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2022 (3) TMI 490 - HC - GSTValidity of Show cause notice (SCN) u/s 74 - Violation of principles of natural justice - Notice u/s 74(5) was issued but No notice was issued u/s 74(1) - Mandatory requirement to issue notice u/s 74(1) - HELD THAT - What has been proposed by the revenue would be intimated by way of notice under Sub Section 5 of Section 74 of the Act initially to the assessee/dealer, who on receipt of the same may or may not accept and once he accepted there would be a conclusion. However, if he does not accept the proposal sent by the Revenue under Section 74(5) of the Act, the next course of action to be followed is to issue a notice under Section 74(1) of the Act. Under Section 74(1) notice is an independent notice to be issued in DRC-01, whereas the notice under Section 74(5) was to be issued in DRC- 01A. Herein the case in hand, admittedly DRC-01A was issued, thereafter straightaway the respondent revenue proceeded to pass the impugned assessment order - notice under Section 74(1) of the Act, which is also mandatory to be issued before passing the impugned order of assessment has not been issued in this case. In the absence of any such notice, the proceedings, which is culminated in the order of assessment, which is impugned herein, is, no doubt, vitiated. This Court has no hesitation to hold that the impugned order cannot stand in the legal scrutiny and in that view of the matter, these writ petitions are disposed of.
Issues:
1. Violation of principles of natural justice in passing an assessment order under GST Act. 2. Failure to issue mandatory notice under Section 74(1) of the CGST Act before passing the assessment order. Issue 1: Violation of Principles of Natural Justice: The petitioner, a sole proprietary concern engaged in the business of iron and steel scrap, filed returns under the GST Act regularly. However, a notice in Form No. DRC-01A was issued by the Department alleging that the petitioner wrongly availed Input Tax Credit (ITC) on purchases of iron and steel scrap. The petitioner replied to this notice on 19.10.2020, not accepting the proposal. Subsequently, an assessment order was passed under Section 75(1) of the Act, including ITC reversal and penalty. The petitioner challenged this order through a writ petition, claiming a violation of natural justice principles due to the absence of further notices under Section 74(1) of the Act before the final order was made. Issue 2: Failure to Issue Mandatory Notice under Section 74(1) of the CGST Act: During the hearing, the Court highlighted that before reversing an alleged wrong claim of ITC under Section 74(5) of the CGST Act, the petitioner should have been given an option to pay tax and penalty. This required the issuance of a notice in Form DRC-01A under Rule 142(1) of the CGST Rules, followed by a notice in DRC-01 under Section 74(1) of the Act. The absence of the latter notice rendered the proceedings leading to the impugned order vitiated. The respondent admitted that only the DRC-01A notice was issued, failing to comply with the mandatory requirement of issuing a DRC-01 notice under Section 74(1) before passing the assessment order. In conclusion, the High Court held that the impugned order of assessment could not withstand legal scrutiny due to the failure to issue the mandatory notice under Section 74(1) of the Act. Consequently, the Court quashed the assessment orders and remitted the matters back to the respondent for reconsideration. The respondent was directed to issue the necessary DRC-01 notice to the petitioner and provide a fair opportunity for the petitioner to be heard before passing any assessment orders. The writ petitions were disposed of accordingly, with no costs awarded.
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