GST Case Law Compendium – November 2024: Key High Court & SC Rulings

The GST Case Law Compendium – November 2024 Edition provides critical insights into landmark decisions by the High Courts and Supreme Court on various contentious issues under GST. Key highlights include whether the First Appellate Authority can enhance tax demands without adhering to Section 107(11) procedures and if retrospective cancellation of GST registration without reason is valid. Courts deliberated on imposing penalties under Section 129 for discrepancies like incorrect E-way bill addresses in the absence of mens rea and confirmed that demands based on unmentioned SCN requirements are unsustainable. A significant judgment invalidated orders passed against deceased persons and clarified the belated filing of writ petitions citing “vagueness” in SCNs without prior objections. Another issue addressed was whether a single SCN could cover multiple tax periods and if uploading notices under the “View Additional Notices & Orders” tab suffices as legal communication. The compendium further explores the illegality of blocking the Electronic Credit Ledger to create a negative balance and the necessity of detailed orders under Sections 73 and 74 to supplement summary orders. Other notable decisions include the courts’ stance on condoning delays in appeals, initiating confiscation under Section 130 for excess stock, and affording taxpayers additional opportunities post-rectification proceedings. The legitimacy of penalty orders issued beyond statutory timelines and levying interest on availed but unused ITC were also addressed. Additionally, the Delhi HC entertained a petition challenging Circular No. 212/6/2024-GST, which mandates proof of credit reversal for post-sales discounts. Further, courts ruled on ITC eligibility in the absence of genuine transaction proof and maintained that writ petitions against SCNs alleging suppression under Section 74 are permissible. These rulings shape a robust understanding of procedural, substantive, and interpretative aspects of GST law.

GST CASE LAW COMPENDIUM – NOVEMBER 2024 EDITION

1. Whether First Appellate Authority has power to enhance tax demand without following procedure laid down in Section 107(11)?

No, the Honorable Calcutta High Court in the case of Hriday Kumar Das VS State of West Bengal and ORS. (IA No: CAN/1/2024) FMA/1168/2024 dated 24.09.2024 set aside the impugned orders for not following the procedure prescribed in section 107(11) of the Act. The Honorable Court noted that the petitioner filed an appeal against the adjudication order confirming the demand for tax of Rs.2,58,536.80 while imposing a penalty of Rs.41,83,804.72. The appellate authority was required to consider as to whether the tax liability fixed by the adjudicating authority at Rs.2,58,536.80 is correct and whether the penalty is to be levied on the total amount of Rs.41,83,804.72. However, the appellate authority while passing the order has suo-moto enhanced the tax liability on the amount payable by the appellant without following the procedure under Section 107(11) of the Act. Therefore, the order passed by the appellate authority to that extent is not tenable in law and, therefore, liable to be set aside. The order passed by the appellate authority as well as the adjudicating authority is set aside and the matter is remanded to the adjudicating authority for fresh consideration.       The Honorable Court ordered that the appellant shall file a supplementary reply to the allegations to the show cause notice raising all contentions and also dealing with the effect of the closing order dated 22.07.2024 within a period of six weeks from the date of receipt of the server copy of this order after which an opportunity of personal hearing be afforded to the authorized representative of the appellant and fresh orders be passed on merits and in accordance with law.

Author’s Comments

Latin maxim reformatio in peius means a change for the worse. In other words, a person who has appealed against an adverse order cannot be left with greater grief than that suffered earlier. While this principle is expressly admitted in statute law or by judicial authorities, the express provisions of section 107(11) appear to be deliberate departure. In order to be workable, section 107(11) only permits ‘updating the demand’ and not ‘re-adjudication’ by the Appellate Authority. After all, prohibition of reformatio in peius is a part of fair procedure and considered inherent in principles of natural justice. It is not just a procedural guarantee but is a principle of equity itself. Apex Court in Jaswal Neco Ltd. v. CC 2015 (322) ELT 561 elucidates this principle.

Further, the expression in the second proviso of ‘any’ tax, credit, or refund does not contain any indication of such pre-existing demand. Yet, for Appellate Authority to make an altogether new demand would not be possible due to the exclusion of Appellate Authority from the definition of Adjudication Authority in section 2(4).

2. Whether registration can be canceled from retrospective date without assigning any reasons?

No, the Honorable Delhi High Court in the case of Suresh Chand Gupta vs Union of India and ORS (W.P.(c) 11492/2024) dated 21.08.2024 quashed an order canceling GST registration retrospectively due to lack of reason and failure to mention the proposed action in the show cause notice. The Honorable Court noted that the impugned SCN is cryptic and does not clearly set out the reasons as to why the petitioner’s GST registration was proposed to be canceled. It merely reproduces the statutory provision – Section 29(2)(e) of the CGST Act, 2017 – which enables the proper officer to cancel the taxpayer’s GST registration if it is obtained by means of fraud, wilful misrepresentation or suppression of facts. The impugned SCN does not set out the details of the nature of the alleged fraud. It also does not indicate the statement which is alleged to be wilfully misstated or any fact, which is alleged to have been suppressed. The Honorable Court noted that the impugned SCN fails to meet the requisite standards of a show cause notice. The Honorable Court observed that the impugned cancellation order has been passed in violation of the principles of natural justice and therefore, is liable to be set aside and directed the petitioner’s registration to be restored forthwith.

Author’s Comments

Cancellation of registration has far-reaching consequences and given that legislature has specified five (5) explicit delinquencies under section 29(2), there should be no violation of principles of natural justice by canceling registration without following the ‘Due process’ of law.

Section 155 of the CGST Act places the burden to prove “eligibility to credit” only on the taxpayer. For everything else, the burden rests on the Revenue making the allegation and not on the Registered Person-suffering the allegation. The Burden of proof is not discharged by making an allegation. The Burden of proof is discharged only when a mountain of evidence commensurate with the nature of the allegation made is produced and appended to the notice. Allegations of severe wrong-doing require proportionately substantial evidence.  Evidence is not extracts of books of accounts or statements taken on-oath or letters received from another department. Evidence is that which proves something. Solely the fact that the taxpayer was not found at the principal place of business during the departmental visit, without any corroborating evidence or material on record, is the allegation deeply rooted in the incomplete investigation based on only surmise, conjecture and assumptions that is unable to bring home the allegations leveled against the taxpayer.

A Similar decision was given in the case of M/s Jai Guru Sudarshan Enterprises vs. Delhi State Goods and Services Tax & Anr. [W.P.(C) 9673/2024 & CM APPL. 39749-50/2024 dated 18 July 2024] by the Delhi High Court.

3. Whether penalty under Section 129 can be imposed for a discrepancy relating to address mentioned in E-way bill when mensrea does not exist?

No, the Honorable High Court of Allahabad in the case of Uttam Electric Store V. State of U.P WRIT TAX NO. 153 OF 2021 dated 26.07.2024 quashed the impugned orders and allowed the writ petition. The Honorable Court noted that the error in the e-way bill, where the place of delivery was mentioned as “Chandpur (UP)” instead of Aligarh, could have been due to a human error while filling out the form. Further noted that there was no finding by the authorities that the petitioner had “mensrea” (intention) to evade tax. Even during the proceedings before the Court, there was no argument made by the State that the petitioner intended to evade tax. The Honorable Court relied on its earlier decision in the case of Nancy Trading Company Vs. State of U.P. [Writ Tax No. 892 of 2023 dated July 15, 2024], where it was held that in the absence of any specific finding regarding mensrea, proceedings under Section 129(3) of the GST Act should not be initiated. Since there was no finding or pleading regarding mensrea in this case, the impugned orders dated 30.09.2020 and 21.08.2019 could not be legally sustained and consequently, the Honorable Court quashed both the impugned orders and allowed the writ petition.

Author’s Comments

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

In the Author’s considered opinion, all the discrepancies about the movement of goods except the fatal errors like not accounting for transaction of supply in the books of accounts are to be treated as minor discrepancies and no penalty u/s 129 of the GST Act can be imposed. As per Section 129 and Rule 138A of the GST Act, until and unless mensrea exists and is proved, all the errors and omissions have to be termed as non-fatal errors and no penalty under section 129 can be imposed.

A Similar judgment was delivered by the Honorable Allahabad High Court in the case of M/s. Jindal Pipes Limited v. Deputy State Tax Officer [W.P. (MD) No. 17211 of 2024 dated July 25, 2024], wherein the court set aside the orders imposing penalty under Section 129(3) of the UPGST Act on the reason that the defect was of a technical nature only and without any intention to evade tax.

4. Whether demand can be confirmed based on requirements not mentioned in SCN?

No, the Honorable High Court of Madras in the case of Tvl. Slitina Metal Sales LLP V. Assistant Commissioner (ST) W.P. NO. 17112 OF 2024 W.M.P.NOS.18877 & 18879 OF 2024 dated 15.07.2024 set aside the impugned order and remand the matter for reconsideration. The Honorable Court noted that the show cause notice addressed two tax proposals: the first issue was the claim of Input Tax Credit in respect of allegedly ineligible commodities as per sub-section (5) of Section 17 of applicable GST statutes. The second issue was the claim of ITC for supplies from cancelled dealers, who had not remitted tax dues. The Honorable Court observed that for the first issue, the impugned order did not include any findings or discussion, and for the second issue, the tax proposal was confirmed based on the lack of evidence of the movement of goods (such as lorry receipts and weightment slips), which were not mentioned in the show cause notice. The Honorable Court held that the impugned order could not be sustained because it did not address the first issue and required documents that were not specified in the show cause notice. The Honorable Court set aside the impugned order and remanded the matter for reconsideration. The petitioner is allowed to submit an additional reply with relevant documents regarding the movement of goods within fifteen days of receiving a copy of the order and directed the respondent to provide a reasonable opportunity to the petitioner, including a personal hearing, and issue a fresh order within three months from receiving the additional reply.

Author’s Comments

Where self-assessment is challenged, the burden rests on the Revenue making the allegation and not on the Registered Person-suffering the allegation. The Burden of proof is not discharged by making the allegation. The Burden of proof is discharged only when a mountain of evidence commensurate with the nature of the allegation made is produced and appended to notice. Allegations of severe wrong-doing require proportionately substantial evidence.  Evidence is not extracted from books of accounts or statements taken on-oath. Evidence is that proves something. Section 155 of the CGST Act places the burden to prove regarding “eligibility to credit” only on the taxpayer. Once, it is shown that all the conditions of section 16 are fulfilled, the taxpayer’s burden is discharged and the onus shifts on the department to prove their case.

In the instant case, the petitioner could have disputed the allegation stating that being a trader; if the outward supplies are accepted to be genuine then inward supplies have to be genuine. And if inward supplies are in-genuine and outward supplies are accepted to be genuine, then the allegation is deeply rooted in incomplete investigation, surmise, and conjecture only. The Revenue cannot approbate and reprobate on the same issue. The taxpayer must have allowed the revenue to prove their case and in the absence of evidence in support of allegations, allegations are self-defeating.

Further, the adjudicating authority is barred from ‘improving’ the grounds in the notice. Improvement is to alter the quality of grounds without substituting the same. This too comes within the bar under section 75(7). This vice must be balanced with the latitude permitted in section 160(1).

5. Whether Order under GST can be passed against a deceased person?

No, the Honorable Kerala High Court in the case of Benoy Abraham v. State Tax Officer [Writ Petition (C) No. 10362 of 2024 dated July 09, 2024] allowed the writ petition and quashed the order passed against the deceased person and held that an order passed against the deceased person is a nullity. Section 93 of the Central Goods and Services Tax Act, 2017 permits continuance of proceedings against legal heirs but does not authorize culmination of proceedings against a deceased person. Tax authorities are directed to continue proceedings against legal heirs by issuing notice to the petitioner who holds power of attorney for other legal heirs. The Honorable Kerala High Court observed that the provisions of Section 93 of the CGST Acts permits the continuance of proceedings against the legal heirs of a deceased person, in case where the business has been discontinued. However, the said provision does not authorize the continuance and culmination of proceedings against a deceased person. Therefore, Impugned Order is a nullity as rightly contended by the learned counsel appearing for the Petitioner. The Honorable Court held that the present writ petition is allowed and the Impugned Order is quashed. The Respondent was permitted to continue with the proceedings against the legal heirs of the Deceased. Since the Petitioner, who was one of the legal heirs of the Deceased also holds Power Attorney for the other legal heirs, the Respondent may issue notices to the Petitioner for completion of proceedings. Such notice to the Petitioner will be deemed to be proper notice to the other legal heirs as well.

Author’s Comments

All the proceedings against the dead person are non-est in the eyes of the law. 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 any other 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.”

Further, in the considered opinion of the Author, no proceedings can be initiated against the legal heirs of the deceased as there exists no provisions under the GST law that mandates the initiation of such proceedings against the legal heirs of the deceased person. Contrastingly, in the Income Tax Act, 1961 Section 159(2)(b) empowers Revenue to initiate proceedings against the legal heirs of the deceased person. Section 93 of the CGST Act, 2017 covers the situation where liability is determined against the person and such person dies thereafter. Where no liability is determined by following the ‘due process’ of law, there cannot be any proceedings against the legal heirs of the deceased person.

6. Whether a writ petition can be filed belatedly citing “Vagueness” in SCN without raising such grounds before  adjudicating authority?

No, the Honorable High Court of Bombay in the case of Viswaat Chemicals Ltd. & Anr. v. Union of India [Writ Petition (L) No. 27725 of 2024 dated October 14, 2024] dismissed the writ petition and held that the petitioner should have taken all grounds before the adjudicating authority, and if aggrieved, should have availed the alternate statutory remedy of appeal. The Honorable High Court of Bombay noted that the Impugned SCN is not at all vague but rather contains all material particulars, giving the Petitioners a very clear idea about the case that they were required to meet with. Therefore, the Petitioner made no serious grievance of any alleged vagueness in response to the notice. The allegation of vagueness is an afterthought besides being frivolous. It is raised only to avoid resorting to the alternate remedial appeal available to the Petitioners. Further observed that the Petitioners have only tried to “take a chance in the matter”. Upon receipt of the Impugned SCN, the Petitioners filed a detailed reply on April 18, 2024. The reply nowhere seriously alleges any vagueness in the Impugned SCN. The Honorable Court relied on the case of Whirlpool Corporation v. Registrar of Trade Marks, Mumbai and others [(1998) 8 SCC 1 – 1998-VIL-09-SC] wherein the Honorable Supreme Court explained that writ petitions may be entertained against the show cause notices where the Petitioner seeks enforcement of any of the fundamental rights, where there is a violation of the principles of natural justice; or where the order or proceedings are wholly without jurisdiction, or vires of the Act is challenged. The Honorable Court held that in order to institute a petition, the parameters the Honorable Supreme Court laid down in Whirlpool Corporation (supra) shall be satisfied. The writ petition was dismissed with costs of Rs.5,00,000/- (Rupees Five Lakhs) payable by the Petitioners to the Maharashtra Legal Services Authority within four weeks.

Author’s Comments

Not everything that is vague or difficult to comprehend can be called as ‘arbitrary’. Arbitrariness demands a certain minimum level of understanding of the subject before capable of declaring something to be arbitrary. A defense that relies upon arbitrariness bears the burden to demonstrate the exact level of the unintelligibility of the allegation in the notice that goes to the root of the demand and destroys it completely. It is common to find that demand in a notice is arbitrary. It is important to note that allegations in support of a demand may lack some essential ingredients and that may offer grounds to assail the notice on the ground of ‘arbitrariness’. Now section 160(1) can be relied upon in adjudication by the Revenue to overcome this allegation. Arbitrariness must be advanced as a defense with great circumspection because faced with arbitrariness, there remains nothing more to be said by way of defense and arbitrariness ends any further defense. Other ground in addition to arbitrariness is a contradiction-of-sorts.

Section 35 of The Code of Civil Procedure (CPC), 1908 gives discretion to the courts to impose costs for safeguarding false or vexatious claims or defenses before the courts. In the instant case, the Honorable Court came heavily on the petitioner to impose costs of Rs.5,00,000/- to discourage such practices of approaching Writ courts without satisfying the fundamental ‘grounds for maintainability of petition’.

7. Whether a single SCN can be issued for multiple tax periods?

No, the Honorable Madras High Court in the case of M/s. Uno Minda Limited (Seating Division) v. The Joint Commissioner of GST and Central Excise [Writ Petition No. 27776 of 2024 and WMP Nos. 30288 &30287 of 2024 dated September 23, 2024] sets-aside bunching of SCN issued for various tax periods to split the SCNs for each tax period, allowing the petitioner to avail benefit of the Amnesty Scheme proposed to be launched during November 2024, which would waive interest as well as penalty on tax liability. The Honorable Madras High Court observed that there was no willful misstatement made by the Petitioner and hence the Impugned SCN was without jurisdiction and the two-wheeler seats manufactured by the Petitioner are appropriately classifiable under CTH 9401 and not under CTH 8714. The Honorable Court relied on, Titan Company Ltd., v. the Joint Commissioner of GST & Central Excise, Salem [2024- VIL-19-MAD] wherein the Madras High Court sets aside the bunching of SCNs issued for separate years. The Honorable Court noted that the deposit amount made by the Petitioner as tax liability to the extent of Rs.1,24,74,14,950/- shall not be claimed to be refunded. Further, if the Respondent is issuing separate SCN for six assessment years, the Petitioner will not raise the issue of limitation. However, the Petitioner’s intention is that only in the event of separate SCNs being issued, the Petitioner will pay the tax liability and avail of the AMNESTY scheme, which is proposed to be launched by the Respondent from November 2024 and would get the benefit of waiver of interest as well as penalty.

Author’s Comments

This decision is rendered sub silentio for not considering that GST involves matters that transcend financial year where one event, say ITC occurs in one year and its subsequent conditions (claimed as fulfilled and to be tested) fall in another year. In the considered opinion of the Author, these aspects were not considered and this judgment is distinguishable on so many levels to have any force in laying down good precedent in GST. Issuance of a single SCN for multiple years is not something that can be pleaded to highlight how exactly the taxpayer is aggrieved in such a scenario. And decision itself gives liberty for the respondent to issue fresh notices, which is otiose. Further circular 185/17/2022-GST dated 27 December 2022 ensures that no prejudice is caused to the taxpayer and this was never discussed.

8. Whether uploading SCN on “View additional Notices & Orders” tab is sufficient communication of notice?

No, the Honorable Delhi High Court in the case of Bablu Rana V. Proper Officer SGST Ward-24 Zone -1 And Anr WP (C) 9394/2024, CM Nos. 38564/2024 & 38565/2024 dated 11.07.2024 held that Show Cause Notice uploaded under the category of “View Additional Notices and Order” instead of “View Notices and Orders” before the GST portal was redesigned is not sufficient communication of SCN to the petitioner. The Honorable Delhi High Court relied on the case of ACE Cardiopathy Solutions (P.) Ltd. v. Union of Union of India [Neutral Citation No. 2024: DHC:4108-DB] where the court further relied on the case of M/s East Cost Constructions and Industries Ltd. v. Assistant Commissioner (ST) [Writ Petition No. 26457/2023 dated September 11, 2023] wherein the High Court of Madras noticed that communications are placed under the heading of “View Notices and Orders” and “View Additional Notices and Orders”. The Madras High Court had directed the respondents to address the issue arising out of the posting of information under two separate headings. As per the petitioner, the Menu “View Additional Notices and Orders” were under the heading of “User Services” and not under the heading “View Notices and Orders”. Further, the Honorable Court observed that the GST Authorities have addressed the issue and have redesigned the portal to ensure that the ‘View Notices’ tab and ‘View Additional Notices’ tab were placed under one heading but SCN was issued to the petitioner prior to this change. Hence, the Impugned Order was set aside, and the matter was remanded to the adjudicating authority for consideration afresh.

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.

In the Author’s considered opinion, it is immaterial whether the notice was uploaded on the “View Notices and Orders” tab or the “View Additional Notices and Orders” tab. The only aspect to consider is whether or not the intended notice was served to the intended noticee. If not, then the service of SCN must have been disputed and must have allowed the revenue to discharge their burden regarding the service of SCN. Without discharging this elementary burden, ‘due process’ under the law is abused and SCN deserves quietus in judicial review.

9. Whether Revenue Department can block an Electronic Credit Ledger by making a negative balance?

No, the Honorable High Court of Gujarat in the case of HC-PMW Metal and Alloys (P.) Ltd. V. Union of India [R/SPECIAL CIVIL APPLICATION NO.5541 of 2024] dated 20.09.2024 held invocation of Rule 86Afor the purpose of blocking the input tax credit may be justified if the concerned authority or any other authority, empowered in law, is of the prima facie opinion based on some cogent materials that the ITC is sought to be availed based on fraudulent transactions like fake/bogus invoices etc. However, the subjective satisfaction should be based on some credible materials or information and also should be supported by the supervening factor. The Honorable High Court noted that plain perusal of the impugned order under challenge shows that the Revenue Department has made a negative credit in the electronic credit ledger of the Petitioner which otherwise is not permissible and that is permissible is only blocking the availing of the input tax credit to whatever is in a credit of the Petitioner. The Honorable Court relied upon the judgment of the Gujarat High Court in the case of Samay Alloys India Pvt. Ltd. [GST 338/2022 (61) G.S.T.L. 421] wherein it was held that in case where credit is fraudulently availed and utilized, appropriate proceeding under the provisions of section 73 or section 74 of the CGST Act, as the case may be, may be initiated. Further, noted that Rule 86A of the CGST Rules is not the rule that provides for debarring the registered person from using the facility of making payment through the electronic credit ledger. In case the intention was to disallow future debits or credit in an electronic credit ledger, the text of the rule would be entirely different. The Honorable Court stated that Rule 86A of the CGST Rules, empowers the proper officer to disallow debit from the electronic credit ledger for an amount equivalent to the amount claimed to have been fraudulently availed, and if no input tax credit was available in the credit ledger, the rules does not provide for insertion of a negative balance in the ledger. The Honorable Court held that the action on the part of the Revenue Department in passing an order of negative credit was contrary to Rule 86(A) of the CGST Rules.

Author’s Comments

There are only five (5) reasons for which this 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. It is advisable to call for reasons to believe by the Commissioner or any other officer authorized whenever Rule 86A is used for pre-emptive action.

Moreover, this decision by the Commissioner or any other authorized officer is a non-appealable decision, although not specified u/s 121 of the Act.

10. Whether summary of an order issued without accompanying detailed order under section 73 or 74 sustainable?

No, the High Court of Gujarat in the case of MESSRS KISAN MOULDINGS LTD. & ANR. Versus UNION OF INDIA & ORS. (R/SPECIAL CIVIL APPLICATION NO. 12245 of 2024) dated 28.08.2024 quashed the summary orders passed in Form GST DRC -07 without a supporting detailed order under Section 73 or 74 of the Act. The Honorable Court noted that on the basis of the Impugned summary order, recovery proceedings have been initiated and the bank accounts of the petitioner attached. The Honorable Court held that the impugned summary of the order dated 13th August 2019 is based upon ‘NO ORDER’ passed under Section 73 or 74 of the GST Act and therefore, such summary of the order is void ab initio and is accordingly hereby to be quashed and set aside. In view of the quashing of the summary of the order dated 13th August 2019, directed the respondents to pass appropriate order for lifting the attachment of the bank accounts of the petitioner and the petitioner be permitted to operate the Bank Accounts forthwith.

Author’s Comments

Every Adjudication Order must be accompanied by a summary in DRC-07. And summary in DRC-07 operates as a ‘notice for recovery’ in rule 142(6). Summary in DRC-07 without underlying Adjudication Order is non-est in law and any subsequent recovery proceedings initiated basis this is termed as ‘institutionalized theft’ for the want of authority in law.

This is a welcome decision by the Honorable High Court 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.

11. Whether writ petition is maintainable if remedy of statutory appeal not exercised?

No, the Honorable High Court of Madhya Pradesh in the case of M/s Prem Motors Pvt Ltd V. The Union India India And Others Writ Petition No. 16434 of 2024 dated 29.07.2024 dismissed the writ petition stating that the remedy of statutory appeal cannot be avoided or bypassed merely because the assessee is liable to pay 10% of the total recovery amount. The Honorable Court noted that the petitioner has shown a value of Rs.345,78,00,190/- in Table 5(P) of GSTR-9C, while the value shown in Table 5(Q) of GSTR 9-C was Rs.265,36,81,660/- leading to un-reconciled turnover of Rs.80,41,18,590/-. The Honorable High Court observed that all the grounds which are raised in this petition are available to the petitioner to be raised before the Appellate Authority. If the Assessing Officer has not considered the documents filed by the petitioner, the same can be considered by the appellate Authority and if the petitioner succeeds in appeal, the amount so deposited will be refunded to him. The Honorable Court directed that the documents in support of unreconciled figures are liable to be examined by the Assessing Authority or Appellate Authority and not by the writ Court. Hence, the petition is dismissed with the liberty to file an appeal.

Author’s Comments

Another classic example of a petitioner’s strategy gone wrong. 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-9 not matching GSTR-9C) 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.

12. Whether delay in filing an appeal beyond statutory time limit allowed be condoned?

Yes, the Honorable High Court of Rajasthan in the case of M/S Shree Shakti Minerals V. The Commissioner, Central GST, Jaipur &Ors D.B. Civil Writ Petition No. 11763/2024 dated 25.07.2024 allowed the writ petition filed against the order dismissing the appeal filed beyond the condonable period and thereby, directed the statutory appeal vide Order-in-Appeal 425 (RSG) CGST/JDR/2024 is restored to its original file subject to the petitioner firm depositing late fee, penalty and other statutory deposits for entertaining the appeal. The Honorable Court noted that the Joint Commissioner of the CGST referred to the provisions under Section 107 and the circular No.148/04/2021-GST dated 18th May 2021 and formed an opinion that beyond the period of three months with the extended period of a further one month if the appeal under Section 107 of the CGST Act, 2017 is not filed, the same cannot be entertained by the appellate authority. The Honorable Court stated that the powers under Article 226 of the Constitution of India are founded on justice, equity and a good conscience and are exercised for the public good and referred to the decision in “Assistant Commissioner (CT) LTU, Kakinada & Ors. Vs. Glaxo Smith Kline Consumer Health Care Limited” reported in (2020) 19 SCC 681, by the Hon’ble Supreme Court. The language employed in “Glaxo Smith Kline Consumer Health Care Limited (supra)” reflects that the Court has ample powers to condone the delay in preferring the appeal. Therefore, quashed the impugned orders and allowed the petition.

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.

13. Whether confiscation proceedings can be initiated under Section 130 for allegation regarding excess stock?

No, the Honorable Allahabad High Court in the case of S/S Dinesh Kumar Pradeep Kumar V. Additional Commissioner Grade 2 And Another WRIT TAX No. 1082 of 2022 dated 25.07.2024 allowed the writ petition and held that confiscation proceedings under Section 130 of the Central Goods and Services Tax Act cannot be initiated for excess stock solely based on inspection under section 67 of the Act, as the tax demand must be quantified under Section 73 or 74 of the CGST Act. The Honorable High Court observed that the petitioner has contended that only eye measurement was done and based on this, allegation of excess stock is pressed by issuing notice under section 130 read with section 122 pursuant to proceedings carried out under section 67. The Honorable Court referred to its previous judgment in Writ Tax No. 1007 of 2022 (M/s Shree Om Steels Vs. Additional Commissioner Grade-2 and Another), specifically highlighting paragraphs 10 to 13 which reiterated that proceedings under Section 130 are not appropriate when excess stock is involved. The Honorable Court held that the writ petition is allowed and the Impugned Order is quashed as it is unsustainable in the eyes of the law.

Author’s Comments

“Due Process” of law demands, the exercise of specific powers conferred to the Proper officer within specific boundaries of the law. Passion to protect the interest of revenue does not authorize the bypassing of the law.

Section 35(6) of the CGST Act, 2017 covers the situation of shortage of stock. In the considered opinion of the Author, there is no provision under the law to cover the situation of excess stock found. In case of excess stock is found, Section 130 of the CGST Act cannot be invoked as decided in this case. Further, there is no cause-of-action to invoke section 74 of the CGST Act. In case of Excess stock, it can be alleged that goods are received without invoice, in such a situation; action can be taken against the supplier only for contravention of the provisions of this law and not against the recipient. Necessary ingredients to establish levy are not attracted in case of excess stock found, to demand tax under section 74 of the Act.

14. Whether petitioner is required to be afforded another opportunity to contest tax demand after passing of original order and disposing of rectification application?

Yes, the Honorable High Court of Madras in the case of BK& K Chemicals Private Limited V. The Assistant Commissioner (St), Oragadam: Kancheepuram, Chennai & Another W.P. N o.17912 of 2024 and W.M.P.Nos.19650 & 19651 of 2024 dated 25.07.2024 set aside the impugned orders only insofar as defect nos.5 and 6 are concerned and allowed the petition on terms. The Honorable Court noted that the petitioner challenged two orders: Order in Original dated 29.12.2023: the order accepted the petitioner’s explanation for five out of seven defects but confirmed the tax proposals for defects no. 5 and 6 and Order Rejecting Rectification Application dated 27.05.2024: This order rejected the petitioner’s application for rectification submitted with additional documents. The Honorable Court observed that the impugned order in original had duly considered the taxpayer’s reply and the documents submitted. Tax proposals related to five defects were dropped after review. The order noted that the petitioner produced invoice copies and a purchase register but failed to provide additional required documents (MEPZ certificate, agreement copy, LUT copy, purchase order, and BRC statement). Clear reasons were given for the rejection of the claim related to defect no. 5. For defect no. 6, the order acknowledged the petitioner had produced credit note copies. However, the tax proposal was confirmed due to the lack of proof for the reversal of the Input Tax Credit. The Honorable Court found the reasoning for the rejection to be valid. The petitioner filed a rectification application with additional documents on 21.03.2024 but these documents did not justify rectification under Section 161 of the applicable GST laws. However, the Honorable Court decided that a reconsideration of defects nos. 5 and 6 was necessary in the interest of justice. The Honorable Court set aside the order in original only concerning defects nos. 5 and 6. The petitioner was required to remit 20% of the disputed tax demand for these defects within fifteen days of receiving a copy of the Court’s order. The petitioner was also allowed to resubmit all relevant documents within this period.

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 the 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 the Author’s considered opinion, the petitioners could have chosen a different line of defense to vacate the notices. Carrying such adverse orders to the First Appellate Authority could have been a strategic decision because any demand fastened on the assumptions 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 for output tax is arbitrary and illegal. Any order based on assumptions not only violates principles of fairness in adjudication but also imposes an enormous burden on the Appellate Authority to enter into ‘fact finding’. The adverse order is at ‘large’ before the Appellate Authority and anything short of well-reasoned and speaking order; FAA is in no position to reject the pleadings by the appellants.

15. Whether penalty order under Section 129 can be passed after 7 days from service of notice?

No, the Honorable Patna High Court in the case of M/s Kedia Enterprises v. State of Bihar [Civil Writ Jurisdiction Case No. 11021 of 2024 dated September 25, 2024] held that an Order of detention in FORM GST MOV- 06 and the Notice in FORM GST MOV-07 must be in accordance with Section 129(3) of the Central Goods and Services Tax Act, 2017 as per the Circular issued under Section 68 of the CGST Act read with Rule 138 of the Central Goods and Service Tax Rules, 2017. The Honorable Court noted despite the notice having been issued within time, the Petitioner was granted the entire limitation period for filing a reply. The Petitioner did file the reply on the last date, where consequently, the Respondent ought to have passed an Order on the date itself, after considering the reply. The Respondent had delayed the matter, due to which the mandate of Section 129(3) of the CGST Act is not followed. Further opined that insofar as the contention under Section 129(5) of the CGST Act, there is no proceeding concluded as on the date of payment, which is April 24, 2024, since the Impugned Order was passed on April 18, 2024. Hence, the payment was made only to get release of the vehicle, which was against the Impugned Order and not under Section 129(1)(a) of the CGST Act. The Honorable Court held that the Impugned Order cannot be sustained and was set aside. The Court directed the Respondent to refund the amount which was paid by the Petitioner.

Author’s Comments

As soon as the goods or conveyance is seized, an application under section 129(1)(c) must be preferred to the intercepting officer to seek the provisional release by furnishing security in MOV-08 and seek the release in MOV-05.

As per Section 129(3) of the CGST Act, 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 seven days from the date of service of such notice, for payment of penalty under clause (a) or clause (b) of sub-section (1).  If the notice or order is not issued within the specified time limits under section 129(3), then the whole proceedings are tainted and without the authority of law.

A Similar decision was delivered in the case of Pawan Carrying Corporation v. State of Bihar, Assistant Commissioner of State Tax, Siwan Circle [Civil Writ Jurisdiction Case No. 3499 of 2024 dated February 29, 2024] by the Honorable Patna High Court and in the case of Udhayan Steels Private Limited v. Deputy Tax Officer (Int.) &Anr. [W.P.No.34268 of 2022 dated December 28, 2022] by the Honorable Madras High Court.

16. Whether interest can be levied if the ITC is availed but not utilized?

No, the Honorable Calcutta High Court, in the case of M/s Utpal Das v. State of West Bengal [Writ Petition No. 18241 of 2022 dated July 18, 2024] quashed the Orders of the proper officer and the Appellate Authority demanding interest and penalty where the petitioner claimed excess ITC due to clerical mistake but voluntarily debited its electronic credit ledger by filing Form GST DRC-03 to reverse ITC. The Honorable Calcutta High Court noted that the ITC, though wrongfully availed, was not utilized by the Petitioner. Hence, unless, the ITC is wrongfully availed and utilized, in terms of Section 50(3) of the CGST Act interest is not leviable. The said section had been amended by the Finance Act of 2022 with retrospective effect from July 1, 2017. The Honorable Court relied on, Larsen Toubro Ltd. v. State of West Bengal [WPA No. 2654 of 2020, dated December 13, 2022] wherein the coordinate bench had concluded that unless a registered taxpayer avails and utilized ITC, interest cannot be levied. Similar views had been taken by the Honorable High Court of Punjab and Haryana in the case of Deepak Sales Corporation. v. Union of India [CWP No.283 of 2023]. The Honorable Court noted that as per the Rule 142 of the Central GST Rules and Section 73 of the CGST Act, issuance of a notice in form DRC-01A does not constitute the initiation of proceedings in terms of proviso to section 50(1) of the CGST Act. Proceeding under Section 73 or 74 of the CGST Act can initiate with issuance of a show cause notice and not prior thereto. Further noted that Section 50(1) proviso of the CGST Act, read with Section 49 of the CGST Act, read with Rule 86 of the CGST Rules and 87 of the CGST Rules, it would be apparent that payment of interest and penalty can only be made by debiting the electronic cash ledger and not from the electronic credit ledger. The payment was made on March 20, 2021 in the FORM GST DRC-03 by debit of electronic credit ledger, and it was made before the issuance of the SCN in FORM GST DRC-01. Hence, there is no irregularity. Further Section 50(3) of the CGST Act specifically provides that only in cases where ITC has been wrongly availed and utilized that the registered taxpayer shall pay interest on such ITC, wrongly availed and utilized. Therefore, unless the ITC is both availed and utilized, interest cannot be levied on the registered taxpayer.

Author’s Comments

Section 50(3) of the CGST Act, 2017 has been substituted vide section 111 of Finance Act, 2022 applicable w.e.f. 01.07.2017, notified through Notification no.09/2022-CT dated 05.07.2022. Now interest is payable only if ITC is wrongly availed and utilized.

Alternatively, the petitioner could have questioned the jurisdiction of the proper officer to demand only interest and penalty without underlying demand for tax under section 73. Construct of Section 73(1) does not permit demanding only interest and penalty without a primary demand for tax (or credit or refund). While this is a technicality, it cannot be overcome without violating the construct of section 73(1). Notice issued containing only demand for interest or penalty will be defective without primary demand for tax (or credit or refund). Interestingly, in Section 11A of the Central Excise Act or Section 73(1) of the Finance Act ‘deposit-demand-appropriation’ approach was upheld, the same would apply to GST. And any other approach to demand ‘only interest’ would be fatal in GST.

Further, “demand for interest” on arrears is permitted to be recovered under section 75(12) of the Central GST Act read with rule 142B of the Central GST Rules. When a more specific provision of law is prescribed by Legislature to exercise authority, a generic provision cannot be invoked as a near substitute without causing offence to the express language in the statute. This is a gross misapplication of the due process of law.

17. Delhi HC accepts petition challenging vires of Circular No. 212/6/2024-GST requiring proof of credit reversal for post-sales discounts

The Honorable Delhi High Court in the case of M/s. JSW Steel Limited v. DGGI and Ors. [W.P. (C) No. 13769/2024 dated October 01, 2024] issued a notice in the writ petition filed challenging Circular No. 212/6/2024-GST dated June 26, 2024wherein it has been mandated to collect the CA/CMA certificate from the recipient ensuring that the credit has been reversed relating to post-sales discount. The Honorable Delhi High Court noted that the petitioner has challenged the vires of the circular with respect to discounts as per section 15(3)(b) of the CGST Act and the taxability of the Guarantee commission received. The said issues warrant further consideration and directed the Revenue Department to desist from ruling on these issues during the proceeding and therefore, accepted the challenge to Impugned Circular.

18. Whether ITC is eligible in absence of proof of genuineness of transactions?

No, the Honorable Supreme Court in the case of The Additional Commissioner of Commercial Taxes v. M/s Shankara Infrastructure Materials Ltd. [arising out of SLP (Civil) No. 5504 of 2022 dated October 14, 2024] granted leave and allowed the appeal and disposed of the case. The respondent M/s. Shankara Infrastructure Materials Ltd. was duly served notice, however, no appearance was made before the officer. Further, on July 19, 2024, the case was last listed. The Additional Commissioner of Commercial Taxes (petitioner)contended that the case was covered by the judgment of State of Karnataka v. Ecom Gill Coffee Trading Private Limited [Civil Appeal No. 230 of 2023] and alleged that the case is of bogus claim without any actual transactions. Hence, the Assessee cannot claim the Input Tax Credit. Transactions with a non-existing or bogus entities do not satisfy the criterion for claiming ITC. The Honorable Court relied on the case of Ecom Gill Coffee Trading Private Limited (supra) and noted that the burden of proving that the ITC is correct, lies on the purchasing dealer and merely claiming to be a bona fide purchaser is not enough to discharge this burden. The dealer must provide additional evidence and proof of the actual physical movement of goods.

Author’s Comments

Where self-assessment is challenged, the burden rests on the Revenue making the allegation and not on the Registered Person-suffering the allegation. The Burden of proof is not discharged by making the allegation. The Burden of proof is discharged only when a mountain of evidence commensurate with the nature of the allegation made is produced and appended to notice. Allegations of severe wrong-doing require proportionately substantial evidence.  Evidence is not extracted from books of accounts or statements taken on-oath. Evidence is that proves something. Section 155 of the CGST Act places the burden to prove regarding “eligibility to credit” only on the taxpayer. Once, it is shown that all the conditions of section 16 are fulfilled, the taxpayer’s burden is discharged and the onus shifts on the department to prove their case.

In the instant case, the petitioner could have disputed the allegation stating that being a trader; if the outward supplies are accepted to be genuine then inward supplies have to be genuine. And if inward supplies are in genuine and outward supplies are accepted to be genuine, then the allegation is deeply rooted in incomplete investigation, surmise and conjecture only. The Revenue cannot approbate and reprobate on the same issue. The taxpayer must have allowed the revenue to prove their case and in the absence of evidence in support of allegations, allegations are self-defeating.

19. Whether Writ petition is maintainable against SCN issued under Section 74 alleging suppression?

No, the Honorable High Court of Rajasthan in the case of Power And Instrumentation (Guj) Ltd V. The Additional Commissioner Of CGST And CE, CGST Commissionerate, Udaipur, Rajasthan D.B. Civil Writ Petition No. 7766/2024 dated 08.07.2024 disposed of the writ petition filed challenging SCN issued under Section 74 of the Act alleging suppression. The Honorable Court noted that the earlier order dated 25.07.2023, which initially restricted the respondents to proceed under Section 73, was modified by the order dated 24.04.2024. The modification granted liberty to the respondents to proceed under any provision of the CGST Act, not just Section 73. The Honorable Court clarified that the liberty given to proceed under the Act included powers under various provisions of the Act and was not limited to Section 73 alone. The Honorable Court observed that the challenge to the show cause notice under Section 74 on the grounds of it being issued contrary to the Court’s orders was not sustainable. Further, the Honorable Court deemed the petitioner’s argument that the case does not involve suppression or concealment, and thus should not fall under Section 74, as premature. The notice issued under Section 74 was based on prima facie considerations of suppression. The Honorable Court decided that this issue of fact should be addressed through the reply to the notice rather than by a preemptive judicial intervention. The Honorable Court directed that the petitioner should file a reply to the show cause notice within 30 days. The authority must consider the reply with due application of mind and proceed in accordance with the law.

Author’s Comments

To approach the High Court, it must be shown (to the court) that the notice:

(a) deserves intervention of the court to stop the march of injustice;

(b) remedy necessary, cannot be allowed in adjudication or in appeal.

Taxpayers must consider that High Courts, being Courts of Equity, are free to admit a petition seeking relief that alleviates the injustice meted out in the notice after considering that the remedies of adjudication and appeals in the law are not ‘efficacious’ enough to ensure that injustice is not done.

The Central issue involved in the petition must not be something that takes deep, incisive, and prolonged investigation to locate. Injustice must jump out of the pages to demonstrate the ‘maintainability’ of the petition and no other forum is empowered to allow relief required to redress injustice exposed in the petition.

Petition cannot require the High Court to adjudicate. Petition must seek the High Court’s intervention on the ‘grounds urged’ to pass such orders as the Court may consider expedient to prevent miscarriage of justice by misapplication, misinterpretation, and misuse of process of law.

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The content and views stated in this article are solely for informational purposes. It does not constitute professional advice or recommendation in any manner whatsoever. For any feedback and queries write to me at [email protected])