The Hon'ble High Court of Madras in Tvl. K.S. Granite v. Assistant Commissioner (ST) [W.P. NO. 21451 OF 2024, August 7, 2024] held that where an assessee was not aware of the issuance of a show cause notice alleging difference in GSTR 3B and GSTR 2A, as it was only uploaded on the GST portal, and the assessee had not been heard before passing the impugned order raising demand, such an order suffered from violation of natural justice and was to be set aside.
Facts of the Case:
The petitioner, Tvl. K.S. Granite, is a Partnership Firm that has been operating its business for several years. During the Financial Year 2017-18, the petitioner claimed Input Tax Credit (ITC), which caught the attention of the first respondent, the Assistant Commissioner. Acting under the authority granted by Section 61 of the Goods and Services Tax Act, read in conjunction with Rule 89 of GST Rules, the first respondent initiated a scrutiny of the petitioner's ITC claim.
On September 22, 2023, the first respondent issued an intimation to the petitioner in Form GST DRC-01A. This intimation highlighted a discrepancy between the petitioner's GSTR-3B and GSTR-2A filings. Following this, on September 29, 2023, a show cause notice was issued to the petitioner. These actions culminated in two orders: one dated October 31, 2023, and another dated November 1, 2023.
The crux of the petitioner's grievance lay in the manner of communication adopted by the respondent. All notices and communications, including the show cause notice that led to the impugned orders, were exclusively uploaded to the GST Dashboard. These were placed under the 'View Notice and Orders' and 'View Additional Notices and Orders' tabs in the GST Portal. The petitioner, being a small business entity, claimed to be unaware of these digital notifications. Consequently, they neither accessed nor responded to these notices, failing to provide clarification on the discrepancy between their GSTR-3B and GSTR-2A filings.
The petitioner's ignorance of these proceedings persisted until June 2024. It was only then that the respondent contacted the petitioner via telephone, informing them about outstanding tax dues as per the order passed. The gravity of the situation further dawned on the petitioner when they received a letter notifying them about the attachment of their bank account.
Faced with these consequences, the petitioner approached the High Court, challenging the orders dated October 31, 2023, and November 1, 2023. The primary ground for this challenge was the alleged violation of natural justice principles, as the petitioner claimed they were not afforded an opportunity for personal hearing before the passing of these orders.
Held by the Court:
The Hon'ble High Court of Madras in Tvl. K.S. Granite v. Assistant Commissioner (ST) [W.P. NO. 21451 OF 2024, August 7, 2024] held that:
The court observed that the impugned orders were passed against the petitioner without their knowledge or participation. It noted that the respondent department had failed to serve any notices or communications, particularly the show cause notice and notice of personal hearing, to the petitioner through physical means. Instead, these crucial documents were only made available on the GST Portal. The court opined that this method of communication was insufficient, especially considering the petitioner's status as a small business entity that may not regularly access the GST Portal.
The court held that the petitioner had been denied the opportunity to be heard before the passing of the impugned orders. This denial of natural justice was deemed sufficient to render the impugned orders as ex parte orders, which the court declared unsustainable in law. The court emphasized that merely uploading notices and communications to the GST Dashboard under 'View Notice and Orders' and 'View Additional Notices and Orders' tabs cannot be considered adequate service of notice.
In light of these findings, the court held that the impugned orders dated October 31, 2023, and November 1, 2023, suffered from a violation of the principles of natural justice. The court observed that any order passed against an assessee without providing an opportunity for personal hearing and filing a reply directly contravenes Articles 14 and 19(1)(g) of the Constitution of India.
Based on these observations, the court set aside the impugned orders and remanded the matter back to the first respondent for fresh consideration. However, the court imposed a condition that the petitioner must deposit 10% of the disputed tax within four weeks from the date of receipt of the court order. The court further directed that after this deposit, the petitioner shall file a reply within two weeks, following which the respondent must provide a personal opportunity of hearing by issuing due notice. After fully hearing the petitioner, the respondent is to pass necessary orders in accordance with the law.
Lastly, the court addressed the issue of the petitioner's frozen bank account. It directed that once the petitioner provides a letter to the bank for the transfer of 10% of the disputed tax amount to the respondent department, the order freezing the petitioner's bank account (dated June 26, 2024) is to be revoked. The court allowed the writ petition on these terms, without imposing any costs on either party.
Relevant Sections:
Section 16 of Central Goods and Services Tax Act, 2017/ Tamil Nadu Goods and Services Tax Act, 2017
Section 61 of Goods and Services Tax Act
Rule 89 of GST Rules
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