2019 (8) TMI 84 - HC - GST

Interest on Input tax credit - Recovery without issuing Show cause notice (SCN) and determination of liability - constitutional validity of Section 50(1) of Central Goods and Service Tax (CGST) Act, 2017 and Section 50(1) of the Karnataka Goods and Services Tax, 2017 - HELD THAT - The issuance of Show Cause notice is sine qua non to proceed with the recovery of interest payable thereon under Section 50 of the Act and penalty leviable under the provisions of the Act or the Rules. Undisputedly, the interest payable under Section 50 of the Act has been determined by the third respondent Authority without issuing Show Cause Notice, which is in breach of principles of natural justice. It is trite law that any order passed by the quasi-judicial authorities in contravention of the principles of natural justice, cannot be sustained. It is ex-facie apparent that action of the third respondent is perverse and illegal and the same deserves to be set aside - petition allowed.

Summary

Issues:
Challenge to constitutionality of Sections 50(1) of CGST Act and Karnataka GST Act, demand for payment, attachment of bank account without Show Cause Notice.

Analysis:

1. Constitutionality of Sections 50(1) of CGST Act and Karnataka GST Act:
The petitioner challenged the constitutionality of Sections 50(1) of the Central Goods and Service Tax (CGST) Act, 2017 and the Karnataka Goods and Services Tax Act, 2017. The contention was that the burden of interest imposed on the Input Tax Credit available to the petitioner was unconstitutional. However, this relief was not pressed during the proceedings, and all contentions related to it were kept open.

2. Demand for Payment and Attachment of Bank Account:
The petitioner, a registered dealer under the GST Act, faced issues with claiming Input Tax Credit due to sub-contractors not uploading invoices and filing returns. The tax authorities claimed an excess availment of Input Tax Credit by the petitioner, leading to a demand for payment of tax and interest without issuing a Show Cause Notice. The authorities also sought to attach the petitioner's bank account without following the mandatory requirement of issuing a Show Cause Notice as per Section 73 of the Act.

3. Violation of Principles of Natural Justice:
The petitioner argued that the tax authorities did not comply with the mandatory requirement of issuing a Show Cause Notice before quantifying interest and attaching the bank account. The Revenue's counsel admitted that no such notice was issued as required by Section 73 of the Act. The Court observed that the issuance of a Show Cause Notice is essential before proceeding with the recovery of interest and penalties. The failure to issue such notice before determining interest and attaching the bank account was deemed a breach of natural justice principles.

4. Quashing of Orders and Legal Remedy:
After considering the submissions, the Court found the actions of the tax authorities to be illegal and perverse. The orders demanding payment and attaching the bank account were quashed. The Court granted liberty to the tax authorities to proceed in accordance with the law, emphasizing the importance of following due process and principles of natural justice in such matters. All rights and contentions of the parties were left open for further legal recourse.

In conclusion, the judgment highlighted the significance of adhering to procedural requirements and principles of natural justice in tax matters. The Court's decision to quash the orders and allow the authorities to proceed lawfully underscores the importance of fair and transparent tax administration.