2025 (7) TMI 463 - HC - GST

Challenge to impugned order and a notice in Form GST DRC-01 - non-application of mind on the part of the respondent - violation of principles of natural justice - time limitation - filing of appeal belatedly before the appellate Commissioner - HELD THAT - This Court has come to rescue the persons like the petitioner on terms. In this case at the time of filing of the appeal before the appellate Commissioner the petitioner had deposited 10% of the disputed tax. That apart more than 25% of the disputed tax have been recovered during the course of time. Considering the same the impugned order is quashed and the case is remitted back to the respondents to pass fresh orders on merits and in accordance with law after hearing the petitioner within a period of three months from the date of receipt of a copy of this order. The petitioner shall file a reply to the show cause notice by treating the impugned order as an addendum to the show cause notice within a period of 30 days from the date of receipt of a copy of this order. Petition disposed off by way of remand.

Summary

1. ISSUES PRESENTED and CONSIDERED

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

• Whether the impugned order passed by the respondents under the GST framework suffers from non-application of mind and procedural infirmities, particularly regarding the consideration of the petitioner's reply and the absence of a hearing;
• Whether the penalty, interest, and tax liabilities imposed in the impugned order are justified and supported by valid documentary evidence as required under the relevant GST provisions;
• The propriety and legality of the respondents' reliance solely on the petitioner's reply dated 08.11.2024 without adequate evaluation or verification;
• The adequacy of the appellate process, including the petitioner's belated appeal and the dismissal thereof, and the implications for the petitioner's rights;
• The appropriate remedial course of action in light of the procedural lapses and the petitioner's partial payment of disputed tax amounts during the appeal process.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Non-application of mind and procedural lapses in the impugned order

Relevant legal framework and precedents: Under the GST laws (CGST, SGST, and IGST Acts of 2017), any order imposing tax, penalty, or interest must be passed after due consideration of the taxpayer's submissions and evidence, and after affording an opportunity of hearing. Principles of natural justice require that a show cause notice and reply be properly evaluated before finalizing an order.

Court's interpretation and reasoning: The Court observed that the impugned order explicitly states that the petitioner's reply was "not convincing and not acceptable" due to lack of valid documentary evidence, yet the order does not reflect any detailed examination or discussion of the petitioner's submissions. The operative portion reveals a mechanical rejection without adequate reasoning or application of mind. Furthermore, the petitioner was not heard prior to passing the order, which is a fundamental procedural lapse.

Key evidence and findings: The petitioner had filed a reply dated 08.11.2024 to the show cause notices issued in Forms GST DRC 01A and DRC-01. However, the impugned order dismisses the reply summarily. The Court noted that the petitioner was not afforded a hearing before the order was passed.

Application of law to facts: The failure to provide a hearing and the absence of reasoned consideration of the petitioner's reply contravene principles of natural justice and statutory requirements under the GST regime.

Treatment of competing arguments: The respondents contended that the reply was examined and found insufficient, justifying confirmation of the proposals. The Court found this approach inadequate, emphasizing that mere rejection without detailed evaluation and hearing is impermissible.

Conclusion: The impugned order suffers from non-application of mind and procedural unfairness, warranting its quashing and remand for fresh consideration.

Issue 2: Validity of tax, penalty, and interest liabilities imposed

Relevant legal framework and precedents: The tax liability arises from discrepancies between GSTR 3B returns and E-Way Bills, attracting penalties under Section 73(5) and Section 73(9) of the CGST/SGST Acts, and Section 20 of the IGST Act. Interest is imposed under Section 50(1) of the TNGST Act, 2017. General penalty under Section 125 is levied for non-maintenance of accounts and registers.

Court's interpretation and reasoning: The Court noted that the impugned order imposed a total liability of Rs. 50,48,632/- comprising tax, penalty, and interest. However, the petitioner's reply, which presumably challenged these liabilities, was summarily rejected without supporting documentary evidence being considered. The Court did not delve into the substantive correctness of the tax and penalty amounts but emphasized that such liabilities must be imposed only after proper evaluation of evidence.

Key evidence and findings: The discrepancy in tax liability was based on comparison between GSTR 3B returns and E-Way Bills. The petitioner had contested these discrepancies. The respondents' order imposed penalties at 10% of tax due or the prescribed minimum, and interest at 18% per annum, calculated up to the date of the order.

Application of law to facts: The imposition of penalty and interest is statutory, but contingent upon proper determination of tax liability and procedural fairness. Since the petitioner's contentions were not duly considered, the validity of imposed liabilities remains unsubstantiated.

Treatment of competing arguments: The respondents relied on statutory provisions to justify penalties and interest. The petitioner argued that the liabilities were incorrectly assessed and that procedural lapses vitiated the order. The Court sided with the petitioner on procedural grounds, without adjudicating the substantive tax liability.

Conclusion: The penalty, interest, and tax liabilities imposed cannot stand without proper adjudication on merits and evidence; the matter requires fresh determination.

Issue 3: Adequacy of appellate process and petitioner's partial payment of disputed tax

Relevant legal framework and precedents: The GST Acts provide for an appellate mechanism to challenge orders passed by tax authorities. Timely filing of appeals is mandated, but courts have discretion to consider belated appeals under certain circumstances. Deposit of a portion of disputed tax is often a condition precedent to maintain the appeal.

Court's interpretation and reasoning: The petitioner had filed a belated appeal before the appellate Commissioner, which was dismissed. The petitioner subsequently filed a writ petition but did not press for relief therein. The Court noted that at the time of filing the appeal, the petitioner had deposited 10% of the disputed tax, and over 25% of the disputed amount had been recovered during the proceedings.

Key evidence and findings: The partial payment of disputed tax by the petitioner reflects an attempt to comply with procedural requirements and mitigate the liability.

Application of law to facts: The Court observed that such partial compliance and the circumstances of the appeal warranted a remedial approach rather than outright dismissal or upholding of the impugned order.

Treatment of competing arguments: The respondents maintained the dismissal of the appeal was proper. The petitioner sought relief based on procedural irregularities and partial compliance. The Court took a balanced view, acknowledging the petitioner's partial payments and procedural lapses by the respondents.

Conclusion: The appellate process and partial payments justify remitting the matter for fresh adjudication rather than sustaining the impugned order.

3. SIGNIFICANT HOLDINGS

The Court held that