2025 (5) TMI 1345 - HC - GST

Demand for tax including the tax interest and penalty - attachment of the bank accounts for recovery of the alleged tax dues - inability and omission on the part of the petitioner to submit a reply to the show-cause notice and pre-intimation - Show Cause Notices and pre-intimation notices communicated electronically by uploading the same on GST portal as well as e-mail - issued under Rule 142(1A) and Section 74 of the CGST/KGST Act 2017 - Challenged the impugned order passed under Section 74(9) - HELD THAT - Though several contentions have been urged by both sides as regards to the petitioner not having received the pre-intimation notice and show-cause notice and his inability and omission to contest the proceedings is a matter of record and an undisputed fact that the petitioner did not submit his reply to the show-cause notice or pre-intimation notice nor contested the proceedings which culminated in the impugned ex-parte order. Under these circumstances having regard to the specific assertion on the part of the petitioner that his inability and omission to submit replies and contest the proceedings was due to bona fide reasons unavoidable circumstances and sufficient cause I deem it just and appropriate to adopt a justice oriented approach and provide one more opportunity to the petitioner by setting aside the impugned order dated 05.10.2023 and remitting the matter back to the first respondent for reconsideration of the matter afresh in accordance with law to the stage of petitioner submitting reply to the impugned show-cause notice. In the result I pass the following (i) The petition is hereby allowed. (ii) The impugned order dated 05.10.2023 passed by the first respondent under Section 74 (9) of the CGST/KGST Act 2017 at Annexure-K is hereby set aside. (iii) The petitioner is directed to appear before the first respondent on 28.04.2025 without awaiting further notice from the first respondent. (iv) The liberty is reserved in favour of the petitioner to submit replies documents etc. which shall be considered by the first respondent who shall provide sufficient and reasonable opportunity to the petitioner and hear them and proceed further in accordance with law. (v) It is further made clear that in the event petitioners do not appear on 28.04.2025 the present order shall stand automatically recalled/cancelled and the present petition shall stand revived/ restored without further orders and without reference to the Bench.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court include:

- Whether the impugned order dated 05.10.2023 passed under Section 74(9) of the CGST/KGST Act, 2017, confirming the tax demand on the petitioner, is liable to be quashed on grounds of non-communication and denial of opportunity to the petitioner to contest the proceedings.

- Whether the Show Cause Notices and pre-intimation notices issued under Rule 142(1A) and Section 74 of the CGST/KGST Act, 2017, were duly communicated to the petitioner and whether failure to receive or respond to such notices can justify setting aside the ex-parte order.

- Whether the petitioner's claim of bona fide reasons, unavoidable circumstances, and sufficient cause for non-submission of replies to the notices warrants interference with the impugned order and grant of an opportunity to be heard.

- Whether the recovery proceedings initiated under Section 79(1)(c) of the CGST/KGST Act, 2017, including attachment of bank accounts, can be sustained in view of the alleged procedural lapses.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity and communication of Show Cause Notices and pre-intimation notices under CGST/KGST Act, 2017

The legal framework governing issuance and communication of notices in GST proceedings is primarily derived from the CGST/KGST Act, 2017, and the CGST/KGST Rules, 2017. Rule 142(1A) mandates issuance of pre-intimation notices before initiating proceedings under Section 74 (which deals with determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed). Section 74(9) empowers the authority to pass orders after considering replies and evidence.

Precedents emphasize the importance of proper communication of notices to ensure the principles of natural justice and fair hearing are adhered to. The Court noted that the first respondent issued a pre-intimation notice dated 30.03.2023 under Rule 142(1A), to which the petitioner replied on 10.04.2023. However, the respondent issued another show-cause notice and pre-intimation notice dated 14.06.2023, which the petitioner contended were not served or communicated physically or effectively, thereby depriving him of the opportunity to respond.

The respondent argued that notices were communicated electronically by uploading on the GST portal and by email, which, according to the respondent, sufficed for valid service under the GST procedural regime.

The Court acknowledged the undisputed fact that the petitioner did not submit any reply to the show-cause notice or pre-intimation notice dated 14.06.2023, nor contested the proceedings, which culminated in the ex-parte order dated 05.10.2023. However, the petitioner asserted that such non-submission was due to bona fide reasons and unavoidable circumstances, primarily non-receipt or non-awareness of the notices.

Issue 2: Effect of non-submission of reply and ex-parte order under Section 74(9)

Section 74(9) of the CGST/KGST Act, 2017, empowers the authority to pass an order after considering the reply to the show-cause notice or in the absence of such reply, an ex-parte order. The Court observed that the impugned order dated 05.10.2023 was passed ex-parte due to the petitioner's failure to respond.

The petitioner's contention was that the ex-parte order was passed without affording him a reasonable opportunity to be heard, as he was unaware of the notices dated 14.06.2023. The Court recognized that the principles of natural justice require that a party should be given a fair chance to present their case before adverse orders are passed.

While the respondent maintained that electronic communication sufficed, the Court found merit in the petitioner's assertion that physical copies were not served and the petitioner was unaware of the notices, which prevented him from submitting replies or contesting the proceedings.

Issue 3: Justification for setting aside the impugned order and granting opportunity to the petitioner

Considering the petitioner's claim of bona fide reasons and sufficient cause for non-submission of replies, the Court adopted a justice-oriented approach. It held that despite the procedural provisions allowing ex-parte orders, the failure to effectively communicate the notices and the petitioner's consequent inability to respond warranted interference.

The Court set aside the impugned order dated 05.10.2023 and remitted the matter back to the first respondent for fresh consideration. The petitioner was granted liberty to submit replies and documents, and the first respondent was directed to provide sufficient and reasonable opportunity to the petitioner to be heard and proceed in accordance with law.

The Court further clarified that if the petitioner failed to appear on the specified date, the order setting aside the impugned order would stand automatically recalled, and the petition would be revived without further orders.

Issue 4: Validity of recovery proceedings under Section 79(1)(c)

Section 79(1)(c) of the CGST/KGST Act empowers the authority to attach bank accounts for recovery of tax dues. The petitioner challenged the notice dated 01.06.2024 issued under this provision, contending that recovery proceedings were premature and unjustified due to procedural irregularities in the preceding adjudication.

The Court, by setting aside the impugned order under Section 74(9), implicitly held that the recovery notice and attachment of bank accounts could not be sustained without proper adjudication and opportunity to the petitioner. The matter was thus remitted for fresh adjudication before any recovery action could proceed.

3. SIGNIFICANT HOLDINGS

- "Though several contentions have been urged by both sides as regards to the petitioner not having received the pre-intimation notice and show-cause notice and his inability and omission to contest the proceedings, it is a matter of record and an undisputed fact that the petitioner did not submit his reply to the show-cause notice or pre-intimation notice nor contested the proceedings, which culminated in the impugned ex-parte order."

- "Having regard to the specific assertion on the part of the petitioner that his inability and omission to submit replies and contest the proceedings was due to bona fide reasons, unavoidable circumstances and sufficient cause, I deem it just and appropriate to adopt a justice oriented approach and provide one more opportunity to the petitioner by setting aside the impugned order dated 05.10.2023 and remitting the matter back to the first respondent for reconsideration of the matter afresh in accordance with law to the stage of petitioner submitting reply to the impugned show-cause notice."

- The Court established the principle that even in statutory proceedings where ex-parte orders are permissible, the failure of effective communication of notices and bona fide non-response justifies setting aside such orders and granting an opportunity to be heard to uphold the principles of natural justice.

- The final determination was to allow the petition, set aside the impugned order under Section 74(9), direct the petitioner to appear before the authority on a specified date without awaiting further notice, and permit the petitioner to submit replies and documents. The authority was directed to provide reasonable opportunity and proceed in accordance with law.