Assessment Order Beyond Scope of Show Cause Notice Quashed; Treated as Fresh Notice

Issue: Whether an assessment order passed under Section 73 of the CGST Act, 2017, is valid when it traverses beyond the scope of issues raised in the original show cause notice, thus violating principles of natural justice.

Facts:

The petitioner-assessee, a painting contractor, filed returns and paid taxes for the financial year 2019-20.
A show cause notice in Form DRC-01 dated May 16, 2024, alleged improper ITC claims for inward supplies related to a Residential Real Estate Project (RREP).
The petitioner clarified they were not involved in promoting or developing RREP, only painting contracts.
Based on the petitioner’s objection, the ITC claim proposal was dropped.
The respondent passed an assessment order under Section 73, citing discrepancies in turnover declared in the Profit and Loss Account, GSTR-3B, and Form 26AS, along with non-filing of GSTR-9 and GSTR-9C.
The petitioner filed a writ petition, arguing the order exceeded the scope of the original show cause notice, violating natural justice.

Decision:

The respondent agreed to treat the assessment order as a fresh show cause notice.
The court set aside the impugned order and remanded the matter.
The petitioner was directed to file objections within a given time, and a reasonable opportunity of hearing was mandated.

Key Takeaways:

Scope of Show Cause Notice: An assessment order cannot traverse beyond the scope of issues raised in the show cause notice.
Violation of Natural Justice: Exceeding the scope of the show cause notice violates principles of natural justice.
Fresh Show Cause Notice: An assessment order that exceeds the scope can be treated as a fresh show cause notice, allowing the assessee to file objections.
Opportunity of Hearing: The assessee must be given a reasonable opportunity of hearing to address the issues raised in the notice.
Remand for Fresh Adjudication: The matter was remanded to ensure the assessee is given a fair opportunity to respond to the new issues.
The court is reinforcing the need for fairness in the assessment process, and ensuring that tax payers have the chance to respond to all issues raised.

HIGH COURT OF MADRAS

NPS Painting Contractor

State Tax Officer

Mohammed Shaffiq, J.

W.P. No.37746 of 2024
W.M.P. Nos. 40805 and 40807 of 2024

DECEMBER 19, 2024

S. Sathyanarayanan, for the Petitioner., V. Prashanth Kiran, Government Adv. for the Respondent.

ORDER

1. The present writ petition is filed challenging the impugned order dated 30.08.2024, on the limited ground that the impugned order traverses beyond the show cause notice.

2. It is submitted by the learned counsel for the petitioner that the petitioner is a painting contractor (works contract) and is registered under the GST Act. During the relevant period of 2019-20, the petitioner has filed the returns and paid appropriate taxes. However, on verification of the returns filed by the petitioner certain discrepancies were noticed viz.,

(i)

Difference in outward supply.

(ii)

Non filing of GSTR 9 and GSTR 9C.

3. It is submitted by the learned counsel for the petitioner that a show cause notice in Form DRC 01 was issued on 16.05.2024, proposing that the petitioner is doing a Residential Real Estate Project (RREP) and have claimed Input Tax Credit on inward supplies which they are allegedly not entitled to. The petitioner responded to the above proposal vide its reply dated 06.08.2024, wherein it was inter alia submitted that the petitioner is not engaged in promoting / developing of any Residential Real Estate Project instead the petitioner is engaged only in painting contract work. On considering the objection the proposal was dropped. However, while passing the impugned order the respondent found that the Profit and Loss Account during the assessment year 201920 was Rs.5,21,20,532/-, while the outward supply value declared in the GSTR 3B was Rs.3,62,10,936/- and Form 26 AS was received for a sum of Rs.4,36,67,661/-. The difference to the extent of Rs.1,59,09,596/- was treated as suppression, it was also found that the petitioner has not filed annual return in GSTR 9 and GSTR 9C, allegedly in violation of the requirement under Rule 80 of the CGST Rules inasmuch as the taxable value of supplies exceeds Rs.5 Crores.

4. It is submitted by the learned counsel for the petitioner that the difference between the profit and loss account and the returns filed by the petitioner treated as suppression and also non filing of GSTR 9 and GSTR 9C, was never the subject matter of the show cause notice which was issued. It was thus submitted that in respect of these two issues the petitioner never had an opportunity to respond and thus the order is in violation of principles of natural justice and would thus request that they may granted an opportunity to deal with it.

5. In response the learned counsel for the respondent would submit that the petitioner may treat the impugned order as a show cause notice and file its objections within a period of 4 weeks from the date of receipt of a copy of this order. On receipt of such objections order shall be passed after affording the petitioner a reasonable opportunity of hearing.

6. In view thereof, the impugned order is set aside. The petitioner shall treat the impugned order as a show cause notice and file its objections within a period of 4 weeks from the date of receipt of a copy of this order. If any such objections are filed by the petitioner, the respondent shall consider the objections and pass orders after affording the petitioner a reasonable opportunity of hearing.

7. Accordingly, the writ petition stands disposed of. No cost. Consequently, connected miscellaneous petitions are closed.