Appeal success in GST non-filing case highlights procedural flaws

The case involved issues regarding non-filing of GST returns, issuance of best judgment assessment order, consideration of input tax credit, calculation of interest on net GST liability, methodology for best judgment assessment in the real estate sector, violation of principles of natural justice, and imposition of penalty under the CGST Act. The appellant's arguments were upheld, highlighting flaws in the adjudicating authority's order. The case was remanded back to the authority with directions to adhere to proper procedures, issue a speaking order, and ensure principles of natural justice are followed. The appeal was disposed of accordingly.

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Issues Involved:
1. Non-filing of GST returns and issuance of best judgment assessment order.
2. Issuance of mandatory notice under Section 46 of the CGST Act.
3. Consideration of input tax credit in best judgment assessment.
4. Calculation of interest on net GST liability.
5. Methodology for best judgment assessment in the real estate sector.
6. Violation of principles of natural justice.
7. Imposition of penalty under Section 73(9) of the CGST Act.

Issue-wise Detailed Analysis:

1. Non-filing of GST returns and issuance of best judgment assessment order:
The appellant, engaged in building and construction, failed to file GST returns (GSTR-3B) for the periods October 2018 to March 2019 and April 2019 to September 2019. Consequently, the adjudicating authority issued a show cause notice and passed a best judgment assessment order under Section 62 of the CGST Act for non-filing of GSTR-1 and GSTR-3B for January 2019 to December 2019, assessing a liability of Rs. 73,96,872/-.

2. Issuance of mandatory notice under Section 46 of the CGST Act:
The appellant argued that the best judgment assessment for October 2019 to December 2019 was passed without issuing a mandatory notice under Section 46, violating Section 62. The show cause notice dated 19-11-2019 only covered October 2018 to September 2019, and no subsequent notice was issued for the period after September 2019. The adjudicating authority’s failure to issue a notice for October 2019 to December 2019 was deemed a violation of Section 62 and principles of natural justice.

3. Consideration of input tax credit in best judgment assessment:
The appellant contended that the assessment order did not consider the input tax credit (ITC) available to them. The adjudicating authority based the assessment on GSTR-3B for July 2018 to December 2018 but failed to account for ITC claimed during that period. The appellant emphasized that the Department should have considered ITC while calculating GST liability, as per Section 16 of the CGST Act, and Circular No. 129/48/2019-GST, which mandates considering details of supplies in Form GSTR-2A for best judgment assessment.

4. Calculation of interest on net GST liability:
The appellant argued that interest should be calculated only on the net GST liability payable in cash, not on the entire gross liability. They cited the GST Council’s recommendation and the proviso to Section 50(1) of the CGST Act, which states that interest should apply on net cash tax liability retrospectively from 1 July 2017. The appellant also noted that the proper officer is not empowered to assess interest under Section 62 without following principles of natural justice under Section 73.

5. Methodology for best judgment assessment in the real estate sector:
The appellant contended that the Department’s methodology of averaging taxable value for six months (July 2018 to December 2018) to assess liability for twelve months (January 2019 to December 2019) was inappropriate for the dynamic real estate sector. They argued that the Department should have gathered accurate information from the appellant for the relevant period to ensure a reliable best judgment assessment.

6. Violation of principles of natural justice:
The appellant argued that the assessment order was passed without granting an opportunity for personal hearing, violating principles of natural justice. They cited Section 75(4) of the CGST Act, which mandates an opportunity for hearing when an adverse decision is contemplated. The appellant emphasized that the Department should have granted a hearing before passing the assessment order.

7. Imposition of penalty under Section 73(9) of the CGST Act:
The appellant argued that the penalty imposed under Section 73(9) for a best judgment assessment under Section 62 was a misinterpretation of the law. They contended that Section 62 overrides Sections 73 and 74, and there is no express provision for penalty under Section 62. The appellant also noted that penalty under Section 73(9) requires a show cause notice under Section 73(1), which was not issued in this case. They argued that the penalty should be imposed under Section 127 after giving a reasonable opportunity of being heard.

Conclusion:
The adjudicating authority’s order was found to be flawed due to non-issuance of mandatory notice for part of the assessment period, failure to consider ITC, inappropriate methodology for best judgment assessment, and violation of principles of natural justice. The case was remanded back to the adjudicating authority with directions to follow the proper procedure under the CGST Act and Rules, 2017, and issue a speaking order by adhering to the principles of natural justice. The appeal was disposed of accordingly.

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