High Court sets aside tax demand, emphasizes statutory compliance & natural justice under GST Act

The High Court allowed the writ petition, setting aside the tax demand and interest orders passed by the respondents. The Court emphasized the importance of adhering to statutory provisions and principles of natural justice under the GST Act. It directed the petitioner to respond to the now-served show cause notice within four weeks, enabling the respondents to issue fresh orders after a hearing, ensuring compliance with legal procedures and upholding fairness in tax matters.

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Issues:
Challenge to tax demand and interest under GST Act, dismissal of appeal on grounds of limitation, non-service of show cause notice, violation of principles of natural justice.

Analysis:

The petitioner, engaged in manufacturing and selling auto parts, challenged a tax demand of Rs. 91,450 and interest imposed by the respondent under GST DRC-07. The petitioner contended that no show cause notice was served before the demand order, and the subsequent appeal dismissal was based on limitation grounds. The petitioner claimed eligibility for input tax credit and alleged lack of receipt of any order prior to the demand notice.

The Court noted the petitioner's argument regarding the absence of a show cause notice and reasoned order, calling for a counter affidavit from the respondents. The counter affidavit admitted sending the notice to the wrong email address due to clerical error. The absence of a reasoned order quantifying the demand was highlighted, indicating a violation of statutory provisions and principles of natural justice.

Emphasizing that service at a wrong email address does not comply with the Act's requirements, the Court found the orders arbitrary and against the prescribed procedure. It concluded that the orders were in clear violation of natural justice principles due to the lack of proper notice and reasoning for the demand imposition.

Consequently, the Court allowed the writ petition, setting aside the orders dated 24.1.2019 and 27.7.2020 passed by the respondents. The petitioner was directed to respond to the now-served show cause notice within four weeks, allowing the respondents to issue fresh orders after a hearing, ensuring compliance with legal procedures.

The judgment highlighted the importance of adhering to statutory provisions and principles of natural justice in tax matters under the GST Act, ensuring proper notice, and reasoned orders to uphold fairness and procedural integrity.

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