2025 (5) TMI 731 - HC - GST

Validity and legality of a summary demand order and subsequent recovery action under the Bihar Goods and Services Tax/Central Goods and Services Tax Act 2017 - non-issuance and service of the order of assessment in Form- GST ASMT-13 - HELD THAT - It is an admitted position that the petitioner had already filed its return in Form GSTR 3B and paid due tax on it on 19.09.2019 which was well within the statutory period from the date of the impugned assessment order i.e. 12.09.2019 - On a bare reading of sub-section (2) of Section 62 there is no iota of doubt that the assessment order issued under sub-section (1) of Section 62 shall be taken to have been withdrawn by a legal fiction. Once the assessment order lost it s existence and efficacy in the eye of law there was no reason for the Respondent No. 5 to go for recovery of demand dated 12.09.2019. This Court finds much substance in the submission of the learned counsel for the petitioner. It is evident from the facts appearing on the records that the Respondent No. 5 has acted in complete violation of the established procedure of law. The said authority has misused her power and thereby passed an illegal order for recovery of the amount. The concerned authority did not think it just and proper to even issue a notice to the petitioner prior to passing an order of recovery which she was passing after about five years from the date of demand. Let both the authorities namely Respondent No. 5 and Respondent No. 6 file their response within two weeks from today - List this case for further order on 17th June 2025 under the same heading maintaining its position.

Summary

The core legal issues considered in this judgment revolve around the validity and legality of a summary demand order and subsequent recovery action under the Bihar Goods and Services Tax/Central Goods and Services Tax Act, 2017 (BGST/CGST Act), specifically focusing on the application of Section 62 relating to assessment of non-filers of returns. The issues include:

1. Whether the summary demand order dated 12.09.2019 issued under Section 62(1) was valid and properly served upon the petitioner.

2. Whether the assessment order under Section 62(1) stood valid or was deemed withdrawn under Section 62(2) due to the petitioner filing a valid GSTR 3B return and paying the due tax within 30 days.

3. Whether the recovery of tax amount from the petitioner's credit and cash ledger on 24.08.2023 was lawful, given the purported withdrawal of the assessment order.

4. Whether the rejection of the petitioner's appeal by the Additional Commissioner of State Tax (Appeals) on the ground of limitation was justified, particularly in light of Circular No. 53/2023 CT and the Court's prior judgment in SIS Cash Services.

5. Whether the respondents violated principles of natural justice by conducting recovery without providing the petitioner an opportunity of hearing.

Issue 1: Validity and Service of the Summary Demand Order under Section 62(1)

The BGST/CGST Act empowers the proper officer to assess and issue a demand order against a registered person who fails to furnish returns after notice under Section 46. The petitioner contended that no demand order in Form GST ASMT-13 was ever served, which is a prerequisite for valid proceedings under Section 62(1). The respondents denied this, asserting service via email.

The Court scrutinized the record and found the counter affidavit's claim of service to be unsubstantiated and apparently a result of "cut, copy and paste," lacking annexures proving service. Two emails were produced, but the attachment corresponding to the assessment order was unclear. The petitioner's challenge to service was thus accepted as credible.

The Court emphasized that proper service is essential for invoking Section 62(1), and failure to serve the assessment order vitiates the entire proceeding. This issue was critical because it set the foundation for the subsequent recovery and appeal processes.

Issue 2: Deemed Withdrawal of Assessment Order under Section 62(2) upon Filing of Return

Section 62(2) provides that if a registered person furnishes a valid return within 30 days of service of the assessment order under Section 62(1), the assessment order shall be deemed to have been withdrawn, though interest and late fees may still be payable.

It was undisputed that the petitioner filed the GSTR 3B return on 19.09.2019 and paid the due tax, which was within 30 days of the demand order dated 12.09.2019. The respondents conceded this fact during the hearing and acknowledged that the assessment order should be deemed withdrawn by operation of law.

The Court held that once the assessment order is deemed withdrawn, it loses all legal efficacy and cannot be the basis for recovery. This legal fiction under Section 62(2) protects taxpayers who cure their default promptly by filing returns and paying taxes.

Issue 3: Lawfulness of Recovery Action on 24.08.2023

Despite the deemed withdrawal, Respondent No. 5 proceeded to recover Rs. 1,11,87,352 from the petitioner's credit ledger and Rs. 28,592 from the cash ledger on 24.08.2023. The petitioner challenged this recovery as unlawful and without application of mind, pointing out that the authority failed to verify the return filing status before recovery.

The Court examined the recovery order and found that the Assistant Commissioner of State Tax (ACST) did not consider the fact that the return was filed and tax paid within the stipulated time. The recovery was initiated without issuing any notice or opportunity to the petitioner, violating procedural fairness and natural justice.

The Court observed that the ACST's order was passed after nearly five years from the demand date, without proper recording of facts or consideration of available electronic records (ARN of return filing). This constituted misuse of power and was held to be illegal and liable to be quashed.

Issue 4: Rejection of Appeal on Ground of Limitation

The petitioner's appeal before the Additional Commissioner of State Tax (Appeals) was rejected on limitation grounds. The petitioner contended that the appeal was filed within the extended time limit prescribed under Circular No. 53/2023 CT dated 02.11.2023 and that the rejection ignored the Court's recent judgment in SIS Cash Services, which held that appeals against orders under Sections 62, 73, or 74 could be entertained even if filed with delay, provided they were pending before the authority as of 31.01.2024.

The Court noted that the appellate order was passed six months after the SIS Cash Services judgment but disregarded it, amounting to willful disobedience and prima facie contempt. The Court expressed dissatisfaction with the respondent's justification based on another coordinate Bench's judgment and indicated the possibility of contempt proceedings.

Issue 5: Violation of Natural Justice Principles

The petitioner argued that recovery was effected without any prior notice or opportunity to be heard, violating the principles of natural justice. The Court agreed, noting that the recovery order was passed without any show cause notice or hearing, which is contrary to established legal norms and statutory requirements.

The Court emphasized that such unilateral action by the tax authorities amounted to harassment and misuse of power, warranting intervention and remedial orders.

Significant Holdings and Legal Reasoning

The Court unequivocally held that:

"Where the registered person furnishes a valid return within thirty days of the service of the assessment order under subsection (1), the said assessment order shall be deemed to have been withdrawn but the liability for payment of interest under subsection (1) of section 50 or for payment of late fee under section 47 shall continue."

This legal fiction under Section 62(2) was central to the Court's reasoning, rendering the demand order and subsequent recovery invalid once the return was filed and tax paid timely.

The Court further stated:

"Once, the assessment order lost its existence and efficacy in the eye of law, there was no reason for the Respondent No. 5 to go for recovery of demand dated 12.09.2019."

On service, the Court observed that the respondents' failure to prove proper service of the assessment order vitiated the proceedings and that the counter affidavit's assertion was "a result of cut, copy and paste" without supporting evidence.

Regarding the appeal, the Court quoted from the SIS Cash Services judgment:

"Hence an appeal against an order under Section 73 or 74 has to be filed on or before 31.01.2024, and any appeal filed which is pending before the authority could also be considered as properly filed, even if there is delay in such filing. This will also apply to an order passed under Section 62 which provision is not withstanding anything contrary in Section 73 or 74."

The Court concluded that the appellate authority's rejection was "prima facie contemptuous" and warranted explanation.

The Court set aside the impugned recovery order dated 24.08.2023 and the appellate order dated 11.07.2024, directing the authorities to show cause why interest and costs should not be awarded against them and why contempt proceedings should not be initiated.