2025 (7) TMI 58 - HC - GST

Legality and validity of Annexure P4 and P5 of the writ application - proceedings for willful disobedience and disregard shown to the order of this Court - HELD THAT - No rejoinder to the show cause filed on behalf of respondent no. 5 and respondent no. 6 has been filed by the petitioner therefore the statements made therein remained uncontroverted. In the circumstances this Court accepts the reasons shown by respondent nos. 5 and 6. The notice for initiation of contempt is not required to be proceeded with. This Court directs the State respondents to pay simple interest at the rate of 9% per annum from the date of recovery of the amount till the date of refund to the petitioner. The said payment shall be made within a period of six weeks from today - since it is noticed that the recovery was made illegally and that has resulted in litigation the respondents are directed to pay cost of Rs. 10, 000/- to the petitioner within the same period. This writ application stands disposed of accordingly.

Summary

The core legal questions considered by the Court in this matter were:

1. Whether the impugned orders contained in Annexures 'P4' and 'P5' were legally valid and sustainable.

2. Whether the Assistant Commissioner of State Tax (Respondent No. 5) and the Appellate Authority (Respondent No. 6) acted in willful disobedience and disregard of the Court's earlier judgment in the case of SIS Cash Services Private Limited.

3. Whether proceedings for contempt should be initiated against Respondents No. 5 and 6 for non-compliance with the Court's prior directions.

4. Whether interest and costs should be awarded to the petitioner due to the illegal recovery of amounts and consequent litigation.

Issue-wise Detailed Analysis

1. Legality and Validity of Annexures 'P4' and 'P5'

The Court had earlier, in its judgment dated 06.05.2025, set aside the impugned orders contained in Annexures 'P4' and 'P5'. These orders pertained to demands raised under the Central/Bihar Goods and Services Tax Act, 2017, specifically under Section 73. The Court's earlier decision found the recovery under these orders to be illegal, which formed the basis for the present proceedings.

The relevant legal framework involved the provisions of the GST Act, particularly the powers of tax authorities to issue demands and the procedural safeguards available to taxpayers. The Court's prior ruling emphasized adherence to statutory provisions and judicial precedents, including the binding effect of the judgment in SIS Cash Services Private Limited.

The Court's reasoning was grounded in ensuring that tax authorities act within the ambit of law and do not disregard binding judicial decisions. The impugned orders were quashed due to non-compliance with these principles.

2. Alleged Willful Disobedience and Contempt Proceedings

The Court issued notices to Respondents No. 5 and 6 to show cause why contempt proceedings should not be initiated for alleged willful disobedience of the Court's earlier order in SIS Cash Services Private Limited. The legal question was whether the respondents knowingly disregarded the binding judgment, thereby warranting contempt action.

Respondent No. 5 contended that the impugned order was passed after due verification of records from the GST-BO Portal and was in accordance with Section 73 of the GST Act. Importantly, it was submitted that the judgment in SIS Cash Services was not brought to her notice. However, this plea was not supported by any affidavit or documentary evidence, weakening its credibility.

Respondent No. 6 averred that the law laid down in SIS Cash Services was not communicated to him either by the petitioner or any other source. He explained that the petitioner had filed a statutory appeal challenging the demand order and sought admission under the appeal amnesty scheme as per Notification No. 53 of 2023 CGST. The Appellate Authority rejected the appeal on the ground that the notification did not cover orders passed under Section 62, which was the basis of the demand. This explanation indicated an absence of deliberate disobedience but rather a misunderstanding or lack of knowledge of the Court's ruling.

The Court noted that neither respondent filed any rejoinder or affidavit contesting their explanations, and thus accepted their reasons. Consequently, the Court declined to proceed with contempt action.

3. Award of Interest and Costs

The remaining issue was whether the petitioner was entitled to interest and costs due to the illegal recovery and resultant litigation. The legal principle here is that when a recovery is found to be illegal, the party affected is entitled to restitution, including interest for the period during which the amount was withheld, and costs incurred due to the litigation.

Upon hearing, the State respondents, through the Advocate General, offered to pay simple interest at the rate of 9% per annum from the date of recovery until the date of refund. The petitioner accepted this offer.

The Court directed the State respondents to pay the interest within six weeks. Additionally, the Court imposed a cost of Rs. 10,000/- on the respondents, recognizing that the illegal recovery caused unnecessary litigation and hardship to the petitioner.

The Court also observed that the State Government retained the right to recover the interest and cost amount from the officials responsible for the erroneous recovery, underscoring accountability within the administration.

Significant Holdings

The Court's crucial legal reasoning included:

"While setting aside the impugned orders as contained in Annexures 'P4' and 'P5' of the writ application, the consequences shall follow."

"We issue notice to the Assistant Commissioner of State Tax... to show cause as to why this Court should not award interest and cost which would be recovered from her."

"We also call upon the Appellate Authority... to satisfy this Court as to why a proceeding for contempt be not initiated against him for acting in willful disobedience and disregard to the order of this Court passed in the case of SIS Cash Services (supra)."

"No rejoinder to the show cause filed on behalf of respondent no. 5 and respondent no. 6 has been filed by the petitioner, therefore, the statements made therein remained uncontroverted. In the circumstances, this Court accepts the reasons shown by respondent nos. 5 and 6. The notice for initiation of contempt is not required to be proceeded with."

"Accordingly, this Court directs the State respondents to pay simple interest at the rate of 9% per annum from the date of recovery of the amount till the date of refund to the petitioner."

"In the facts and circumstances of the case, since we have noticed that the recovery was made illegally and that has resulted in litigation, we direct the respondents to pay cost of Rs. 10,000/- (Rupees Ten Thousand Only) to the petitioner within the same period."

Core principles established include the requirement for tax authorities to adhere strictly to judicial pronouncements and statutory provisions, the necessity of communicating binding legal developments to relevant authorities, and the entitlement of a taxpayer to interest and costs when illegal recovery is made. The Court also affirmed the procedural fairness in allowing respondents to explain their conduct before initiating contempt proceedings and upheld the principle of accountability by permitting recovery of interest and costs from erring officials.

Final determinations were:

- The impugned orders were quashed.

- Contempt proceedings against Respondents No. 5 and 6 were not warranted.

- The State respondents were directed to pay simple interest at 9% per annum and costs of Rs. 10,000/- to the petitioner within six weeks.

- The State Government was entitled to recover the interest and cost from responsible officials.