2018 (9) TMI 2002 - HC - GST

Tax Authority Must Issue Show Cause Notice Before Imposing 15% Penalty Under Section 74 of APGST Act

HC ruled that tax authority cannot demand 15% penalty without issuing a show cause notice under Section 74 of APGST Act. The order directing penalty ... Voluntary payment under Section 74(5) of the APGST Act - requirement of show cause notice for recovery of penalty under Section 74(1) of the APGST Act - preclusive effect of voluntary 15% penalty payment on recovery of higher penalty - assessment or demand without issuance of show cause noticeVoluntary payment under Section 74(5) of the APGST Act - requirement of show cause notice for recovery of penalty under Section 74(1) of the APGST Act - assessment or demand without issuance of show cause notice - Validity of the order directing the petitioner to pay penalty at 15% without issuance of a show cause notice for the tax period March, 2018. - HELD THAT: - The court held that Section 74(5) permits a person chargeable with tax to, before service of a notice under subsection (1), voluntarily pay the tax with interest under Section 50 and a penalty equivalent to 15% of such tax and inform the proper officer in writing. Section 74(1), by contrast, requires the proper officer to serve a show cause notice before recovering a penalty equivalent to the tax specified in the notice. Section 74(5) therefore enables the dealer to limit liability to a 15% penalty if he elects to make such voluntary payment prior to receipt of a notice, but it does not impose an obligation on the dealer to make that payment in the absence of a notice. The power of the assessing authority to recover penalty beyond the 15% (i.e., penalty equivalent to the tax specified in a notice) arises only after issuance of a show cause notice under Section 74(1). Consequently, an order calling upon the petitioner to pay a 15% penalty without any prior show cause notice was without jurisdiction to the extent it coerced such payment, and that part of the order was liable to be set aside. The court expressly left open the respondent's right to issue a penalty notice and recover penalty in accordance with Section 74(1). [Paras 6, 7]The impugned order is set aside to the limited extent that it called upon the petitioner to pay penalty at 15% without issuance of a show cause notice; the respondent remains free to issue a penalty notice and recover penalty under Section 74(1).Final Conclusion: Writ petition disposed of at admission stage; the direction to pay 15% penalty without a show cause notice is quashed for the tax period March, 2018, while preserving the State's statutory right to issue a penalty notice and recover penalty under Section 74(1) of the APGST Act. Issues:Challenge to order directing payment of tax and penalty without assessment order or show cause notice.Analysis:The Writ Petition challenged an order by the second respondent directing the petitioner to pay tax and penal interest without issuing an assessment order under Section 61 of the Andhra Pradesh Goods and Services Tax Act, 2017, and without a show cause notice. The petitioner admitted liability but questioned the validity of being asked to pay a 15% penalty without a show cause notice. The relevant sections of the APGST Act were examined, specifically Section 74(1) and Section 74(5). Section 74(5) allows a person to pay tax, interest, and a 15% penalty before receiving a notice under Section 74(1). However, it does not mandate payment of the 15% penalty without a show cause notice. The petitioner has the discretion to pay the 15% penalty on their own accord, but the assessing authority cannot demand the remaining 85% penalty without issuing a show cause notice.The Court held that the order directing the petitioner to pay a 15% penalty without a show cause notice was set aside. The validity of the order was not challenged on any other ground in the Writ Petition. The Court clarified that setting aside the order does not prevent the respondent from issuing a penalty notice and recovering the penalty as per Section 74(1) of the APGST Act. The Writ Petition was disposed of accordingly, with no order as to costs. Any pending miscellaneous petitions were to be closed.