GST Demand Order cannot be passed without issuing Show Cause Notice

Yash Building Material Vs State of U.P. And 2 Others (Allahabad High Court)

Introduction: In a landmark decision, the Allahabad High Court, in the case of Yash

Building Material v. State of Uttar Pradesh [Writ Tax No. 1435 of 2022 dated January 31, 2024], declared demand orders without a Show Cause Notice (SCN) as legally

baseless. The court’s ruling, dated January 31, 2024, emphasizes the importance of due process in tax matters.

Facts:

Yash Building Material (“the Petitioner”) were served a Notice dated June 4, 2021 under Section 74(5) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) wherein it was stated that the tax was payable by the Petitioner.

As per the law, upon non-payment of the tax, Section 74(7) of the CGST Act states that the proper officer is required to give a notice under Section 74(1) of the Uttar Pradesh Goods and Services Tax Act, 2017 (“the UPGST Act”).

However, the said procedure was not followed. The Assistant Commissioner (“the Respondent”) did not serve the SCN to the Petitioner. Instead, an Order dated July 30, 2021 (“the Impugned Order”) was passed by the Respondent.

The Petitioner appealed against the Impugned Order on the ground that no notice was issued to the Petitioner under Section 74(1) of the UPGST Act. However, an Order dated August 31, 2022 (“the Impugned Order”) was passed by the Additional Commissioner (“the Respondent”).

Hence, aggrieved by the Impugned Orders, the Petitioner has filed the present writ petition.

Issue:

Whether the demand orders can be passed without issuance of the SCN?

Held:

The Hon’ble Allahabad High Court in Writ Tax No. 1435 of 2022 held as under:

Directed that, the Respondents to proceed in the matter after issuing SCN under Section 74(1) of the UPGST Act.

Held that, proper SCN was not issued to the Petitioner. Therefore, all the Impugned Orders were baseless and were issued without any basis of law. Hence, the Impugned Orders were quashed and set aside.

Our Comments:

Section 74 of the CGST Act talks about “Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any wilful-misstatement or suppression of facts”. According to Section 74(1) of the CGST Act, where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by

reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under Section 50 of the CGST Act and a penalty equivalent to the tax specified in the notice.

In Pari Materia case of Prity Dokania v. State of Jharkhand [Writ Petition (T) No. s 27, 28, 29, 37, 41,58 of 2021 and Ors. dated September 14, 2022], the Hon’ble High Court of Jharkhand held that summary of SCN, summary of order and consequential orders issued without issuance of SCN and without offering hearing are required to be quashed. The concerned authority should pass fresh orders after following principles of natural justice.

Therefore, in the current case the demand order should have been issued after the issuance of SCN.

Conclusion: The judgment delivered by the Allahabad High Court sets a precedent, emphasizing the necessity of issuing Show Cause Notices before passing demand orders. In accordance with Section 74 of the CGST Act, the court’s decision aligns with principles of natural justice, ensuring fairness and procedural regularity.

FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT

1. Heard Sri Pranjal Shukla, learned counsel for the petitioner and Sri Ravi Shanker Pandey, learned Additional Chief Standing Counsel for the State.

2. This is a writ petition under Article 226 of the Constitution of India, wherein the petitioner has challenged the order dated July 30, 2021 passed by respondent No.3/Assistant Commissioner, Sector-6, Muzaffarnagar and the order passed in appeal dated August 31, 2022 by respondent No.2/Additional Commissioner, Grade-2 (Appeal), Commercial Tax, Muzaffarnagar on the ground that no notice was issued to the petitioner under Section 74(1) of Uttar Pradesh Goods and Services Tax Act, 2017 (hereinafter referred to as “the Act”).

3. From the record, it is clear that a notice was issued to the petitioner under Section 74(5) of the Act on June 4, 2021 wherein officer asserted that the tax is payable by the assessee. However, upon non-payment of the tax, Section 74(7) of the Act would come into play and the proper officer is required to give a notice under Section 74(1) of the Act. This procedure, that is to be followed, was not followed and no show cause notice was issued to the petitioner. Instead of the same, the impugned order dated July 30, 2021 was passed.

4. From the above factual matrix, it is clear that proper show cause notice was not issued to the petitioner, and therefore, all the orders impugned herein are without any basis of law. In my opinion, the impugned orders are required to be set aside.

5. Accordingly, impugned orders dated July 30, 2021 and August 31, 2022 are quashed and set aside.

6. The respondents are at liberty to proceed in the matter after issuing notice under Section 74(1) of the Act.

7. With the aforesaid observations, the writ petition is allowed.