Delhi Sales Corporation Vs Principal Commissioner of Central Tax & Ors. (Delhi High Court)
The Delhi High Court heard the matter through hybrid mode in a writ petition filed under Article 226 challenging the Order-in-Original dated 21 January 2025 and the corresponding DRC-07 dated 23 February 2025, under which a demand of ₹1,32,467 was raised against the petitioner. The petitioner argued that the entire tax demand had already been paid in August 2022, well before issuance of the show-cause notice dated 7 June 2024. This payment was reflected in a letter dated 31 August 2022 and was also acknowledged by the department in the impugned order, where the petitioner, listed as noticee number 631, had an appropriated amount of ₹2,07,868 recorded against it. During the hearing, counsel for the department confirmed that the petitioner had deposited the tax amount. The department’s stand was that the impugned order involved numerous buyers and recipients connected to 79 fake non-existent firms, and a penalty was imposed accordingly.
The petitioner relied on Section 74(8) of the Central Goods and Services Tax Act, 2017, and submitted that the amount had been paid long before the issuance of the SCN, as evidenced by the fact that the summary SCN in Form GST DRC-01 was issued only on 27 September 2024. The petitioner further argued that Section 74(5) permits payment of tax before issuance of an SCN and provides that once the tax, interest, and 15% penalty are paid prior to the SCN, no further proceedings can be undertaken. The petitioner asserted that no penalty could be imposed once the statutory pre-SCN payment mechanism had been complied with.
The Court reviewed Section 74 and noted the distinction between the mechanisms under Section 74(5) and Section 74(8). Under Section 74(1), the proper officer issues a notice requiring a person to show cause as to why the tax, together with interest and penalty equivalent to the tax, should not be paid. Section 74(3) permits the officer to issue a statement for other periods. Section 74(5) allows a person, before service of a notice, to pay the tax along with interest and a penalty equal to 15% of the tax and to inform the officer in writing. Upon such information, Section 74(6) mandates that no notice under Section 74(1) be issued for the amount paid. Only if the amount paid is insufficient does Section 74(7) allow the officer to issue a notice for the short-paid portion. Separately, Section 74(8) provides that if, after issuance of an SCN, the person pays the tax, interest, and penalty equal to 25% of the tax within 30 days, the proceedings are deemed concluded.
The Court observed that the summons to the petitioner had been issued on 6 July 2022, and in response, the petitioner paid the tax along with interest on 31 August 2022 under Section 73(5). Despite this payment, a demand-cum-SCN was later issued under Section 74(1) on 7 June 2024. The Court noted that even if the entire amount and penalty were considered, the penalty component would amount to only ₹19,000. Given the circumstances, directing the petitioner to pursue appellate remedies would unnecessarily prolong the proceedings without serving any meaningful purpose.
The Court held that if the petitioner deposits 15% of the penalty amount, the show-cause notice would be deemed closed under Section 74(5). The petitioner expressed willingness to deposit the required 15%, and the Court accordingly directed the petitioner to make the payment within four weeks. Upon such payment, the impugned order would stand quashed insofar as it related to the petitioner. The Court clarified that its decision would not apply to any other noticees involved in the broader proceedings. The writ petition, along with pending applications, was disposed of in these terms.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. This hearing has been done through hybrid mode.
2. The Petitioner has filed the present writ petition under Article 226 of the Constitution of India, inter alia, challenging the Order-in-Original dated 21st January, 2025 (hereinafter, ‘the impugned order’) passed by the Office of the Principal Commissioner of Central GST, Delhi North. The Petitioner further challenges the Form DRC-07 dated 23rd February, 2025 by which a demand has been raised against the Petitioner for a sum of Rs. 1,32,467/-.
3. The stand of the Petitioner is that prior to the issuance of the show cause notice dated 7th June, 2024, (hereinafter, ‘SCN’), the entire demand was paid by the Petitioner in the month of August, 2022 itself. This is evidenced by a letter dated 31st August, 2022 issued by the Delhi Sales Corporation which is placed at Annexure P-3 in the present petition. Thus, it is the stand of the Petitioner that though the impugned order relates to 1155 buyers/recipients and 79 fake non-existent firms, insofar as the Petitioner is concerned, if the entire amount has been paid, the impugned order would be unsustainable to the extent of the demands raised against the Petitioner.
4. A perusal of the impugned order would show that the said payment made by the Petitioner is also acknowledged in the impugned order itself at page no.12. On the said page, where noticee no. 631 is the Petitioner, under the head ‘appropriation’ a sum of Rs.2,07,868/- is duly acknowledged to have been received by the Department.
5. Today, Mr. Verma, ld. Counsel for the Department confirms that the tax amount of Rs. 2,07,868/- has been deposited by the Petitioner. It is his submission that there were a large number of buyers and recipients of 79 fake, non-existent firms and hence a penalty was imposed upon the Petitioner.
6. Ld. Counsel for the Petitioner submits that in this case, the summary of the SCN i.e. FORM GST DRC-01 was issued on 27th September, 2024. However, the amount was deposited by the Petitioner in August, 2022 itself. Reliance is also placed by the Petitioner upon Section 74(8) of the Central Goods and Service Tax Act, 2017.
7. Ld. Counsel for the Petitioner also submits that in terms of Section 74(5) of the Central Goods and Service Tax Act, 2017 (hereinafter, ‘the Act’), even prior to issuance of SCN, a person chargeable with tax can pay the same. Hence, it is the case of the Petitioner that no further penalty can be imposed on them.
8. A perusal of Section 74 of the Act would show that there is a fundamental difference in the wording of Section 74(5) and Section 74(8) of the Act. The said provisions contemplate issuance of initially a notice under Section 74(1) of the Act, as to why the taxable amount along with interest ought not to be recovered. Upon such notice being issued along with a statement-cum-demand under Section 74(3) of the Act, the person chargeable with tax has the option to pay the tax along with 15% of the penalty on his own. If the same is done, then no further notice would be served upon such a person.
9. On the other hand, if the amount is not paid and a show cause notice is actually served and thereafter, within 30 days, the tax along with interest and penalty equivalent to 25% is paid, then the proceedings emanating from the show cause notice are deemed to be concluded. The relevant provisions of the Act are extracted hereinbelow:
74. Determination of tax pertaining to the period up to Financial Year 2023-24, not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful-misstatement or suppression of facts.––
(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice.
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(3) Where a notice has been issued for any period under sub-section (1), the proper officer may serve a statement, containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for such periods other than those covered under sub-section (1), on the person chargeable with tax.
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(5) The person chargeable with tax may, before service of notice under sub-section (1), pay the amount of tax along with interest payable under section 50 and a penalty equivalent to fifteen per cent. of such tax on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment.
(6) The proper officer, on receipt of such information, shall not serve any notice under sub-section (1), in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder.
(7) Where the proper officer is of the opinion that the amount paid under sub-section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub-section (1) in respect of such amount which falls short of the amount actually payable.
(8) Where any person chargeable with tax under subsection (1) pays the said tax along with interest payable under section 50 and a penalty equivalent to twenty-five per cent. of such tax within thirty days of issue of the notice, all proceedings in respect of the said notice shall be deemed to be concluded.”
10. In the present case, summons were issued to the Petitioner on 6th July, 2022. In response to the summons issued on 6th July, 2022, the Petitioner paid the tax amount along with interest in terms of a letter dated 31 st August, 2022 under Section 73(5) of the Act.
11. Subsequently, the demand-cum-SCN was issued under Section 74(1) of the Act on 7th June, 2024. In terms of the provisions, even if the entire amount and penalty is taken into consideration, the penalty only comes to Rs.19,000/-. Under such circumstances, relegating the Petitioner to the appellate remedy would unnecessarily delay the matter.
12. Accordingly, if the Petitioner deposits 15% of the penalty amount, the SCN would be deemed to be closed in terms of Section 74(5) of the CGST Act.
13. The Petitioner is willing to deposit the same. Let the Petitioner deposit 15% of the penalty amount within a period of four weeks, subject to which, the impugned order, only qua the Petitioner shall be quashed. It is made clear that this order would not apply to any of the other noticees.
14. Petition is disposed of in these terms. All pending applications, if any, are also disposed of.
