2023 (9) TMI 1179 - HC - GST

Validity of garnishee proceeding - delay on the part of petitioner in payment of GST dues - no notice for demand of tax issued - violation of principles of natural justice - HELD THAT - Admittedly there is a delay on the part of petitioner in payment of GST dues. It is also not in dispute that, the petitioner paid the GST dues belatedly, however along with interest as per it s own calculation. It is noteworthy to mention that the petitioner had addressed letter dated 28.06.2023 to the respondent authorities requesting three months time for payment of interest owing to financial crisis and acute shortage of working capital. The petitioner addressed another letter dated 25.07.2023 disputing the interest liability arrived at by the respondents and further requested the authority to demand interest from due date of filing of GSTR 3B Return till the date of deposit of GST to Electronic Cash Ledger till the issue is decided by Hon ble High Court. A perusal of Sections 73, 74 and 79 of CGST Act and Rules, 2017 indicate that before issuing garnishee proceedings under Section 79, the authorities shall issue notice to the assessee in terms of Section 73(1) and provide an opportunity to the assessee to submit his reply to the notice and only thereafter, the authorities shall proceed further by taking into consideration the reply / explanation provided by the assessee. In the case of VISION DISTRIBUTION PVT. LTD. VERSUS COMMISSIONER, STATE GOODS SERVICES TAX ORS. 2019 (12) TMI 1048 - DELHI HIGH COURT , Hon ble Delhi High Court held that the taxpayer cannot be made to suffer for no fault of his own, on account of failure of the Government in devising smooth GST systems providing of debiting the Electronic Cash Ledger without filing of GSTR 3B Return. In the present case, admittedly, the respondent authorities have not issued any notice in terms of Section 79(1) of CGST Act, 2017 to the assessee to submit his reply/explanation to the demand notice for delay payments. Instead, the respondent Authorities have straight away issued garnishee proceedings under Section 79 of CGST Act, 2017, by which the petitioner s bankers were directed to debit the alleged tax dues, which is referred to 73 of the CGST Act, 2017. There is considerable amount of force in the contention of the petitioner that without providing an opportunity of clarifying / explaining, the respondents authorities have calculated that the petitioner is liable to pay a sum of Rs. 1,28,97,355/- on account of late filing of GSTR 3B Return for the period July, 2017 to January, 2023 and had issued the impugned garnishee notices under Section 47(2) of the CGST Act, 2017 - respondent authorities are required to issue notice to the assessee seeking their response, clarifications for non-payment of tax, interest on late payment prior to passing garnishee proceedings under Section 79(1) of the CGST Act, 2017. Therefore, the action of respondent authorities in issuing the proceedings under section 73(1) of CGST Act, 2017 are in clear violation of principles of natural justice. Petition allowed.

Summary

Issues Involved:
1. Legality of garnishee proceedings under Section 79 of the CGST Act, 2017.
2. Requirement of issuing notice under Section 73(1) of the CGST Act, 2017 before garnishee proceedings.
3. Calculation and payment of interest on delayed GST payments.

Summary:

Issue 1: Legality of Garnishee Proceedings under Section 79 of the CGST Act, 2017

The petitioner, a Public Limited Company engaged in cement manufacturing, faced garnishee proceedings initiated by the respondent authorities under Section 79(1)(c) of the CGST Act, 2017. The garnishee orders were issued to HDFC Bank and Axis Bank, directing them to debit Rs. 1,28,97,344/- from the petitioner's accounts. The petitioner argued that these proceedings were arbitrary, illegal, and violated fundamental rights as they were issued without prior notice or opportunity for a hearing, contrary to the principles of natural justice.

Issue 2: Requirement of Issuing Notice under Section 73(1) of the CGST Act, 2017

The petitioner contended that the respondent authorities failed to issue a notice under Section 73(1) of the CGST Act, 2017, which mandates providing an opportunity for the assessee to respond before initiating recovery proceedings. Citing various judgments, including Mahadeo Constructions Co vs Assistant Commissioner and Assistant Commissioner of CGST & Central Excise vs Daejung Moparts Pvt. Ltd., the petitioner emphasized that the issuance of a show-cause notice is a prerequisite for recovery actions. The court concurred, stating that the authorities must issue a notice and provide an opportunity for the petitioner to clarify or explain before passing garnishee proceedings.

Issue 3: Calculation and Payment of Interest on Delayed GST Payments

The petitioner admitted to delayed GST payments due to financial crises but claimed to have paid the dues along with interest calculated at 18% per annum as per Section 50 of the CGST Act. The petitioner disputed the interest liability calculated by the respondents, arguing that it should be computed from the due date of filing GSTR 3B Return till the deposit of GST to the Electronic Cash Ledger. The respondent authorities, however, maintained that the petitioner's amounts were still lying in their account and had not been transferred to the government, justifying the garnishee proceedings.

Conclusion:

The court concluded that the respondent authorities failed to follow the due process mandated by Section 73(1) of the CGST Act, 2017, by not issuing a prior notice to the petitioner before initiating garnishee proceedings. Consequently, the garnishee proceedings dated 25.07.2023 and 28.07.2023 were set aside. The authorities were directed to issue a notice under Section 73(1) of the CGST Act, 2017, provide an opportunity for a hearing, and then proceed in accordance with the law. The writ petition was allowed, with no order as to costs.