2023 (2) TMI 723 - HC - GST

Rejection of refund - order beyond the scope of show cause notice (SCN) - Maintaining two GST numbers - allegation of mismatch in the outward tax supplies in GSTR-3B returns compared to GSTR-1 - HELD THAT - After going through the documents available on record it appears that a show cause notice was issued to the petitioner on 17th May, 2021 on the application for refund filed by the petitioner under Section 54 of CGST Act, 2017. It further transpires that the petitioner herein refuted the allegation of the department given in the show cause notice vide his reply by clarifying among other things that returns in FORM GSTR-3B and FORM GSTR-1 have been correctly filed. However, interestingly, the order in original which was passed pursuant to the reply to the show cause notice did not deliberate with the content of reply but the adjudicating officer has proceeded to pass an order rejecting the refund application on the grounds which were never part of the original show cause notice as indicated. It is settled principle of law that if an allegation or ground is not made at the time of issuance of show cause notice, the authority cannot go beyond the scope of show cause notice to create new ground at the later stage of adjudication - In the instant case, had there been any opportunity given to the petitioner, the respondents might have proceeded to issue a subsequent show cause. At the cost of repetition, it is stated that it is only after the submissions of petitioner s reply, the Adjudicating Officer decided the refund application on the grounds which were not part of the show cause notice i.e. related to maintaining of two GSTIN number one under RCM and other under forward charge mechanism (FCM) with two different rates of GST to be charged upon the services being provided. The impugned show cause notice dated 17th May, 2021 and the consequent order in original dated 14.06.2021 and order in appeal dated 08.12.2021, are quashed and set aside - Application allowed.

Summary

Issues Involved:
1. Violation of principles of natural justice.
2. Legality of maintaining two GSTIN registrations.
3. Grounds for rejection of refund application.
4. Adjudication beyond the scope of show cause notice.

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The petitioner argued that the impugned proceedings were vitiated due to the violation of principles of natural justice as no proper show cause notice was issued. The court found that the show cause notice dated 17th May 2021, did not contain any allegations related to maintaining two GSTIN numbers. The adjudicating officer decided the refund application on grounds that were not part of the original show cause notice. The court emphasized that it is a settled principle of law that an authority cannot go beyond the scope of the show cause notice to create new grounds at a later stage of adjudication. Consequently, the impugned proceedings were held to be vitiated for violation of principles of natural justice.

2. Legality of Maintaining Two GSTIN Registrations:
The petitioner maintained two GSTIN registrations: one under the reverse charge mechanism (RCM) and another under the forward charge mechanism (FCM). The adjudicating officer found this to be in violation of Section 25(2) of the CGST Act, 2017, which allows a person to have a single registration in a State or Union territory. The court noted that the adjudicating officer's findings on this issue were not part of the original show cause notice, making the order beyond the scope of the notice and thus invalid.

3. Grounds for Rejection of Refund Application:
The petitioner applied for a refund of Rs.1,70,12,325/- due to an inadvertent double payment of GST. The refund application was rejected on grounds that were not part of the original show cause notice. The adjudicating officer found that the petitioner had taken excess ITC of Rs.4,57,27,369/- by maintaining two GSTIN registrations, which was considered a suppression of facts resulting in a heavy loss to the government revenue. The court found that these grounds were not communicated to the petitioner in the show cause notice, thus violating the principles of natural justice.

4. Adjudication Beyond the Scope of Show Cause Notice:
The court found that the adjudicating officer passed the order rejecting the refund application on grounds that were never part of the original show cause notice. The show cause notice was vague and cryptic, and the adjudicating officer's findings were beyond the scope of the notice. The court held that the impugned order of adjudication was bad in law for being passed beyond the scope of the show cause notice.

Conclusion:
The court quashed and set aside the impugned show cause notice dated 17th May 2021, the consequent order in original dated 14th June 2021, and the order in appeal dated 8th December 2021. The revenue was given the liberty to issue a fresh show cause notice and proceed in accordance with the law. The entire exercise was to be completed within four months from the date of receipt/production of the copy of the order, failing which the petitioner would be entitled to claim a refund in accordance with the law. The instant application was allowed.