GST scrutiny discrepancy notice and Section 73 tax demand process quashed for skipping Rule 142 hearing; remanded fresh from Section 61.

Initiation of tax determination proceedings under Section 73 of the CGST/OGST Act pursuant to scrutiny under Section 61 was held vitiated for breach of statutory procedure and natural justice. The HC held that once the proper officer elected to proceed under Section 73 (as permitted by Section 61(3) upon unsatisfactory explanation or failure to rectify discrepancies), the officer was bound to follow Section 73 read with Rule 142, including affording due opportunity of hearing. The discrepancy notice under Section 61 and the consequential order under Section 73 were therefore unsustainable in law and were quashed, and the matter was remanded for de novo proceedings from the Section 61 stage with a hearing.

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Issues Involved:

1. Validity of ex-parte order under Section 73 of the CGST/OGST Act.
2. Compliance with the principles of natural justice.
3. Application of Reverse Charge Mechanism.
4. Requirement of personal hearing before passing an adverse order.
5. Adherence to statutory provisions under Section 61 and Section 73 of the CGST/OGST Act.

Summary:

1. Validity of Ex-Parte Order:
The petitioner sought to quash the ex-parte order dated 31.01.2023 under Section 73 of the CGST/OGST Act, which directed payment of tax, interest, and penalty within three months, failing which recovery proceedings would be initiated as per Section 79 of the Act.

2. Compliance with Principles of Natural Justice:
The petitioner argued that the order was passed without verifying records or applying due diligence, and in gross violation of the principles of natural justice. The order was issued without affording a personal hearing, which is mandatory under Section 75(4) of the GST Act, 2017.

3. Application of Reverse Charge Mechanism:
The petitioner contended that the tax liability was incorrectly imposed on them despite the fact that Rungta Mines Limited, the receiver of the service, had already paid the CGST/OGST under the Reverse Charge Mechanism as notified by the Central Government.

4. Requirement of Personal Hearing:
The court noted that the notice dated 26.10.2022 in Form GST ASMT-10 marked the sections for personal hearing as "NA," indicating no opportunity for personal hearing was given to the petitioner. The court emphasized that personal hearing is mandatory before passing an adverse order, as held in various judgments, including Assistant Commissioner of State Tax v. M/s Commercial Steel Limited and M/s. Godrej Sara Lee Ltd.

5. Adherence to Statutory Provisions:
The court observed that the authority did not comply with the statutory provisions under Section 61 and Section 73 of the CGST/OGST Act. The notice issued under Section 61 did not provide for a personal hearing, and the subsequent order under Section 73 was passed without adhering to the principles of natural justice.

Conclusion:
The court quashed the notice dated 26.10.2022 and the order dated 31.01.2023, remanding the matter to the Assessing Authority to proceed de novo from the stage of issuance of notice under Section 61, ensuring due opportunity of hearing to the petitioner. The writ petition was disposed of without any order as to costs.

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