Saturday 29 October 2022

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No Recovery Under GST Without Issuance of Proper Show Cause Notice


The Bombay High Court in the case of “SHEETAL DILIP JAIN VERSUS THE STATE OF MAHARASHTRA & ORS. - 2022 (10) TMI 177 - BOMBAY HIGH COURT has struck down the recovery proceedings without issuance of SCN and held that the order is erroneous because in the SCN only 7 days was given to reply to the SCN and on the 8th day the order came to be passed. Therefore, the question of not paying within 30 days of the issue of the notice will not arise.

Relevant extract of the judgment is reproduced hereunder:

“5. These acts/omissions of Respondents’ officers is adding to the already overburdened dockets of the Court. Valuable judicial time is wasted because such unacceptable orders are being passed by Respondents’ officers. The officers do not seem to understand or appreciate the hardship that is caused to the general public. In this case, Petitioner could afford (we have assumed) to spend on a lawyer and approach this Court but for every Petitioner, we would hazard a guess, atleast ten would not be able to afford a lawyer and approach the Court and their registrations may get cancelled by the very same officers who have passed such patently illegal orders.Cost of Rs. 10000/- imposed on GST officer.”

Similar Judgments in this regard are as under:

  • Karnataka High Court in the case of M/S. LC INFRA PROJECTS PVT. LTD., (FORMERLY KNOWN AS LAXMI CONSTRUCTION) VERSUS THE UNION OF INDIA MINISTRY OF FINANCE, AND OTHERS - 2019 (8) TMI 84 - KARNATAKA HIGH COURT has held that the issuance of SCN is sine qua non to proceed with the recovery of interest payable thereon under sec 50 of the CGST Act and penalty leviable under the provisions of the Act or the Rules made thereunder. Determination of the interest payable under sec 50 of the CGST Act without issuing SCN is in breach of principles of natural justice and therefore, it cannot be sustained. Sec 75(12) does not empower the authorities to proceed with the recovery without issuing SCN.

Further, the above order was also upheld by the Karnataka HC [Division Bench] in THE UNION OF INDIA, THE STATE OF KARNATAKA, THE SUPERINTENDENT OFFICE OF CENTRAL G.S.T VERSUS M/S. LC INFRA PROJECTS PVT., LTD., (FORMERLY KNOWN AS LAXMI CONSTRUCTIONS) - 2020 (4) TMI 664 - KARNATAKA HIGH COURT Relevant extract of the judgment is reproduced hereunder:

13. Therefore, the Learned Single Judge rightly held in Paragraph 6 of the impugned judgment that issuance of show cause notice is sine qua non to proceed with the recovery of interest payable in accordance with sub-section (1) of Section 50 of the GST Act.

14. The impugned demand has been set aside only on the ground of the breach of the principles of natural justice by granting liberty to the respondents to initiate action in accordance with law obviously for recovery of interest.

15. Though a perusal of Paragraph 4 of the impugned order shows that the same is based on concession made by the Learned Counsel for the appellant, in Paragraph 6 the Learned Single Judge has laid down the law.

16. For the reasons which we have recorded earlier, we concur with the ultimate view taken by the Learned Single Judge that before recovery interest payable in accordance with Section 50 of the GST Act, a show cause notice is required to be issued to the assessee. Hence, no case for interference is made out. The appeal is accordingly dismissed. Interim applications do not survive.

17. Further, we make it clear that as far as Annexure-K is concerned, as the main demand for interest has been set aside, Annexure-K, which is the order of attachment, also will have to be set aside. We make it clear that we have not gone into the question whether the principles of natural justice are required to be complied with before taking action in accordance with Rule 145 of the Rules framed under the GST Act.”

Note: Notice has been issued UNION OF INDIA AND ORS. VERSUS M/S LC INFRA PROJECTS PVT. LTD. - 2021 (8) TMI 832 - SC ORDER on the issue that whether demand of interest without issuing any show cause notice amounts to violation of principles of natural justice.

  • The Jharkhand HC in the case of MAHADEO CONSTRUCTION CO. VERSUS THE UNION OF INDIA, ASSISTANT COMMISSIONER, CENTRAL GOODS & SERVICES TAX AND CENTRAL EXCISE, SUPERINTENDENT, CENTRAL GOODS & SERVICES TAX AND CENTRAL EXCISE - 2020 (4) TMI 666 - JHARKHAND HIGH COURT hasheld that liability of interest was required to be adjudicated in event an assessee disputed computation or very leviability of same, Thus, without initiation of any adjudication proceedings, no recovery proceedings under sec 79 of the CGST Act could be initiated for recovery of interest amount.

Relevant extract of the judgment is reproduced hereunder:

22. The next issue for adjudication in the instant writ application is as to whether garnishee proceedings under Section 79 of the CGST Act can be initiated for recovery of interest without adjudicating the liability of interest, when the same is admittedly disputed by the assessee. Section 79 of the CGST Act empowers the authorities to initiate garnishee proceedings for recovery of tax where “any amount payable by a person to the Government under any of the provisions of the Act and Rules made thereunder is not paid”. Since in the preceding paragraphs of our Judgment, we have already held that though the liability of interest is automatic, but the same is required to be adjudicated in the event an assessee disputes the computation or very leviability of interest, by initiation of adjudication proceedings under Section 73 or 74 of the CGST Act, in our opinion, till such adjudication is completed by the Proper Officer, the amount of interest cannot be termed as an amount payable under the Act or the Rules. Thus, without initiation of any adjudication proceedings, no recovery proceeding under Section 79 of the Act can be initiated for recovery of the interest amount.

23. Accordingly, the impugned order dated 8-3-2019 issued by Respondent No. 3 (Superintendent, Daltonganj Range) (as contained in Annexure-7) is hereby quashed/set aside and, further, garnishee notice contained in the Order dated 22-5-2019 (Annexure-10 of the Supplementary Affidavit) issued under Section 79 of the CGST Act to the Banker of the petitioner for recovery of interest amount of Rs. 19,59,721/- is also, hereby, quashed/set aside.”

Note: Notice has been issued in the above matter [UNION OF INDIA VERSUS MAHADEO CONSTRUCTION CO. 2021 (11) TMI 274 - SC ORDER].

Conclusion: Any recovery proceedings can be initiated only after issuance of SCN, followed by adjudication proceedings u/s 73 or 74 of the CGST Act in terms of Sec 78 read with Sec 79 of the CGST Act

 



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