2023 (4) TMI 497 - HC - GST

Search and seizure - input tax credit - contention of the petitioner is that the search and seizure memo was not in accordance with law, however, the said issue is not agitated before this Court and no relief to that extent has been sought. HELD THAT - In terms of the provisions of the GST Act, the tax is leviable on the supply of goods as specified under Section 7 and the said tax is to be paid at the time of supply of goods, which is clarified under Chapter IV of the UPGST Act. The value on which the tax is to be levied flows from Section 15 of the Act, which mandates the manner in which the value of the taxable supply is to be done. Chapter IX of the said Act prescribes for filing of the returns by the assessee and Chapter X mandates the payment of tax, interest, penalty and other amounts on the basis of the returns filed as prescribed under Chapter IX of the said Act. Chapter XIV of the Act confers the power on the authorized officers with regard to the inspection, search, seizure and arrest and Chapter XV prescribes for demands and recovery in respect of the tax not paid or short paid or erroneously refunded or input tax credit wrongly availed - It is clear in the present case that department has taken recourse to Section 74 for assessing the demand of tax and penalty leviable. For taking recourse to Section 74, it is essential that along with search and seizure report, certain specific averment is made with regard to the supply of goods and the non-payment of tax coupled with the fact that the same should be by reasons of fraud, willful misstatement or suppression of facts and an intent to evade the tax. The adjudicating authority clearly erred in assessing and quantifying the demand and levying the penalty by taking recourse to some guidelines issued by the Income Tax Authorities which is impermissible while determining the tax liability under Section 74. The order of the appellate authority is even further bad in law as it discloses no reason, whatsoever for assessing the tax and quantifying the liability. While on the one hand, the appellate authority disapproved the manner in which the adjudicating authority had assessed and quantified the demand of tax and penalty, in the same breath, he proceeds to quantify the tax and imposed penalty without disclosing any reasons whatsoever. On the perusal of the adjudicating authority s order as well as the appellate order, the manner in which the demand has been raised and quantified is not in consonance with the mandate of Section 74 and thus on the ground alone, impugned appellate orders as well as the adjudicating authority s orders are liable to be quashed. Petition allowed.

Summary

Issues Involved:
The judgment involves challenges to orders passed under Section 74 of the UPGST Act, relating to the demand of tax and penalty against the petitioner, based on a search and seizure conducted at the business premises.

Judgment Details:

Issue 1: Search and Seizure Process
The petitioner, a partnership concern registered with the GST Department, faced inspection and seizure of stock at their business premises. The petitioner objected to the manner of search and seizure, raising concerns about the legality of the process. However, the petitioner did not seek relief on this specific issue before the Court.

Issue 2: Show Cause Notice and Assessment
The respondent issued a show cause notice under Section 74 of the UPGST Act, referring to adverse material found in the SIB report. The petitioner argued that despite references to the SIB report in multiple notices, the actual report was never supplied to them. The assessment of tax and penalty was based on the SIB report and some ex-parte submissions by the department, leading to quantification of the demand against the petitioner.

Issue 3: Legal Basis for Assessment
The petitioner contended that the assessment was conducted using best judgment assessment procedures, which are not prescribed under Section 74 of the UPGST Act. The department's reliance on guidelines issued to Income Tax Authorities for assessment was challenged as impermissible under the GST Act.

Issue 4: Appellate Authority's Decision
The appellate authority partly allowed the petitioner's appeal, reducing the tax and penalty amount without providing clear reasons for the adjustment. The petitioner argued that the appellate order failed to justify the revised tax and penalty figures, raising concerns about the lack of reasoning in the decision-making process.

Conclusion:
The Court noted discrepancies in the assessment process under Section 74 and found that the quantification of tax and penalty did not align with the statutory requirements. As a result, the Court quashed the orders challenged in the writ petitions, directing the refund of any deposited amounts to the petitioner upon application.