RECOVERING TAX FROM THE LEDGERS BY THE DEPARTMENT, DESPITE PAYMENT OF TAX WITHIN 30 DAYS OF ASSESSMENT ORDER – INVALID

The registered person under the Central Goods and Services Tax Act, 2017 (‘Act’ for short) is to pay the tax and also to file returns required under the provisions of the Act.  If the registered person fails to file the required return especially Form GSTR – 3B, the department may issue a notice to the registered person with directions to file the return within the time stipulated in the notice and pay the tax.  If the registered person fails to file the return and the pay the tax then the assessment may be done by the Department under Section 62 (assessment of non-filers of the return) of the Act. 

Section 62(1) of the Act provides that where a registered person fails to furnish the return even after the service of the notice, the proper officer may proceed to assess the tax liability of the said person to the best of hiw judgment taking into account all the relevant material which is available or which he has gathered and issue an assessment order within a period of 5 years from the date specified under section 44 of the Act for furnishing of the annual return of the financial year to which the tax not paid relates.

Section 62(2) of the Act provides that where the registered person furnishes a valid return within 30 days of the service of the assessment order the said assessment order shall be deemed to have been withdrawn but the liability for payment of interest under section 50(1) or payment of late fee under section 47 shall continue.

 In M/s Great Eastern Hire Purchase Private Limited Versus The State of Bihar through The Principal Secretary, State Tax, Bihar, Patna, The Principal Secretary cum Commissioner, Department of State Taxes, Government of Bihar, Patna, Joint Commissioner of State Tax, Gandhi Maidan Circle, Patna, Deputy Commissioner of State Tax, Gandhi Maidan Circle, Patna, Assistant Commissioner of State Tax, Gandhi Maidan Circle, Patna, Additional Commissioner of State Tax (Appeals), Patna West Division, Patna, The Union of India, The Government of India, Ministry of Finance (Department of Revenue), through the Principal Commissioner, CBIC, New Delhi - 2025 (5) TMI 731 - PATNA HIGH COURT, the petitioner company could not file its GSTR – 3B return for the month of July 2019.  For this reason, the department issued a notice in Form GSTR – 3A under Section 46 of the Act read with Rule 68 on 20.08.2019.  In the said notice the petitioner was directed to file the return within 15 days failing which assessment will be done in accordance with section 62 of the Act.  On 12.09.2019 the Department passed an adjudication order.  As per the version of the Department a demand order in Form GST ASMT 13 was served on the petitioner. 

The petitioner filed an appeal before the First Appellate Authority challenging the assessment order passed under Section 62 of the Act.  The appeal was rejected on the ground of limitation.

The petitioner, challenging the assessment order and the rejection of appeal, filed a writ petition before the High Court seeking to-

• set aside the impugned assessment order of adjudicating Authority and the rejection of appeal by the Appellate Authority;
• refund the tax paid by the petitioner Rs.1,12,15,944/- unlawfully recovered from the petitioner, without giving the petitioner any reasonable opportunity, along with the interest.

The petitioner submitted the following before the High Court-

• The petitioner filed its GSTR -3B return on 19.09.2019.
• The Department did not issue any notice in Form GST ASMT – 13 on the petitioner.  Therefore, the whole proceeding undertaken by the department stand vitiated.
• The Department issued the summary of demand order in Form DRC – 07 demand tax and interest to the tune of Rs.1,34,84,183.12/-.
• The petitioner paid the tax due within one month from the date of summary of demand notice order dated 12.09.2019.
• Where the registered person furnishes a valid return within 30 days of the service of the assessment order under Section 62(1) of the Act the said assessment order shall deemed to have withdrawn.  In this case the assessment order deemed to have been withdrawn since the petitioner paid the dues within 30 days from the date of assessment.
• Despite the tax payment made by the petitioner, the Department, without verifying the filing of return and payment of tax, issued order for recovery of the amount from the credit ledger and cash ledger of the petitioner.
• Against the said assessment order the petitioner filed an appeal before the Commissioner (Appeals) who rejected the appeal on the ground of limitation. 
• Therefore, there is no other mode of getting remedy except to file the present writ petition before the High Court.
• Since the petitioner was being harassed by the Departmental officer, the petitioner is entitled to recover the cost from the Department.

The Department submitted the following before the High Court-

• The petitioner did not inform the Department that the petitioner has filed its return and paid the tax due on it within the prescribed period
• The Department sent two emails to the petitioner on 22.08.2019 and 12.09.2019.

The High Court in their interim orders held that the assessment order was passed and the demand was raised under Section 62 of the Act on 12.09.2019 by virtue of the return filed under Section 62(2) of the Act, the assessment order and the demand stands withdrawn.

For this the Department raised no objections and agreed to the order of the High Court.  The Department submitted that the impugned orders may be set aside and the matter may be remanded to the Assessing Authority.

The High Court considered the submissions of the petitioner and the Department.  The High Court found that grave injustice has been caused to the petitioner by a completely unlawful recovery of demand.  It is an admitted position that the petitioner had already filed its return in Form GSTR – 3B and paid tax on 19.09.2019, which was well within the statutory period from the date of the impugned assessment order.  Therefore, by virtue of Section 62(2) of the Act, the assessment order lost its existence and efficacy in the eye of the law and therefore, there is no reason for the Department to recovery the said demand.

The High Court considered the contentions of the petitioner that the order is half written and then it has been cut down. The High Court observed that the orders available on the record there was an application of the assessee in which he had given some information with reference to DRC-07 but the complete order was not written and after vetting few lines, the said order was cut down.  By ignoring the facts that the petitioner filed its return Form GSTR – 3B and paid its dues, the Department passed order for the recovery of the amount from the ledgers of the petitioner.

The High Court was of the view that the Department has acted in complete violation of the established procedure of law.  The Authority has misused its power and thereby passed illegal order.  The Authority did not think it just and proper to even issue a notice to the petitioner prior to passing an order of recovery which the Authority passed after 5 years from the date of the demand.

The High Court further observed that the Appellate Authority rejected the appeal filed by petitioner despite the petitioner relied on the Judgment of this High Court in SIS Cash Services Pvt. Ltd. Versus Union of India, Commissioner of Central GST and Central Excise, Patna-1 and Assistant Commisioner, State Taxes Special Circle, Patna. - 2024 (1) TMI 1465 - PATNA HIGH COURT and the action of the Appellate Authority is contemptuous.  The High Court called upon the Appellate Authority as to why a proceeding of contempt be not initiated against him, for acting in wilful disobedience and disregard to the order of the High Court passe din ‘SIS Cash Services Private Limited’ (supra). 

The High Court further proposed to issue notice to the Adjudicating Authority who passed the impugned order to show cause as to why the High Court should not award interest and cost which would be recovered from the Adjudicating Authority.