Assessment Order Based Solely on Rule 96(10) Declared Ultra Vires Is Legally Unsustainable and Quashed

Assessment Order Based Solely on Rule 96(10) Declared Ultra Vires Is Legally Unsustainable and Quashed

Issue

Facts

• Challenge to Orders: The petitioner filed a writ petition challenging an order-in-original (Ext.P1) and consequential summary demand (Ext.P2) issued under Section 74 of the CGST Act.
• Basis of Assessment: The tax demand and assessment were finalized by the adjudicating authority solely on the basis of Rule 96(10) of the CGST Rules, without any independent statutory ground.
• Ultra Vires Ruling: Rule 96(10) of the CGST Rules had already been struck down and declared ultra vires Section 16 of the IGST Act by judicial precedent.
• Lack of Independent Grounds: Upon perusal of the record, the High Court observed that the entire adjudication rested strictly on the application of the invalidated Rule 96(10).

Decision

• Assessment Unsustainable: Held that since the assessment was finalized in light of Rule 96(10), the established legal position declaring the rule ultra vires Section 16 of the IGST Act applies directly to the case.
• Demand Lacks Foundation: The tax demand and consequential summary issued under Section 74 lacked any valid legal foundation once the underlying rule was held invalid.
• Orders Quashed: The High Court allowed the writ petition and quashed both Ext.P1 (order-in-original) and Ext.P2 (summary demand) in favor of the assessee.

Key Takeaways

• Invalidity of Rule 96(10) Actions: Any tax demand or assessment under Section 74 resting strictly on Rule 96(10) of the CGST Rules is legally void following its declaration as ultra vires Section 16 of the IGST Act.
• Impact of Striking Down a Rule: Once a statutory rule is declared ultra vires, pending or past assessments founded solely on that rule lose their legal force and cannot be sustained.
• Requirement of Independent Grounds: The Revenue cannot maintain a demand under Section 74 without an independent statutory basis outside of an invalidated procedural rule.