2020 (11) TMI 786 - HC - GST

Court invalidates tax demand due to improper communication under CGST Act, stresses procedural compliance for natural justice

The Court held that the demand raised against the petitioner for non-payment of tax was invalid due to the failure to properly communicate the show-cause ... Service of show-cause notice by uploading on revenue portal - Rule 142 - notice and order for demand of amounts payable - exclusive statutory mode of communication - violation of principle of natural justiceRule 142 - notice and order for demand of amounts payable - service of show-cause notice by uploading on revenue portal - violation of principle of natural justice - exclusive statutory mode of communication - Validity of the demand in FORM GST DRC-07 dated 18.09.2020 where foundational show-cause notices/orders dated 10.06.2020 were not uploaded on the revenue website as prescribed under Rule 142. - HELD THAT: - The Court examined Rule 142 and observed that the statutory prescription requires the proper officer to upload summaries of notices and orders on the electronic system as the mode of communication. The State conceded that the foundational show-cause notices/orders dated 10.06.2020 were communicated to the petitioner only by e-mail and not uploaded on the revenue website. Applying the settled principle that when a particular procedure is statutorily prescribed alternative modes are excluded, the Court found that the statutory mode of communication under Rule 142 was not followed. Non-compliance with the prescribed procedure resulted in a breach of the petitioner's right to be made aware of the reasons for the demand and thereby occasioned a violation of the principles of natural justice. For these reasons the Court concluded that the impugned demand in FORM GST DRC-07 dated 18.09.2020 could not be sustained. [Paras 6, 7, 8, 9]The demand dated 18.09.2020 in FORM GST DRC-07 pertaining to the specified financial years and tax periods is struck down for failure to comply with the statutory mode of communication under Rule 142.Service of show-cause notice by uploading on revenue portal - exclusive statutory mode of communication - Whether the revenue may re-initiate proceedings after complying with Rule 142. - HELD THAT: - Having struck down the impugned demand for want of compliance with the prescribed procedure, the Court granted the revenue liberty to follow the procedure mandated under Rule 142 by communicating the show-cause notice to the petitioner by the appropriate (electronic/upload) mode. Thereafter the revenue is permitted to proceed in accordance with law, thereby allowing fresh consideration consistent with statutory requirements and affording the petitioner the opportunity to avail remedies provided under the statute. [Paras 10]Petition allowed but revenue granted liberty to communicate the notice in accordance with Rule 142 and then proceed as per law.Final Conclusion: Writ petition allowed; impugned demand dated 18.09.2020 for the stated financial years and tax periods is set aside for failure to comply with Rule 142, with liberty to the revenue to communicate the show-cause notice by the prescribed mode and thereafter proceed in accordance with law. Issues:Violation of principle of natural justice regarding communication of show-cause notice/orders under Rule 142 of CGST Act.Analysis:The petitioner filed a writ petition seeking various reliefs under Articles 226 and 227 of the Constitution. The main grievance was that the demand of tax raised against the petitioner was not communicated properly. The foundational show-cause notice/orders dated 10.06.2020 were allegedly not received by the petitioner, who is registered under the GST Act. The Court, considering the violation of the principle of natural justice under Rule 142 of the CGST Act, sought a reply from the State regarding the communication of the said notice/orders to the petitioner.The State responded by stating that the show-cause notice/orders were sent to the petitioner's email address, and despite receiving them, the petitioner did not respond. The petitioner argued that Rule 142(1) of the CGST Act mandates the revenue department to communicate such notices by uploading them on the revenue website. The petitioner contended that this mode of communication allows the aggrieved person to access the reasons behind the demand and seek remedies under the CGST Act.The Court examined Rule 142 of the CGST Act, which specifies the procedure for serving notices and orders for demand of amounts payable under the Act. The rule emphasizes electronic communication of summaries of notices and orders to the concerned parties. The Court noted that the State failed to provide evidence that the show-cause notice/orders were uploaded on the revenue website. It was acknowledged by the State's counsel that the communication was done via email and not in accordance with the statutory requirement of uploading on the revenue website.Considering the statutory provision and the principle that prescribed procedures must be strictly followed, the Court held that the demand dated 18.09.2020, pertaining to specific financial years and tax periods, was invalid due to non-compliance with the communication procedure under Rule 142(1) of the CGST Act. Consequently, the Court allowed the petition, striking down the impugned demand and granting liberty to the revenue to follow the prescribed procedure for communication of show-cause notices in the future.In conclusion, the judgment focused on the importance of adhering to statutory procedures for communication of notices and orders under the CGST Act to ensure the principles of natural justice are upheld. The Court's decision highlighted the significance of proper communication methods to enable aggrieved parties to understand the reasons behind demands and seek appropriate remedies under the law.