2022 (4) TMI 823 - HC - GST

Validity of intimation of tax ascertained u/s 74(1),(5) - Threat of recovery - Seeking respondents to forthwith refrain from taking any further steps or proceeding pursuant to or in implementation of the impugned notice - notice of intimation of tax issued by the Assistant State Tax Commissioner, Ghatak 3, Ahmedabad - Section 74(1) and (5) resply of the GST Act, 2017 - HELD THAT - Sub-section (5) makes it very abundantly clear that before service of a show cause notice under sub-section (1) referred to above, such person may pay the amount of tax along with interest payable under Section 50 and a penalty equivalent to 50% of such tax on the basis of his own ascertainment of such tax or the tax as may be ascertained by the proper officer and inform the proper officer in writing about such payment - by virtue of sub-section (5) of Section 74, one opportunity is given to the dealer to pay the amount towards tax as ascertained by the proper officer or on the basis of his own ascertainment. If the dealer proceeds to avail the benefit of sub-section (5), then he gets the benefit of sub-section (6) of Section 74 of the Act. The Form GST DRC 01 is in the form of a show cause notice, which is issued under sub-section (1) of Section 74 of the Act i.e. in accordance with Rule 142(1)(a) of the Rules, 2017. At the stage of an intimation under sub-section (5) of Section 74 in the Form GST DRC 01A, it is Rule 142(1A) which is applicable. Therefore, while issuing an intimation, the proper officer in the notice could not have said that failure on the part of the noticee may entail the consequence of recovery of the entire amount with penalty and interest - The intimation under sub-section (5) has to be strictly in Form GST DRC 01A. It is not a show cause notice. In the intimation, the dealer should be informed that if he fails to make the payment, the next step in the process will be issue of a show cause notice under sub-section (1) of Section 74 in accordance with the Form GST DRC 01. Once there is a show cause notice in the Form GST DRC 01 in accordance with Rule 142(1)(a) of the Rules to be read with sub-section (1) of Section 74, the same would ultimately lead to regular assessment proceedings with final assessment order. Therefore, the department needs to correct itself not only as regards their understanding of the entire procedure, but even the contents of the Forms are incorrect. The intention of the proper officer was to give an intimation in accordance with sub-section (5) of Section 74 and therefore, the intimation should have been in the Form GST DRC 01A and not Form GST DRC 01. There is a vast difference between Rule 142(1)(a) and Rule 142 (1A) of the Rules. Therefore, from now onwards, if the department deems fit to issue any intimation of tax ascertained as being payable under sub-section (5) of Section 74 in accordance with the Rule 142(1A) of the Rules, it shall issue notice in the Form GST DRC 01A. In such a notice of intimation, the proper officer shall not threaten the dealer that if he would fail to comply with the intimation, the department shall proceed to recover the tax. The proper officer should inform the dealer that if he would pay the tax, well and good, otherwise the department shall proceed to issue a show cause notice under sub-section (1) of Section 74 in accordance with Rule 142(1)(a) of the Rules, 2017 in Form GST DRC 01 and carry out regular assessment proceedings. The impugned intimation of tax in the Form GST DRC 01 is hereby quashed and set aside - Application disposed off.

Summary

Issues Involved:
1. Validity of the impugned show cause notice dated 14.03.2022.
2. Whether the intimation in Form GST DRC-01 can be challenged by way of a writ application.
3. Correct procedure and forms to be used under Section 74(5) and 74(1) of the GST Act, 2017.

Detailed Analysis:

1. Validity of the Impugned Show Cause Notice Dated 14.03.2022:
The writ applicant received an intimation of tax payable under Section 74(1) and (5) of the GST Act, 2017, in Form GST DRC-01 dated 14th March 2022. The intimation alleged that the applicant wrongly availed input tax credit (ITC) amounting to ?14,06,55,810/- from two vendors whose GST registrations were canceled due to fraud. The applicant was asked to repay the amount within 15 days via DRC-03 or provide an explanation by 11.04.2022. Failure to comply would result in recovery of ?34,88,26,406/- including tax, interest, and penalty.

2. Whether the Intimation in Form GST DRC-01 Can Be Challenged by Way of a Writ Application:
The applicant argued that the impugned notice, though termed as an intimation, was effectively a final order demanding payment within 15 days, failing which the amount would be recovered with interest and penalty. The applicant contended that this bypassed the procedural requirement of issuing a show cause notice and providing an opportunity for hearing before final assessment. The respondent argued that the intimation under Section 74(5) cannot be challenged via a writ application and that a show cause notice would follow if the payment was not made.

3. Correct Procedure and Forms to Be Used Under Section 74(5) and 74(1) of the GST Act, 2017:
The court examined Section 74 of the GST Act, which outlines the procedure for determining tax not paid or ITC wrongly availed due to fraud or willful misstatement. Under Section 74(5), a person may pay the tax along with interest and a penalty of 15% before a show cause notice is issued, which would preclude further proceedings under Section 74(1). The court noted that the proper form for such intimation is GST DRC-01A, not GST DRC-01, which is used for issuing a show cause notice under Section 74(1).

The court found that the department erroneously issued the intimation in Form GST DRC-01, which is meant for show cause notices, thereby creating confusion and potential procedural unfairness. The court clarified that an intimation under Section 74(5) should inform the dealer of the tax liability and the option to pay before a formal show cause notice is issued, without threatening immediate recovery actions.

Conclusion:
The court quashed the impugned intimation in Form GST DRC-01, clarifying that the proper officer should issue intimation in Form GST DRC-01A under Section 74(5) and, if necessary, proceed with a show cause notice in Form GST DRC-01 under Section 74(1) for regular assessment proceedings. The department was advised to correct its procedural approach and ensure proper form usage to avoid similar issues in the future.