2022 (3) TMI 88 - HC - GST

Assessment order and DRC-07 set aside for failure to issue Section 46 notice; Section 62 blocked input tax credit

M/s Vinman Constructions Limited through its director Sri Manoranjan Das Versus The State of Jharkhand through its Secretary cum Commissioner, Deputy Commissioner of State Tax, South Circle, Ranchi, Commercial Tax Officer, South Circle, Ranchi

HC set aside the assessment order dated 02.08.2018 passed under Section 62 and the DRC-07 summary dated 01.10.2018 for failure to issue notice under ... Validity of assessment order - petitioner did not file its return for the period due to ignorance of law within the time limit prescribed under Section 39 of JGST Act, 2017 as no transaction or activity of manufacture took place - denial of input tax credit - period July 2017 to March 2018 - HELD THAT:- The impugned assessment order passed under section 62 of the Act by the Respondent No. 2 suffers from a serious lacuna due to non-issuance of notice under section 46 of the Act. The action of the Respondent had led to blocking of ITC to the tune of ₹ 2.88 crores which has been adjusted against the disputed tax liability of ₹ 3,30,76,800/- imposed under the impugned assessment order. From perusal of the appellate order at Annexure-9, it appears that the Appellate Authority has only taken into consideration that the petitioner had failed to file its return within thirty days of the assessment order in terms of section 62(2) of the Act and therefore, the assessment order passed by the proper officer to the best of his judgment did not require any interference. Learned Appellate Authority has however failed to take note that the assessment order itself suffers from serious infirmities for non-compliance of principles of natural justice and procedural requirement prescribed under the Act in the absence of proper notice upon the petitioner. The impugned action has led to serious penal consequences which cannot be sustained in view of serious infirmities in the procedure adopted by the Assessing Officer. This Court is, therefore, of the view that the impugned assessment order dated 02.08.2018 passed by the Respondent No. 2 (Annexure-6)as also the Summary of the Order contained in DRC-07 dated 01.10.2018 issued by the Respondent No. 3 deserves to be set aside - As also admitted by the Respondent, petitioner has filed its return for the period in question. It is open for the Respondent to accept the return or undertake proper scrutiny thereof as per law. Learned counsel for the petitioner submits that pre-deposit made before the Appellate Authority may be directed to be released. It is up to the petitioner to approach the Appellate Authority with proper request, which shall be considered in accordance with law. Petition allowed. Issues Involved:1. Non-service of notice under Section 46 of JGST Act, 2017 before passing the assessment order under Section 62.2. Non-receipt of the assessment order dated 02.08.2018.3. Validity of the assessment order and subsequent appellate order.4. Blocking and utilization of Input Tax Credit (ITC).5. Imposition of interest and penalty.Issue-wise Detailed Analysis:1. Non-service of notice under Section 46 of JGST Act, 2017 before passing the assessment order under Section 62:The petitioner argued that no notice under Section 46 was served before the assessment order under Section 62, which is a mandatory requirement. The court noted that Section 62 mandates the issuance of a notice under Section 46 before the proper officer can proceed with the assessment. The respondents failed to provide evidence that such a notice was served. The court emphasized the importance of this procedural step, referencing the Standard Operating Procedure (SOP) issued by the Central Board of Indirect Taxes and Customs (CBIC), which also mandates this notice.2. Non-receipt of the assessment order dated 02.08.2018:The petitioner claimed that the assessment order dated 02.08.2018 was not received. The court observed that the respondents failed to demonstrate that the assessment order was served on the petitioner before the issuance of DRC-07 on 01.10.2018. The lack of service of the assessment order deprived the petitioner of the opportunity to file returns within thirty days, which could have led to the withdrawal of the assessment order.3. Validity of the assessment order and subsequent appellate order:The court found that the assessment order dated 02.08.2018 was passed without compliance with the mandatory requirement of issuing a notice under Section 46, rendering it procedurally flawed. The appellate authority failed to consider this procedural lapse and dismissed the appeal solely on the ground of late filing of returns. The court held that the assessment order and the appellate order suffered from serious infirmities for non-compliance with principles of natural justice and procedural requirements.4. Blocking and utilization of Input Tax Credit (ITC):The petitioner’s ITC amounting to Rs. 2.88 crores was blocked and adjusted against the disputed tax liability. The court directed that the ITC should be unblocked, as the assessment order, which formed the basis for blocking the ITC, was set aside due to procedural lapses.5. Imposition of interest and penalty:The petitioner contested the imposition of interest and penalty, arguing that there was no tax liability due to the non-filing of returns. The court did not delve deeply into this issue, as it found the assessment order itself to be procedurally flawed. However, it noted that interest and penalty could not be imposed without a valid assessment order.Conclusion:The court set aside the assessment order dated 02.08.2018, the Summary of the Order contained in DRC-07 dated 01.10.2018, and the appellate order dated 25.01.2020. The ITC amounting to Rs. 2.88 crores was directed to be unblocked. The court allowed the petitioner to file returns and directed the respondents to accept the returns or scrutinize them as per law. The writ petition was allowed to the extent indicated in the judgment.