ISSUE OF DEMAND NOTICE PURSUANT TO ASSESSMENT ORDER BEFORE THE EXPIRY OF APPEAL PERIOD UNDER GST LAW – CORRECT?

[Mr. M. GOVINDARAJAN]

Assessment

Every registered person shall self-assess the taxes payable under this Act and furnish a return for each tax period.   where the taxable person is unable to determine the value of goods or services or both or determine the rate of tax applicable thereto, he may request the proper officer in writing giving reasons for payment of tax on a provisional basis and the proper officer shall pass an order, within a period not later than 90 days from the date of receipt of such request, allowing payment of tax on provisional basis at such rate or on such value as may be specified by him.

The proper officer may scrutinize the return and related particulars furnished by the registered person to verify the correctness of the return and inform him of the discrepancies noticed, if any, in such manner as may be prescribed and seek his explanation thereto.  In case the explanation is found acceptable, the registered person shall be informed accordingly and no further action shall be taken in this regard.  In case no satisfactory explanation is furnished within a period of thirty days of being informed by the proper officer or such further period as may be permitted by him or where the registered person, after accepting the discrepancies, fails to take the corrective measure in his return for the month in which the discrepancy is accepted, the proper officer may initiate appropriate action including those under section 65 (Audit by tax authorities) or section 66 (Special Audit)  or section 67 (inspection, search and seizure), or proceed to determine the tax and other dues under section 73 or section 74.

Recovery procedure

Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilized for any reason, other than the reason of fraud or any willful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilized input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon and a penalty leviable under the provisions of this Act or the rules made there under.

The proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to 10% of tax or ten thousand rupees, whichever is higher, due from such person and issue an order.  Any amount payable by a taxable person in pursuance of an order passed under this Act shall be paid by such person within a period of 3 months from the date of service of such order failing which recovery proceedings shall be initiated.   Where any amount payable by a person to the Government under any of the provisions of this Act or the rules made there under is not paid, the proper officer shall proceed to recover the amount by one or more of the modes specified in section 79 of the Act.

Appeal

Any person aggrieved by any decision or order passed under this Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act by an adjudicating authority may appeal to such Appellate Authority as may be prescribed within 3 months from the date on which the said decision or order is communicated to such person.

Issue of demand notice

For the recovery of tax on the basis of assessment order the Authority is to issue demand notice to the assessee after the lapse of appeal time.  Before that demand notice cannot be issued.

In ‘GRB Dairy Goods Private Limited v. State Tax Officer, Collection and Arrear, Salem’ – 2019 (10) TMI 1233 - MADRAS HIGH COURT the orders of assessment were passed in respect of the petitioner on 01.10.2019.  The said orders were served on the petitioner on 03.10.2019.  However the Department issued a demand notice for the recovery of the tax based on the orders passed on 01.10.2019 to the petitioner on 10.10.2019.  In the said demand notice the assessee was directed to submit proof of payment of quantum of tax, interest, penalty, determined by the Assessing Officer in respect of each assessment year on or before 21.10.2019.  The Demand notice further informed that if the petitioner failed to pay the same, the recovery proceedings under section 79 would be initiated against the petitioner.

The petitioner challenged the same in the present writ petitions before the High Court.   The petitioner submitted the following before the High Court-

• The impugned demand notice issued within 10 days from the date of the assessment order cannot be sustained, since the same was issued even before the expiry of the period of limitation prescribed for filing the statutory appeal against those orders of assessment.
• When 3 months time is available to the petitioner to file such appeal before the Appellate Authority from the date of receipt of copy of the assessment order and when such time is yet to expire, the impugned demand notice hurriedly sent by the Department cannot be sustained.
• While filing appeal the petitioner has to pay the tax, interest and penalty in full and a sum equivalent to 10% of the tax in dispute.
• When the appellant pays the said amount on filing the appeal, the remaining amount gets stayed automatically, as provided in section 106(7) of the Act.
• If the impugned order is given effect to, it would greatly prejudice the interest of the petitioner.

The Department submitted that though the impugned notice was issued on the petitioner on 10.10.2019, the said recovery proceedings initiated against the petitioner has been deferred as per section 78 of the Act, since such recovery has to be initiated on the failure of the payment of tax within 3 months from the date of service of such assessment proceedings.  The Department urged that in view of the above the writ petition may be closed as the petitioner cannot have any grievance.

The High Court heard the submission put forth by both the parties.  The High Court observed that the Department has deferred the recovery proceedings, in view of the fact that the petitioner has time to file the statutory appeal before the Appellate Authority and the said time has not expire so far.  Therefore the High Court did not think anything survives in these writ petitions to be adjudicated upon further since the Department itself has chosen to defer the impugned proceedings through their communication dated 21.10.2019.  Therefore the High Court closed the writ petition.

The impugned recovery proceedings have been initiated without looking by the Departmental officers without looking into the provisions of the GST Act and the rules framed there under.  The present writ petition has been closed since the Department has chosen to defer the impugned demand since the appeal period has not been expired.   Otherwise the case will be decided against the Department with the strictures passed by the High Court. 

However the petitioner has been put in sufferings and waste of time in the litigation process.  It is the expectation of the stakeholders that the Department should not indulge in such activities.