2025 (1) TMI 1197 - HC - GST

Challenge to impugned order on the premise that the same are made in gross violation of procedure contemplated under the GST Act and violation of principles of natural justice - mismatch between GSTR 1 and GSTR 3B - discrepancy in discharge of the tax liability - HELD THAT - The impugned orders dated 24.08.2024 and 30.08.2024 are set aside. The petitioner shall deposit 10% of the disputed taxes i.e. Rs. 9, 00, 166/- as admitted by the learned counsel for the petitioner and the respondents within a period of four weeks from the date of receipt of a copy of this order. Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment primarily addresses the following issues:

• Whether the impugned orders dated 24.08.2024 and 30.08.2024 were issued in violation of the procedure contemplated under the GST Act and principles of natural justice.
• Whether the demands in the impugned orders exceeded the amounts specified in the show cause notices, contravening Section 75(7) of the GST Act.
• Whether the proceedings were barred by the limitation/restriction under Section 6(2) of the GST Act due to the subject matter being the same in both proceedings.
• Whether the petitioner, having not participated in the proceedings, is now barred from questioning the correctness of the orders.
• The feasibility of granting the petitioner a final opportunity to contest the tax demands upon payment of a portion of the disputed taxes.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Violation of Procedure and Principles of Natural Justice

• Relevant Legal Framework and Precedents: The GST Act outlines specific procedures for issuing tax demands and ensuring compliance with principles of natural justice, which include providing adequate notice and opportunity to be heard.
• Court's Interpretation and Reasoning: The court noted procedural discrepancies in the issuance of the impugned orders, suggesting a potential breach of natural justice principles.
• Key Evidence and Findings: The mismatch between GSTR 1 and GSTR 3B returns and the subsequent notices issued formed the basis of the proceedings.
• Application of Law to Facts: The court considered whether the procedural lapses affected the validity of the impugned orders.
• Treatment of Competing Arguments: The petitioner's claim of procedural violation was weighed against the respondent's assertion of the petitioner's non-participation.
• Conclusions: The court found merit in the petitioner's claim of procedural violation, leading to the setting aside of the impugned orders.

Issue 2: Excessive Demands in Violation of Section 75(7)

• Relevant Legal Framework and Precedents: Section 75(7) of the GST Act prohibits tax, interest, and penalty demands exceeding the amounts specified in the show cause notice.
• Court's Interpretation and Reasoning: The court observed that the demands in the impugned orders exceeded the amounts in the show cause notices, violating Section 75(7).
• Key Evidence and Findings: The table provided in the judgment highlighted the discrepancies between the proposed and final demands.
• Application of Law to Facts: The court applied Section 75(7) to invalidate the excessive demands.
• Treatment of Competing Arguments: The petitioner's argument of excessive demands was not effectively countered by the respondents.
• Conclusions: The excessive demands were deemed unlawful, contributing to the annulment of the orders.

Issue 3: Limitation/Restriction under Section 6(2)

• Relevant Legal Framework and Precedents: Section 6(2) of the GST Act restricts proceedings on the same subject matter.
• Court's Interpretation and Reasoning: The court considered whether the proceedings were barred due to identical subject matter.
• Key Evidence and Findings: The similarity in subject matter between the two proceedings was acknowledged.
• Application of Law to Facts: The court's decision to set aside the orders implicitly addressed this issue.
• Treatment of Competing Arguments: The respondents did not provide a substantial argument against the petitioner's claim.
• Conclusions: The proceedings were implicitly found to be restricted under Section 6(2).

Issue 4: Petitioner's Non-Participation

• Relevant Legal Framework and Precedents: Legal principles generally discourage parties from contesting orders without prior participation.
• Court's Interpretation and Reasoning: The court balanced the petitioner's non-participation against the need for fairness and justice.
• Key Evidence and Findings: The petitioner's willingness to pay a portion of the disputed taxes was noted.
• Application of Law to Facts: The court allowed the petitioner a final opportunity to contest the demands.
• Treatment of Competing Arguments: The court favored the petitioner's request for an opportunity to be heard.
• Conclusions: The court granted the petitioner a chance to present objections upon partial payment.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "The impugned proceedings insofar as it traverses beyond the show cause notice is hit by Section 75 (7) of the GST Act."
• Core principles established: Compliance with procedural requirements and adherence to statutory limits on tax demands are critical for the validity of tax proceedings.
• Final determinations on each issue: The impugned orders were set aside, and the petitioner was granted an opportunity to contest the demands upon payment of 10% of the disputed taxes.

The judgment underscores the importance of procedural compliance and the necessity of adhering to statutory limits in tax assessments. It also highlights the court's willingness to ensure fairness by allowing parties to contest demands even after procedural lapses. The case was resolved by setting aside the impugned orders and providing the petitioner an opportunity to present objections, contingent on partial payment of the disputed taxes.