N.N. Wires And Steels Private Limited Vs Assistant Commissioner State Tax (Chhattisgarh High Court)
The Chhattisgarh High Court considered a writ petition challenging a summary show cause notice issued under Section 74(1) of the Central Goods and Services Tax Act, 2017/Chhattisgarh Goods and Services Tax Act, 2017, the subsequent recovery order dated 01.09.2020, and the bank attachment order dated 02.02.2021. The petitioner sought directions for issuance of a detailed show cause notice along with relied upon documents (RUDs), an opportunity to submit a defence, and restraint against further action pursuant to the impugned proceedings.
The petitioner contended that the notice issued under Section 74(1) was not in accordance with the statutory requirements because it failed to specify how the petitioner had failed to pay tax properly. It was further submitted that the department did not supply the relevant documents despite the petitioner’s request, thereby depriving the petitioner of an effective opportunity to defend the proceedings.
The respondents raised a preliminary objection regarding maintainability, contending that an efficacious alternative remedy of appeal was available under Section 107 of the CGST Act, 2017. On merits, the respondents submitted that the petitioner had purchased goods from non-existing dealers and claimed bogus input tax credit from bogus dealers. It was further submitted that although the petitioner had applied for relevant documents, the petitioner failed to participate in the subsequent proceedings, resulting in the recovery order and bank attachment.
The Court reproduced Section 74 of the CGST Act, 2017, dealing with determination of tax not paid, short paid, erroneously refunded, or input tax credit wrongly availed or utilised by reason of fraud, wilful misstatement, or suppression of facts. Upon examining the provision, the Court observed that the proper officer is required to specify reasons in accordance with Section 74. However, in the impugned notice, the authority had merely reproduced the text of Section 74 instead of specifying the reasons forming the basis of the proposed action.
The Court also noted that it was undisputed that the petitioner had approached the department seeking supply of relevant documents, but those documents were not furnished. Consequently, the petitioner could not effectively participate in the subsequent proceedings.
The Court relied upon the decision of the Supreme Court in Ritesh Tewari and Another v. State of Uttar Pradesh and Others [(2010) 10 SCC 677], wherein it was held that an order which is bad at its inception cannot be validated by subsequent action and that an illegality at the foundational stage cannot be cured later. Referring to this principle, the High Court observed that where the statutory requirements have not been complied with at the foundational stage, such defects cannot be rectified in appellate or revisional proceedings.
Applying this principle, the Court held that since the notice under Section 74 had not been issued strictly in accordance with law and the relevant documents had not been supplied to enable the petitioner to defend the case, the subsequent recovery order and bank attachment order could not be sustained. Accordingly, the writ petition was allowed, and the impugned notice, recovery order, and attachment order were quashed.
The Court remitted the matter to the competent authorities with liberty to issue a fresh notice under Section 74 of the CGST Act, 2017 containing specific reasons. It further observed that, thereafter, the competent authorities would be at liberty to take an appropriate decision in accordance with law, if so advised.
FULL TEXT OF THE JUDGMENT/ORDER OF CHHATTISGARH HIGH COURT
1. The petitioner has filed this petition seeking the following relief(s):-
“10.1. Appropriate Writ(s) and/or order(s) and/or direction(s) to the Respondents to serve upon the Petitioner with detailed Show cause Notice with copies of RUD’s in accordance with 74(1) of Chhattisgarh Goods and Services Tax Act, 2017 read with 74(1) of Central Goods and Services Act, 2017 and allow them reasonable opportunity to submit their defense reply with a reasonable opportunity of being heard;
10.2. Appropriate Writ(s) and/or order(s) and/or direction(s) restraining the Respondent from taking any action in pursuance of impugned Summary of Show Cause Notice issued in Form GST DRC-01 bearing Ref. No. ZD220620013571 dated- 26.06.2020 (Annexure-P/1) and/or matters connected thereto till the pendency of this writ petition before this Hon’ble Court;
10.3. Appropriate Writ(s) and/or order(s) and/or direction(s) restraining the Respondent from taking any action in pursuance of Order dated-01-09-2020 (Annexure-P/4) and/or matters connected thereto till the pendency of this writ petition before this Hon’ble Court;
10.4. Appropriate Writ(s) and/or order(s) and/or direction(s) restraining the Respondent from taking any action in pursuance of Letter bearing No. 316, dated-0202-2021 (Annexure-P/5) ander matters connected thereto till the pendency of this writ petition before this Hon’ble Court;
10.5. pass any order(s), direction(s), writ(s) or any other relief or relief(s) this Hon’ble Court deems fit and proper in the facts and circumstances of the case and in the interest of justice:,
10.6. Allow the writ with cost;
10.7. Grant Ad-interim reliefs in terms of prayer under Para. 10.2, 10.3 and 10.4 above. And for this act of kindness, the Petitioner shall, as in duty bound, every pray.”
2. The instant petition has been directed against the notice issued under Section 74 (1) of the CG GST Act, 2017 (for short, the Act, 2017) dated 26.06.2020 (Annexure P/1), subsequent order of recovery issued on 01.09.2020 (Annexure P/4) and order of attachment of bank account dated 02.02.2021 (Annexure P/5).
3. Learned counsel appearing for the petitioner would submit that the notice under Section 74 (I) of the Act, 2017 was not issued in accordance with the provisions of said Section, therefore, said notice, subsequent notice and order are bad in law. He would contend that respondent authorities were under obligation to demonstrate as to how the petitioner failed to pay tax properly. He would pray to allow this petition.
4. On the other hand, Ms. Jain, learned counsel appearing for the respondents would submit that there is efficacious alternative remedy to prefer an appeal under Section 107 of the Act, 2017, therefore, this petition is not maintainable. It is also contended that the petitioner purchased goods from the non-existing dealers and claimed bogus ITC from bogus dealers and when these facts were brought into the notice of the respondent authorities, impugned notice & order were issued. She would submit that though the petitioner applied for relevant documents from the department, but failed to participate in the further proceedings, therefore, the order of recovery and order of attachment were passed against him; thus, she would pray that this petition deserves to be dismissed.
5. Section 74 of the Act, 2017 is reproduced as under:-
Section 74. Determination of tax 2[, 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 willful-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.
(2) The proper officer shall issue the notice under subsection (1) at least six months prior to the time limit specified in sub-section (10) for issuance of order.
(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.
(4) The service of statement under sub-section (3) shall be deemed to be service of notice under sub-section (1) of section 73, subject to the condition that the grounds relied upon in the said statement, except the ground of fraud, or any wilful-misstatement or suppression of facts to evade tax, for periods other than those covered under subsection (1) are the same as are mentioned in the earlier notice.
(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.
(9) The proper officer shall, after considering the representation, if any, made by the person chargeable with tax, determine the amount of tax, interest and penalty due from such person and issue an order.
(10) The proper officer shall issue the order under subsection (9) within a period of five years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within five years from the date of erroneous refund.
(11) Where any person served with an order issued under sub-section (9) pays the tax along with interest payable thereon under section 50 and a penalty equivalent to fifty per cent. of such tax within thirty days of communication of the order, all proceedings in respect of the said notice shall be deemed to be concluded.
2[(12) The provisions of this section shall be applicable for determination of tax pertaining to the period up to Financial Year 2023-24.]
Explanation 1.- For the purposes of section 73 and this section,-
(i) the expression “all proceedings in respect of the said notice” shall not include proceedings under section 132;
(ii) where the notice under the same proceedings is issued to the main person liable to pay tax and some other persons, and such proceedings against the main person have been concluded under section 73 or section 74, the proceedings against all the persons liable to pay penalty under 1[sections 122 and 125] are deemed to be concluded.
Explanation 2.- For the purposes of this Act, the expression “suppression” shall mean non-declaration of facts or information which a taxable person is required to declare in the return, statement, report or any other document furnished under this Act or the rules made thereunder, or failure to furnish any information on being asked for, in writing, by the proper officer.
*Enforced w.e.f. 1st July, 2017.
1. Substituted (w.e.f. 1st January, 2022 vide Notification No. 39/2021-C.T., dated 21st December, 2021) by s. 113 of The Finance Act, 2021 (No. 13 of 2021) dated 28th March, 2021 for “sections 122, 125, 129 and 130”.
2. Inserted by section 137 of The Finance Act (No. 2) Act, 2024 No. 15 of 2024 dated 16.08.2024.
6. Bare perusal of the above quoted provision would make it clear that the authority concerned has to specify reasons in accordance with Section 74 of the Act, 2017, but in the notice impugned, the authority concerned reproduced the provision of Section 74 of the Act, 2017. It is also not in dispute that the petitioner approached the department to supply relevant documents but those documents were not provided, therefore, the petitioner could not participate in the subsequent proceedings.
7. Hon’ble Supreme Court in the matter of Ritesh Tewari and Another v. State of Uttar Pradesh and Others [(2010) 10 SCC 677] in paragraph 32 has held as under :-
“32. It is settled legal proposition that if an order is bad in its inception, it does not get sanctified at a later stage. A subsequent action/development cannot validate an action which was not lawful at its inception, for the reason that the illegality strikes at the root of the order. It would be beyond the competence of any authority to validate such an order. It would be ironical to permit a person to rely upon a law, in violation of which he has obtained the benefits.”
8. From bare reading of the above quoted judgment, it is apparent that if something is done illegally from the very beginning, it can not become legal later on. In other words, if provisions of law have not been complied with at the foundational stage, it can not be rectified at appellate stage or revisional stage.
9. As the notice under Section 74 of the Act, 2017 was not issued strictly in accordance with law and documents were not supplied to the petitioner to defend his case, subsequent order of recovery and attachment of bank account cannot be held valid. Accordingly, this petition is allowed and the impugned notices & /attachment order are hereby quashed.
10. The matter is remitted back to the authorities concerned to issue fresh notice under Section 74 of the Act, 2017 with specific reason and thereafter the competent authorities would be at liberty to take proper decision, if so advised.
