2022 (5) TMI 1074 - HC - GST

Levy of penalty - rectification of mistake - input tax has been wrongly availed or utilized - Section 161 of the CGST Act - HELD THAT - Section 127 of the Act which has some importance deals with power to impose penalty in certain cases. It states that where the proper officer is of the view that a person is liable to a penalty and the same is not covered under any proceedings under Section 62 or Section 63 or Section 64 or Section 73 or Section 74 or Section 129 or Section 130, he may issue an order levying such penalty after giving reasonable opportunity of hearing such person. In the instant case, Form GSTR-3A was issued on 21.07.2020 for not filing the returns within the time prescribed. On 13.08.2020, a notice came to be issued under Rule 100(1) of CGST and SGST Rules, 2017/APGST Rules, 2017 read with Section 62(1) of the GGST Act, 2017/APGST Act, 2017 - the penalties have been imposed creating additional liability on the petitioner, which was not reflected in the earlier notice dated 13.08.2020. No opportunity of hearing was given to the petitioner while imposing the said penalty. Section 62 of the Act does not anywhere speaks about imposing penalty. It only speaks about liability for payment of interest subsection (1) of Section 50 or for payment of late fee under Section 47 of the Act. Further, if the penalty is to be imposed in cases, which are not covered under Section 62 or Section 63 or Section 64 or Section 73 or Section 74 or Section 129 or Section 130, the authority can impose penalty after giving reasonable opportunity of hearing such person - under Section 161 of the Act any rectification, which adversely affects any person is possible only after following the principles of natural justice. Since the order impugned substantially affects the assessee as penalty is sought to be imposed, which demand did not form part of notice dated 13.08.2020, without giving an opportunity of hearing, the orders under challenge are set aside. However, the respondents are permitted to proceed further by issuing a fresh notice and pass orders in accordance with law. Petition allowed.

Issues Involved:
1. Legality of the assessment order issued under Section 62 of the CGST Act, 2017.
2. Imposition of penalty without giving an opportunity of hearing.
3. Validity of the rectification order under Section 161 of the CGST Act, 2017.
4. Compliance with principles of natural justice.

Issue-wise Detailed Analysis:

1. Legality of the assessment order issued under Section 62 of the CGST Act, 2017:
The petitioner, a company registered under the CGST Act, 2017, failed to submit returns in GSTR-3B for January 2020 to June 2020. Consequently, the 3rd respondent issued a letter on 21.07.2020 under Section 46 of the CGST Act, directing the petitioner to file returns within 15 days. Due to non-compliance, an assessment order was passed on 13.08.2020 under Section 62 of the CGST Act, determining liabilities towards IGST, CGST, APGST, and cess. The assessment was based on the best judgment of the officer, as permitted under Section 62 for non-filers of returns.

2. Imposition of penalty without giving an opportunity of hearing:
The assessment order dated 13.08.2020 did not include any penalties. However, a Corrigendum-cum-Addendum issued on 27.08.2020 imposed additional liabilities, including penalties under Section 122(2)(a) of the CGST Act. This was followed by a rectification order on 12.11.2020, reiterating the penalties. The petitioner argued that these penalties were imposed without any opportunity for a hearing, violating principles of natural justice. The court noted that Section 62 does not provide for penalty imposition and that any rectification adversely affecting a person must follow the principles of natural justice under Section 161.

3. Validity of the rectification order under Section 161 of the CGST Act, 2017:
Section 161 allows rectification of errors apparent on the face of the record but mandates that principles of natural justice be followed if the rectification adversely affects any person. The rectification order dated 12.11.2020, which imposed penalties, did not adhere to these principles, as no hearing was provided to the petitioner. The court emphasized that any adverse rectification must involve a reasonable opportunity for the affected party to present their case.

4. Compliance with principles of natural justice:
The court highlighted that the imposition of penalties without a hearing was against the principles of natural justice. The initial assessment order did not mention penalties, and the subsequent orders imposing penalties were issued without giving the petitioner an opportunity to be heard. This procedural lapse rendered the orders illegal. The court set aside the impugned orders, allowing the respondents to issue a fresh notice and pass orders in accordance with the law, ensuring compliance with natural justice principles.

Conclusion:
The writ petition was allowed, and the impugned orders were set aside due to the failure to provide the petitioner with an opportunity for a hearing before imposing penalties. The respondents were directed to issue a fresh notice and proceed in accordance with the law, upholding the principles of natural justice. All pending miscellaneous petitions were closed.

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