Case Law Details
Tvl. Sri Mathuru Eswarar Traders Vs Deputy State Tax Officer – I (Madras High Court)
Madras High Court has underscored the necessity of effective service for Goods and Services Tax (GST) notices, ruling that tax authorities must resort to physical modes like Registered Post Acknowledgement Due (RPAD) if notices uploaded on the GST portal fail to elicit a response from taxpayers. The court’s directive came in the case of Tvl. Sri Mathuru Eswarar Traders vs Deputy State Tax Officer – I, where it set aside an assessment order passed without providing the petitioner an adequate opportunity to respond.
The petitioner, Tvl. Sri Mathuru Eswarar Traders, a commission agency involved in cotton ginning, sought to quash an assessment order dated December 30, 2024, for the assessment year 2023-2024. The petitioner also sought a re-assessment with a personal hearing and the defreezing of its bank account.
According to the petitioner, a show cause notice dated September 16, 2024, alleging the availment of input tax credit from a non-existent dealer and demanding Rs. 9,67,531.46 (including penalty and interest), was uploaded on the GST portal. The petitioner claimed unawareness of this upload, leading to no reply being filed. Subsequently, the first respondent issued the impugned assessment order, confirming the tax demand. The petitioner argued that the order was passed without proper service of the show cause notice, severely impacting their business due to the levy of interest and penalty and a subsequent bank attachment.
During the proceedings, the petitioner’s counsel expressed willingness to deposit 25% of the disputed tax if the court set aside the order and remanded the matter for fresh consideration, requesting the bank attachment be lifted upon this payment. The learned Government Advocate for the first respondent acknowledged the petitioner’s offer and concurred with the possibility of remanding the case.
Justice S. Srimathy, after reviewing the submissions and material, noted that the show cause notice was indeed uploaded on the GST portal. However, the court observed that the petitioner was not aware of this upload and did not receive a physical copy of the notice. The court found that passing an assessment order without affording a personal hearing and without ensuring the taxpayer’s awareness of the show cause notice was “illegal and unsustainable.”
The court critically examined the practice of solely relying on portal uploads for notice service. It stated that even assuming portal uploads constitute sufficient service, when repeated reminders through the portal receive no response, the officer “ought to have applied his/her mind and explored diligently the possibility of sending notices by other modes prescribed in Section 169 of the GST Act.”
The court emphasized that “mere uploading notice repeatedly without ensuring their receipt by the petitioner cannot be considered as effective service.” It described such compliance as “mechanical” and serving “no useful purpose,” leading only to “multiplicity of litigations.” The court concluded that in the absence of a response from the taxpayer to a portal-uploaded notice, the officer should have dispatched the notice through RPAD to ensure effective service.
Judicial Precedent: While the judgment itself doesn’t explicitly cite specific judicial precedents, the court’s reasoning aligns with the broader principle of “audi alteram partem” (hear the other side), a fundamental tenet of natural justice. Indian courts have consistently held that a fair opportunity to be heard is crucial before adverse orders are passed, and effective communication of notices is a prerequisite for such an opportunity. The court’s emphasis on exploring alternative modes of service, especially when initial methods fail, reflects a judicial trend towards ensuring substantive justice over mere procedural compliance, particularly when a taxpayer’s fundamental right to defend themselves is at stake.
Consequently, the Madras High Court set aside the assessment order dated December 30, 2024, and remanded the matter back to the first respondent for fresh consideration. The court issued the following directions:
- The petitioner is to deposit 25% of the disputed tax within two weeks.
- The petitioner is to file a reply with supporting documents within two weeks thereafter.
- The first respondent is to consider the reply, issue a 14-day notice, and provide an opportunity for a personal hearing before deciding the matter in accordance with the law.
- Upon proof of the 25% tax deposit, the department is to direct the petitioner’s bank to defreeze the account immediately.
The writ petition was disposed of with these observations and directions, with no costs. The connected miscellaneous petitions were also closed. This ruling reiterates the High Court’s stance on ensuring due process and effective communication in tax administration, safeguarding taxpayer rights against mere technical compliance.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
This writ petition has been filed in the nature of a Certiorarified Mandamus, seeking to call for the impugned assessment order on the file of the 1st respondent vide GSTIN 33AXTPR3473R2Z7/2023-2024 dated 30.12.2024 for the assessment year 2023-2024 and quash the same as illegal and devoid of merits and direct the respondents to redo the assessment proceedings by providing an opportunity of personal hearing for the year 2023-2024 and further direct the 3rd respondent to defreeze the bank account (A/C No. 7192870315) INDIAN BANK.
2. The petitioner is a Commission Agency, doing cotton ginning business and it is a registered Taxpayer under the GST Law with GSTIN No.33ASYPR3473R2Z7. The petitioner is regularly complying with the GST regulations and filing monthly returns. While so, the petitioner was served with a show cause notice dated 16.09.2024 alleging that input tax credit has been availed from non-existent dealer who is not doing any business from the place for which registration was obtained and directed the petitioner to pay tax of Rs.9,67,531.46 including penalty and interest. According to the petitioner, since it was uploaded in the GST Portal, the same went unnoticed by the petitioner and hence, it could not file its reply. Thereafter, the 1st respondent passed the impugned order dated 30.12.2024, confirming the tax demanded in the show cause notice.
3. According to the petitioner, the impugned order was passed without even issuing a show cause notice on him by merely uploading the same in the respondents’ GST portal. According to the petitioner, the levy of interest and penalty severely disrupted his business operations and therefore, the petitioner, left with no other alternative, filed the above writ petition.
4. It is submitted by the learned counsel for the petitioner that the petitioner is ready and willing to deposit 25% of the disputed tax, in the event, this Court deems it fit to set aside the impugned order and remand it to the Authority for fresh consideration. He would further submit that there is bank attachment and the same may be lifted, subject to the payment of 25% of the disputed tax. Hence, he prayed for appropriate directions.
5. The learned Government Advocate (T) for the first respondent fairly submitted that since the petitioner had voluntarily come forward to deposit 25% of the disputed tax, the prayer sought for by the petitioner may be considered.
6. Considering the above submissions made by the learned counsel on either side and upon perusal of the materials, it is evident that the impugned show cause notice was uploaded on the GST Portal Tab. According to the petitioner, the petitioner was not aware of the issuance of the show cause notice issued through the GST Portal and the original of the said show cause notice was not furnished to him. In such circumstances, this Court is of the view that the impugned assessment order passed without affording any opportunity of personal hearing to the petitioner, confirming the proposals contained in the show cause notices is illegal and unsustainable.
7. Assuming that sending notices by uploading in the portal is sufficient service, when the Officer who was sending the repeated reminders, received no response from the petitioner, he ought to have applied his/her mind and explored diligently the possibility of sending notices by other modes prescribed in Section 169 of the GST Act. Mere uploading notice repeatedly without ensuring their receipt by the petitioner cannot be considered as effective service. Such mechanical compliance does not serve any useful purpose and the same will only lead to multiplicity of litigations, wasting not only the time of the Officer concerned, but also the precious time of the Appellate Authority / Tribunal and this Court as well. Thus, when there was no response from the tax payer to the notice uploaded in the portal, the Officer should have sent the notice through RPAD, which would have serve the purpose.
8. Therefore, I find that there was a failure of effective opportunity to the petitioner to reply to the show cause notice. Hence, I am inclined to set-aside the impugned order with the following directions:-
i. The impugned order passed by the first respondent dated 30.12.2024 is set aside.
ii. Consequently, the matter is remanded to the first respondent for fresh consideration.
iii. The petitioner is directed to deposit 25% of the disputed tax, which the petitioner has voluntarily come forward to make, within a period of two weeks from the date of receipt of a copy of this order.
iv. Thereafter, the petitioner is directed to file a reply along with supportive documents within a period of two weeks.
v. Thereupon, the first respondent is directed to consider the reply and issue a clear 14 days notice affording an opportunity of personal hearing to the petitioner and decide the matter in accordance with law.
vi. Upon production of proof with regard to the payment of 25% of the disputed tax made by the petitioner, the first respondent-Department is directed to issue appropriate direction on the petitioner’s banker towards de-freezing of the petitioner’s bank account forthwith.
9. With the above observations and directions, this Writ Petition is disposed of. No costs. Consequently, connected Miscellaneous Petitions are closed.
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