2022 (4) TMI 1198 - HC - GST

Spot Memos Quashed Due to Procedural Lapses in Audit Proceedings Without Logical Conclusion Since 2018

The HC allowed the writ appeal, quashing spot memos issued in March 2021 by the audit department due to procedural lapses. The Court found that ... Service of SCN - jurisdiction for the audit department to issue a notice called spot memo - earlier proceedings by different wing were pending on the same issue - HELD THAT:- It is found that none of the proceedings initiated by the department has been shown to have been taken to the logical end. If, according to the respondents department, there is an irregularity in the availment of credit, then appropriate proceedings under the Act should be initiated and after due opportunity to the appellants, the matter should be taken to the logical end. Such a procedure had not been adopted in the instant case and the appellants appears to have been dealt with in a most unfair manner in the sense that from the year 2018 for the very same TRAN – 1 issue the appellants have repeatedly been summoned, issued notices etc. The spot memos, which have been communicated to the appellants along with the communications dated 22nd March, 2021 is also for the very same purpose - it is not clear as to why different wings of the very same department have been issuing notices and summons to the appellants without taking any of the earlier proceedings to the logical end. The spot memos, which have been furnished along with the communications dated 22nd March, 2021 cannot be enforced - it is appropriate for the concerned authority to take the proceedings to the logical end after affording an opportunity of personal hearing to the appellants. The spot memos enclosed with the communications dated 22nd March, 2021 are quashed and there will be a direction to the 5th respondent, namely, Additional Assistant Director, DGGI, Kolkata, Zonal Unit to consider the reply submitted by the appellants dated 14th January, 2020 along with the earlier reply given by the appellants dated 15th June, 2018 and 24th July, 2018 - Appeal allowed. Issues:Challenge to jurisdiction of audit department in issuing communications and spot memos; Allegations of unfair treatment and repeated summonses without logical conclusion; Enforceability of spot memos issued without due process; Prematurity of ruling on CERA audit against private entity; Direction for department to conclude proceedings fairly.Analysis:The appellants contested the jurisdiction of the 7th respondent, Sr. Audit Officer, in issuing communications and spot memos, citing a Bombay High Court decision. They raised concerns over repeated summonses since 2018 without logical conclusions, questioning the fairness of treatment by different wings of the department. The High Court noted that proceedings were not taken to a logical end, emphasizing the need for due process in case of alleged irregularities. The Court found the spot memos issued in March 2021 unenforceable due to procedural lapses.The Court refrained from ruling on whether a CERA audit could be conducted on a private entity, deeming it premature given the ongoing proceedings since May 2018. Emphasizing the importance of concluding proceedings fairly, the Court directed the concerned authority to consider the appellants' submissions and provide a personal hearing. Notably, the Court highlighted the lack of allegations against the appellants for non-cooperation with earlier summonses.Consequently, the Court allowed the writ appeal, quashing the spot memos issued in March 2021. The 5th respondent was directed to review the appellants' previous replies and make a decision based on merit and legal compliance after affording a personal hearing to the authorized representative. The appeal and connected application were disposed of without costs, with instructions for expeditious provision of a certified copy of the order upon compliance with legal formalities.