2025 (6) TMI 2035 - HC - GST

Challenge to notice issued u/s 79(1)(c) of the Central Goods and Services Tax Act 2017 - Notice was not addressed to the petitioner but the same is addressed to the Branch Manager - HELD THAT - Section 79(1)(c)(vii) of the CGST Act provides that where a person on whom a notice is served under sub-clause (i) proves to the satisfaction of the officer issuing the notice that the money demanded or any part thereof was not due to the person in default or that he did not hold any money for or on account of the person in default at the time the notice was served on him nor is the money demanded or any part thereof likely to become due to the said person or be held for or on account of such person nothing contained in this section shall be deemed to require the person on whom the notice has been served to pay to the Government any such money or part thereof. In the present case the impugned notice though issued under Section 79(1)(c) was not addressed to the petitioner but the same is addressed to the Branch Manager of the 3rd respondent-Bank at Gurugram. The petitioner has stated that the petitioner does not have any bank account at Gurugram and the bank account referred to in the impugned notice is with the Mulund Branch. The petitioner has also pleaded that no amount is due and payable to M/s. Durga Madhab Panda (Urneed Online Retail) which is allegedly liable to pay GST dues to the extent of Rs. 30.19 crores. At this stage it is not proposed to examine the factual controversies or the rival factual contentions. Suffice to mention that Section 79 contemplates a notice to a person from whom the money is due or may become due to such person or holds or may subsequently hold money for or on account of such person to pay the amount to the Government either forthwith upon money becoming due or being held or within the time specified in the notice not being before the money becomes due or is held. In this case a notice had to be served upon the petitioner so that the petitioner would have an opportunity of proving to the satisfaction of the officer issuing the notice that no amount was due and payable by the petitioner to the person in default i.e. M/s. Durga Madhab Panda. No such notice was admittedly served upon the petitioner. On this short ground the impugned notice dated 9 July 2024 is liable to be quashed and set aside. The impugned order is set aside - petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered by the Court are:

(a) Whether the notice dated 9 July 2024 issued under Section 79(1)(c) of the Central Goods and Services Tax Act, 2017 (CGST Act) was validly served upon the petitioner or the appropriate party;

(b) Whether the procedural requirements under Section 79(1)(c) of the CGST Act, specifically the requirement of serving notice on the person from whom money is due or may become due, were complied with;

(c) Whether the impugned notice could be sustained despite being addressed to a bank branch (third party) rather than the petitioner, who was alleged to be the person from whom money was due;

(d) The applicability of Section 79(1)(c)(vii) of the CGST Act in allowing the recipient of the notice to prove that the money demanded was not due or held for the person in default;

(e) The procedural and substantive consequences of non-compliance with the mandatory notice requirements under Section 79(1)(c).

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Validity and Proper Service of Notice under Section 79(1)(c) of the CGST Act

The legal framework governing the issuance of recovery notices under the CGST Act is primarily Section 79, which empowers a proper officer to issue a written notice to any person from whom money is due or may become due to the person in default or who holds or may subsequently hold money for or on account of such person. The notice can require payment to the Government either forthwith upon the money becoming due or being held or within a specified time.

In the present case, the impugned notice was issued under Section 79(1)(c) but was addressed to the Branch Manager of a bank (the 3rd respondent) at Gurugram, rather than to the petitioner, who was alleged to be the person from whom money was due. The petitioner contended that it did not have any bank account at the Gurugram branch, but rather at the Mulund branch, and further denied that any amount was due and payable by it to the person in default.

The Court emphasized that Section 79 contemplates service of notice on the person from whom money is due or who holds money for or on account of such person, thereby giving that person an opportunity to respond and prove that no money is due or held. The absence of service on the petitioner deprived it of this opportunity.

Precedent was drawn from a decision of the Karnataka High Court, where a similar situation arose in which a notice was served directly on a bank rather than on the person allegedly liable to pay the dues. The Karnataka Court held that such service was in breach of the mandatory procedure prescribed under the CGST Act and quashed the notice without delving into the merits.

The Court reasoned that the procedural safeguard of serving notice on the person liable or holding money is mandatory and not directory, and failure to comply vitiates the notice.

Issue (c): Addressing the Notice to the Bank Branch Instead of the Petitioner

The Court analyzed the implications of addressing the notice to the bank branch rather than the petitioner. The petitioner's denial of having any account at the Gurugram branch, and the assertion that the relevant account was at a different branch, underscored the procedural impropriety of the notice.

The Court noted that the statutory scheme requires that the person who is liable or who holds money for the person in default must be served the notice so as to enable them to comply or contest the demand. Serving the notice on a bank branch where no account exists or where the petitioner has no connection does not satisfy the statutory mandate.

Issue (d): Applicability of Section 79(1)(c)(vii) - Burden on Notice Recipient to Prove Non-Liability

Section 79(1)(c)(vii) provides a safeguard for the person on whom the notice is served to prove to the satisfaction of the officer that the money demanded was not due or held for the person in default at the time of service, nor is it likely to become due or held for such person.

The Court highlighted that this provision presupposes that the notice is served on the correct person so that they have the opportunity to establish their non-liability. Since the petitioner was not served with the notice, it was deprived of this statutory right.

Issue (e): Consequences of Non-Compliance with Mandatory Notice Requirements

The Court concluded that the absence of proper service on the petitioner rendered the impugned notice invalid and liable to be quashed. The Court declined to examine the factual controversies or rival contentions regarding the substantive liability of the petitioner, restricting its decision to the procedural defect.

The Court granted liberty to the respondents to serve a fresh notice on the petitioner at the correct address, as stated by the petitioner, thereby preserving the respondents' right to pursue recovery in accordance with the statutory procedure.

3. SIGNIFICANT HOLDINGS

The Court held:

"Section 79 contemplates a notice to a person from whom the money is due or may become due to such person or holds or may subsequently hold money for or on account of such person to pay the amount to the Government, either forthwith upon money becoming due or being held or within the time specified in the notice not being before the money becomes due or is held."

"Where such notice is served on a person, he can prove to the satisfaction of the officer issuing the notice that the money demanded or any part thereof was not due to the person in default or that he did not hold any money for or on account of the person in default at the time the notice was served on him nor is the money demanded or any part thereof, likely to become due to the said person or be held for or on account of such person."

"In this case, a notice had to be served upon the petitioner so that the petitioner would have an opportunity of proving to the satisfaction of the officer issuing the notice that no amount was due and payable by the petitioner to the person in default... No such notice was admittedly served upon the petitioner. On this short ground, the impugned notice dated 9 July 2024 is liable to be quashed and set aside."

"The mandatory procedure prescribed under the CGST Act requires service of notice on the person from whom money is due or who holds money for or on account of such person. Failure to comply with this mandatory requirement renders the notice invalid."

"Liberty is granted to the respondents to serve a fresh notice on the petitioner so that the petitioner would have an opportunity to prove to the satisfaction of the officer issuing the notice that no amount was due and payable by the petitioner to the person in default."