GST Assessment Challenged for Lack of Pre-Show Cause Notice; Stay Granted on Recovery

Issue: Whether a GST assessment order passed under Section 73 is valid without issuing a pre-show cause notice to the assessee, thereby potentially violating the principles of natural justice.

Facts:

The assessee challenged the tax liability imposed for the period of 2020 under Section 73 of the GST Act.
The assessee argued that a pre-show cause notice was mandatory to allow them to present their defense, but it was not issued.
The assessee claimed that due to the absence of a GST Tribunal, they had no other remedy but to approach the High Court under Article 226 of the Constitution.

Decision:

The court acknowledged the need to examine the issue of the mandatory pre-show cause notice.
The department was asked to file a counter-affidavit in response to the assessee’s claims.
In the meantime, the court stayed the operation and effect of the assessment order and the appellate authority’s order, preventing any immediate recovery of the disputed tax.

Key Takeaways:

This case highlights the importance of following proper procedures, including issuing a pre-show cause notice, before finalizing GST assessments.
The requirement of a pre-show cause notice ensures that the assessee is given a fair opportunity to present their case and defend their interests before a tax liability is imposed.
The court’s decision to stay the recovery of the disputed tax provides interim relief to the assessee while the matter is being examined.
This case also underscores the challenges faced by taxpayers due to the absence of a GST Tribunal, as they are compelled to approach the High Court for relief, even in cases involving procedural issues.

HIGH COURT OF ALLAHABAD

DS Chewing Products LLP

State of U.P.

Ajit Kumar, J.

WRIT TAX No. – 2295 of 2024

DECEMBER 18, 2024

Rahul Agarwal, for the Petitioner. C.S.C., for the Respondent.

ORDER

1. Heard Mr. Rahul Agarwal, learned counsel for the petitioner.

2. It is contended by learned counsel for the petitioner that in the matter of impugned tax liability imposed upon the petitioner in purported exercise of power by the Assessing Authority under Section 73 of the Goods and Services Tax Act, it was mandatory for the authority to have issued a pre show cause notice to enable the petitioner to put up his defence but the same having not been done, there clearly appeared to be violation of the mandatory provisions of law as then stood in the statute in the year 2020. Thus, according to him, the impugned order passed by the Assessing Authority suffered from manifest error of law inasmuch as being de hors the procedure prescribed, it deserves to be set aside. He has placed reliance upon the decision of Division Bench of this Court in the matter of Skyline Automation Industries v. State of U.P. and others being Writ-Tax No. 1512 of 2022 decided on 2nd January, 2023. Paragraph-5 of the said judgment runs as under:

” 5. After hearing learned counsel for the parties, in our opinion, present writ petition deserves to be allowed, as admittedly for initiation of proceedings against the petitioner a notice as provided for under Rule 142(1A) of the Rules in Part A of FORM GST DRC-01A was not issued, which provided for communication of details of any tax, interest and penalties as ascertained by the officer. Any subsequent reminder will not cure inherent defect in proceedings initiated against the petitioner. Similar view has been expressed by the Delhi High Court in Gulati Enterprises’ case (supra) wherein also in identical facts pertaining to a case prior to the amendment of Rule 142(1A) of the Rules with effect from October 15, 2020, the impugned show cause notice was set aside and the matter was remitted back to authority concerned to initiate fresh proceedings in accordance with law. In the case in hand, the only difference being that subsequent thereto an order has also been passed on November 10, 2022, the same will not make any difference. As the initiation of proceedings itself are bad, the order passed consequent thereto will also fall.”

3. Learned counsel for the petitioner further submits that since no Tribunal has been constituted under the Act, petitioner has no other remedy to avail except approaching this Court seeking a writ in exercise of its extraordinary jurisdiction under Article 226 of the Constitution. He further submits that the petitioner has already deposited 10% of tax liability at the stage of first appeal and given an opportunity shall deposit further 10% of tax liability.

4. Matter requires consideration.

5. Let counter affidavit by filed by learned Standing Counsel within four weeks’. Rejoinder affidavit, if any, may be filed within two weeks’ thereafter.

6. List this case on 13th February, 2025.

7. In the meanwhile and until further orders, effect and operation of the order dated 03.11.2020 passed by the Assessing Authority as well as the order dated 05.09.2024 passed by Additional Commissioner (Appeal-III), State Tax, Noida, shall remain stayed provided the petitioner deposits further 10% of tax liability in addition to what he has deposited earlier, within three weeks’ from today.

8. It is made clear that in the event of default in payment of further 10% of the tax liability, as directed above, interim order granted hereinabove shall cease to operate.

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