, any demand for output tax is arbitrary and illegal.
This principle has been laid by the Honorable Apex Court in the case of Govind Saran Ganga Saran v. CST & Ors. AIR 1985 SC 1041, where it was held that ‘four ingredients’ are required to be present in any proceedings to demand tax.
15. Whether penalty can be imposed under section 74 on ITC wrongly availed butnot utilized?
No, the Honorable Madras High Court in Greenstar Fertilizers Limited v. The Joint Commissioner (Appeals), [W.P.(MD) No.26254 of 2022 dated June 11, 2024], held that penalty cannot be demanded under Section 74 of the Central Goods and Services Act, 2017 where the taxpayer has not utilized the ineligible Input tax credit and the same is lying in the E-credit ledger. The Honorable Madras High Court relied on the case of Aathi Hotel v. Assistant Commissioner (ST) (FAC), and stated that Section 74 of the CGST Act deals with a situation where the credit is availed or utilized by reason of fraud or any willful misstatement or suppression of facts. The Honorable Court noted that the observation of the Revenue department of levying penalty irrespective of the fact whether the credit was used/utilized or merely availed is not sustainable and held that the imposition of penalty is unjustified and closed the petition by imposing a token penalty of Rs. 10,000.
Author’s Comments
For the issuance of SCN under section 74 of the CGST Act, special circumstances of (a) fraud; (b) willful misstatements; or (c) suppression of facts to evade tax must be present. Interestingly section 75(2) of the Act provides a mechanism to downgrade SCN issued under section 74 to section 73 if the ‘special circumstances’ to invoke Section 74 are not proved.
Infraction of the law triggers the imposition of a penalty. Dispensation of a penalty in section 73(5)/74(5) even in the face of an infraction of law places a burden on Revenue to bring the infraction of law beyond mere ‘non-payment of tax or inadmissible claim of credit’. In other words, not every demand will automatically and irrefutably attract a penalty unless it can be shown that there was a necessary ingredient of animus or intent to commit such an infraction of law. Penalty cannot be imposed mechanically.
Important to mention here that the Trans credit is neither the input tax as per Section 2(62) of the CGST Act, 2017 nor the output tax as per Section 2 (82) of the CGST Act, 2017. Therefore, the transition credit claimed and utilized, even if found to be ineligible cannot be demanded under section 73 or 74 of the CGST Act as there is no jurisdiction with the proper officer under such provisions of the law. The transaction credit validly claimed cannot be distributed in the law.
16. Whether the opportunity of a personal hearing is required to be provided where the petitioner did not check the GST portal after cancellation of the GST registration?
Yes, the Honorable Madras High Court in the case of Chettiar Stores v. Deputy State Tax Officer [W.P. No. 6319 of 2024 dated March 13, 2024]allowed the writ petition and opined that the petitioner should be provided an opportunity to contest the tax demand. The Honorable Madras High Court noted that it is admitted that petitioner’s registration was cancelled and a consequence, the petitioner had little reason to monitor the GST portal. The assessment order indicates clearly that the petitioner was not heard although it appears that personal hearings were offered to the petitioner. The Honorable Madras High Court directed that subject to the receipt of the Petitioner’s reply and upon being satisfied that10%ofthe disputed tax demand was received, the Respondent to provide a reasonable opportunity to the Petitioner, including a personal hearing, and there after issue afresh assessment order within a period of two months.
Author’s Comments
Although Section 169 of the CGST Act, 2017 specifies 14 different ways/modes of serving any decision, order, summons, notice, or other communication under the Act, care must be taken by the authorities not to simply pick and choose any option, rather the best possible option must be chosen by which it is mostly likely to reach the intended noticee. The notice or any other communication cannot be termed to be served until it has reached the intended noticee.
This is a welcome judgment and this highlights a major issue being faced by the taxpayers, where Principles of Natural Justice are grossly violated when the opportunity of being heard is not provided. This is expressly given in the statute [Section 75(4) and 126(3)] that the opportunity of being heard must be presented where it is specifically asked by the taxpayer or where an adverse order is contemplated against the taxpayer.
Similar orders were delivered by the Honorable Madras High Court in the case of M/s. SHIDO Pharma v. Assistant Commissioner (ST) [W.P. Nos. 10371 to 10373 of 2023 and W.M.P Nos. 10334 to 10336 of2023 dated April 03, 2023] and in the case of Tvl. Shanthi Vijay Granites v. Assistant Commissioner (ST), Hosur [W.P. No. 615 of 2021 dated October 31, 2023].
17. Whether the Provisional attachment under GST ceases to have effect after the period of one year?
Yes, the Honorable Delhi High Court in Seema Gupta v. Principal Commissioner of GST [W.P. (C) NO. 7387 of 2024 dated May 24, 2024], directed the bank to permit the operation of assessee bank account, which was provisionally attached under Section 83 of Central Goods and Services Tax Act, 2017.The Honorable Delhi High Court noted that order for provisional attachment of the Petitioner’s Bank Account was issued on 27.01.2022 and thereafter no fresh attachment order has been issued and in terms of Section 83(2) of the Act, the provisional attachment ceases to have effect after the expiry of one year from the date, the order is made. Therefore, the Honorable Court directed the bank to forthwith permit the Petitioner to operate the Bank Account.
Author’s Comments
Provisional attachment of property (of taxable person and/or of master mind- section 122(1A)) shall be executed by the Commissioner by an order in Form GST DRC-22. Any person whose property is attached may, within 7 days of the attachment file an objection in Form DRC-22A under Rule 159(5) to the effect that the property attached was or is not liable to attachment, and Commissioner may, after affording an opportunity of being heard, release the property by an order in Form GST DRC-23. Important to highlight that the provisional attachment only places a lien on the said property until expiry of 1 year or till attachment is vacated, whichever is earlier. Note that Provisional attachment is not a form of recovery under section 79 nor the same as confiscation.
18. Whether unsigned SCN and Form GST REG 31 are valid?
No, the Honorable Delhi High Court in the case of Rajkumar Singhal v. Goods and Services Tax Network [W.P. (C) NO. 3773 OF 2024 dated March 14, 2024] allowed the writ petition and set aside the Show Cause Notice and Form GST REG 31 on the ground that the SCN lacks details of the officer issuing SCN and supporting documents and Rule 21A of the Central Goods and Services Tax Rules, 2017 has not been complied with for issuance of Form GST REG 31.
The Honorable Delhi High Court observed that the SCN has been issued on the ground that registration has been obtained by means of fraud and willful misstatement or suppression and noted that as per Rule 21A of the CGST Rules, it requires that the person who is in contravention should be intimated in Form GST REG 31 electronically on the common portal or by sending the communication to the e-mail address provided at the time of registration.
The Honorable Court further noted that Form GST REG 31 has been sent through physical mail which is not prescribed form of service per Rule 21A of the CGST Rules. The Honorable Court opined that Form GST REG 31 issued by the Respondent would not substantiate the case registration cancellation as the said Form issued is not SCN for registration cancellation. The Registration cancellation was proposed in the Impugned SCN issued.
Author’s Comments
Section 29 permits suspension of registration before cancellation of registration granted to taxpayers. Rule 21, 21A and 22 contains the due process in this regard. Cancellation of registration is permitted after following the due process laid down in the legislature and by passing a speaking order in REG-19.
Reference to the decision of Honorable Uttarakhand High Court in Vinod Kumar vs. CST (WP 1553/2021) highlights an important aspect that cancellation of registration entails right to livelihood that springs from right to life as enshrined in Article 21 of the Constitution of India. The Proper officer must proceed cautiously before bringing finality to the cancellation proceedings because anything short of well-reasoned order will bring up the repercussions of infringing the fundamental rights of the taxpayers.
Similar decisions were given by the Honorable Delhi High Court in the case of M/s. Rahul Kumar Jain and Co. v. Union of India &Anr. [W.P. No. 11963 of 2023 dated September 12, 2023] wherein it was observed that the Revenue Department cannot cancel the GST Registration of a taxpayer where specific reasons are not provided.
19. Whether the CA Certificate is required to claim refund of unutilized ITC?
No, the Honorable Delhi High Court in M/s. Svera Agro Ltd. v. Commissioner of Central Tax [W.P. (C) No. 11926 of 2023 dated February 29, 2024], quashed the deficiency memo requiring the assessee to furnish CA certificate for seeking refund of unutilized ITC, since proviso to Rule 89(2)(m) waive the requirements of furnishing CA certificate in case refund is sought for unutilized ITC. The Honorable Delhi High Court observed that the case of the Petitioner pertains to refund of unutilized Input Tax credit covered under Section 54(3) of the CGST Act and noted that Rule 89(2) of the CGST Rules, mandates filing of documentary evidence to establish that refund is due to the Applicant and clause (l) provides that the Applicant is required to furnish CA certificate if the refund exceed Rs.2 lakh. However, the proviso to Rule 89(2)(m) stipulates that, CA certificate is not required to be furnished if Applicant seeks refund of unutilized ITC. The Honorable Court held that the deficiency memos issued to the Petitioner, requiring furnishing a certificate of the CA are not sustainable, and accordingly set aside.
Author’s Comments
Rule 89(2) mandates filing of documentary evidence to establish that refund is due to the applicant and Rule 89 (2)(l) provides that a declaration is to be furnished by the claimant in case amount of refund does not exceed Rs.2 lakh, to the effect that the incidence of tax interest or any other amount claimed as refund has not been passed on to any other person. In cases where amount exceeds Rs.2 lakh, Rule 89(2)(l) mandates for filing of a certificate in Annexure-II of Form GST RFD-01, issued by a Chartered Accountant or Cost Accountant to similar effect.
Provisos to sub-clauses (l) and (m) stipulate, respectively that a declaration or a certificate is not required to be furnished in respect of cases covered clauses (a), (b), (c), (d) or (f) of sub-section (8) of Section 54. The instant case is covered under Section 54 (8) (b), which is one of the excepted provisions in the proviso to 89 (2) (l) and (m).
This is a welcome decision by the Honorable High Court of Delhi and it comes to the rescue of the taxpayer and once again the Rule of Land stands tall against the over-passionate administration. The Revenue Department has to understand that this kind of approach renders the “due process” laid down in the statute “Superfluous, unnecessary and nugatory”, which is impermissible in the law.
20. Whether opportunity should be granted to the Assessee to be heard in person?
Yes, the Honorable Delhi High Court in the case of M/s. Shree Padma Industries v. Union of India [Writ Petition (Civil) No. 6274 of 2024 dated May 17, 2014] remitted back the matter and it was held that that at least one opportunity of being heard should be granted to the petitioner. The Honorable Delhi High Court observed that the Impugned Notice specifically stated that there was an Annexure – B to the Impugned Notice. The Petitioner claimed to have requested the Respondent for a copy of Annexure – B to enable it to file a reply. Neither copy of Annexure B was supplied nor was the Petitioner informed that there is no Annexure-B. It is only for the first time in these proceedings that the Respondents state that there is no Annexure-B and the table contained in the Impugned SCN contains all the details. The Honorable Court noted that the only reason for passing the Impugned Order is that the Petitioner had not filed any reply to the Impugned SCN. The Honorable court ordered that the Respondent shall re-adjudicate the Impugned SCN after giving an opportunity of personal hearing to the Petitioner and shall pass a fresh speaking order in accordance with law within the period prescribed under Section 75(3) of the Act.
Author’s Comments:
This is expressly given in the statute [Section 75(4) and 126(3)] that the opportunity of being heard must be presented where it is specifically asked by the taxpayer or where an adverse order is contemplated against the taxpayer. Approaching a writ court under Article 226 or Article 32 of Constitution of India must be strategic and well thought decision. If the Honorable Court remands back the case for second round of adjudication and the notice is not vacated, then it turns out to be a fruitless exercise unable to fetch the desired relief.
It is not always that suffering an ex-parte order will be disastrous. Most of the times, ex parte orders without the reply by taxpayers, are not sustainable on facts and law.
21. Whether the Proper Officer can form an opinion and pass the order without considering reply of the taxpayer?
No, the Honorable Delhi High Court in case of Mitsubishi Electric India(P.) Ltd. v. Union of India [W.P. (Civil) No. 7443 of 2024 dated May 22, 2024] allowed the writ petition and set aside the Impugned Order for the reasons that the reply dated January 02, 2024 filed by the Petitioner was a detailed reply with supporting documents and the Respondent had to at least consider the reply on merits and then form an opinion. The Honorable court noted that he merely held that the reply is not properly filed/explained without any justification which ex-facie shows that the Respondent did not apply his mind to the reply submitted by the Petitioner. The Honorable Court noted that, if the Respondent was of the view that any further details were required, the same could have been specifically sought from the Petitioner. However, the records did not reflect that any such opportunity was given to the Petitioner to clarify its reply or furnish further documents/details.
The Honorable Court held that the Respondent shall re-adjudicate the Impugned SCN after giving an opportunity of personal hearing and shall pass afresh speaking order in accordance with law within the period allowed underSection75(3)of the CGST Act.
Author’s Comments
This is a welcome decision by the Honorable High Court of Delhi and it comes to the rescue of the taxpayer and once again the Rule of Land stands tall against the over-passionate administration. The Revenue Department has to understand that this kind of approach renders the “due process” laid down in the statute “Superfluous, unnecessary and nugatory”, which is impermissible in the law.
A Similar judgment was delivered by the Honorable Delhi Court in the case of Aarem Tradex (P.) Ltd. v. Sales Tax Officer [W.P. (C) 2767 of 2024 dated February 23, 2024] and in case of Spinclabs (P.) Ltd. v. Commissioner of Delhi Goods and Services Tax [W.P. (C) NO. 4187 OF 2024 dated April 10, 2024] wherein it was held that the Assessment Order is not sustainable when devoid of any proper reasoning.
22. Whether the amount in the CENVAT credit account should be refunded in cash?
Yes, the Honorable Bombay High Court in the case of Combitic Global Caplet Pvt. Ltd. v. Union of India [Writ Petition No. 729 of 2021 dated June 10, 2024] directed the Revenue Authority to direct the sanctioning authority to refund the amount in the CENVAT credit account in cash instead of crediting it to the CENVAT account. The Honorable Bombay High Court observed that, even if, the Petitioner had made a voluntary deposit, that amount has to be shown as CENVAT credit in the account of the Petitioner. In the alternative, it would certainly come under the category “or any other amount paid”. Therefore, either way, the amount paid by the Petitioner, admittedly, has to be refunded.
The Honorable Court held that Section 142(3) of the CGST Act very clearly says “any amount eventually accruing shall be paid in cash”. In the circumstances, the Respondents should have directed the sanctioning authority to refund the amount of duty refundable to the Petitioner in cash instead of credit in the CENVAT account, notwithstanding anything to the contrary contained under the provisions of existing law other than the provisions of sub-section (2) of section 11B of the Central Excise Act. Hence, the amount was to be paid with accumulated interest in accordance with the law.
Author’s Comments:
As per section 142(3) of the CGST Act, every claim for refund filed by any person before, on, or after the appointed day, for a refund of any amount of CENVAT credit, duty, tax, interest, or any other amount paid under the existing law, shall be disposed of in accordance with the provisions of existing law and any amount eventually accruing to him shall be paid in cash, notwithstanding anything to the contrary contained under the provisions of existing law other than the provisions of sub-section (2) of section 11B of the Central Excise Act.
However, where any claim for refund of CENVAT credit is fully or partially rejected, the amount so rejected shall lapse. Further, no refund shall be allowed of any amount of CENVAT credit where the balance of the said amount as on the appointed day has been carried forward under this Act.
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