Show cause notice requirement under GST bars compulsory 15% penalty demand before notice is issued.

Section 74 of the Andhra Pradesh GST Act requires a show cause notice where tax has not been paid, short-paid, erroneously refunded, or input tax credit has been wrongly availed or utilised, and the person must be asked to explain the proposed tax, interest and penalty. The provision allowing pre-notice payment of tax, interest and a 15% penalty is only an enabling option for the dealer and does not permit the authority to compel that penalty without first issuing notice under Section 74(1). On that basis, a 15% penalty demand raised without notice was held unsustainable and set aside to that extent.

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Issues: Whether penalty at 15% could be demanded from the assessee without issuance of a show cause notice under Section 74 of the Andhra Pradesh Goods and Services Tax Act, 2017.

Analysis: Section 74(1) contemplates issuance of notice to a person chargeable with tax where tax has not been paid, short-paid, erroneously refunded, or input tax credit has been wrongly availed or utilised, requiring him to show cause against the proposed tax, interest, and penalty. Section 74(5) permits the person, before service of notice under sub-section (1), to pay tax, interest, and a penalty equivalent to 15% of such tax on his own ascertainment or as ascertained by the proper officer. The provision is enabling and gives the dealer an option to make such payment to avoid exposure to the higher penalty contemplated upon notice. It does not authorise the authority to compel payment of 15% penalty in the absence of a notice under Section 74(1).

Conclusion: The demand of penalty at 15% without a show cause notice was not sustainable and was set aside to that extent in favour of the assessee.

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