2024 (5) TMI 510 - HC - GST

Validity of determination of GST liability (demand) u/s 73(1) - Rejection of the compounding application - Eligibility for composition scheme u/s 10(2)(a) - notice for hearing the petitioner for determining the tax liability under Section 61 (3) of CGST/SGST Act, 2017 not issued - HELD THAT - There has been violation of the statutory scheme in the present case by the second respondent. He ought to have first determined the eligibility of the petitioner for the compounding scheme and the order should have been passed for proceeding further in determining Tax liability under Section 73 of the Act. Without there being an order rejecting the application of the petitioner, notice under Section 73 has been issued. This is a complete violation of the Scheme of the Act and therefore, it is opined that the impugned order is unsustainable and it is hereby set aside. The matter is remitted back to the second respondent, first to determine the eligibility of the petitioner to the compounding scheme. The petitioner is directed to file reply to the show cause notice for rejection of the application under the composition scheme within a period of ten days from today. Petition disposed off by way of remand.

Summary

Issues involved: Impugning order dated 18.12.2023 rejecting application for composition scheme under CGST/KSGST Rules, 2017.

Summary:
The petitioner, a registered dealer under CGST/KSGST Rules, 2017, opted for the composition scheme during the tax period 2017-18. However, the proper officer found that the petitioner was engaged in works contract, making him ineligible for the composition scheme. A show cause notice was issued on 29.09.2023 rejecting the application for the composition scheme and determining tax liability under Section 73 (1). The petitioner did not respond to the notice, leading to the issuance of a rejection notice on 30.09.2023. The petitioner argued that the eligibility for compounding should have been determined first before issuing the notice for tax liability under Section 73. The Government Pleader acknowledged the procedural error, as the rejection notice was issued before determining eligibility for compounding. The court held that there was a violation of the statutory scheme by the second respondent and set aside the impugned order. The matter was remitted back to the second respondent to first determine the petitioner's eligibility for the compounding scheme. The petitioner was directed to file a reply to the show cause notice within ten days, and the notice was to be adjudicated after affording an opportunity to be heard. Only if the application for compounding was rejected, a notice under Section 73 (1) should be issued. The petitioner was given a deadline to file a reply and appear before the second respondent, who would issue a fresh notice if unsatisfied with the reply, followed by a fresh order. The writ petition was disposed of.