2022 (6) TMI 1258 - HC - GST

Tax authorities' assessment orders quashed for failing to issue Section 74(1) show cause notice after search proceedings

The HC quashed assessment orders issued by tax authorities following search and seizure proceedings at petitioner's premises. Despite petitioner's ... Principles of natural justice - Form DRC-01A communication procedure - show cause notice under Section 74(1) of the TNGST Act - surprise inspection under Section 67 - personal hearing - recovery under Section 79Form DRC-01A communication procedure - show cause notice under Section 74(1) of the TNGST Act - personal hearing - principles of natural justice - Validity of the assessment orders passed on 31.01.2022 in light of the procedure followed after issuance of Form DRC-01A and compliance with principles of natural justice. - HELD THAT: - The Court found that after issuance of Form DRC-01A dated 06.12.2021, if the assessee objects and does not pay the ascertained tax, the statutory procedure required issuance of a show cause notice under Section 74(1) and finalisation of assessment only after considering objections and giving personal hearing. The impugned orders were passed without following that mandated procedure. The Court recorded that the petitioner's authorised representative had appeared and filed objections but the assessing authority proceeded to confirm proposals without completing the show cause/adjudication process, thereby resulting in procedural irregularity and breach of principles of natural justice which vitiated the orders. [Paras 13]Assessment orders dated 31.01.2022 are quashed for failure to follow the statutory adjudication procedure and for denial of appropriate compliance with principles of natural justice.Recovery under Section 79 - Form GST DRC-09 - principles of natural justice - Validity of the consequential recovery communication issued to the bank pursuant to the impugned assessment orders. - HELD THAT: - The Court observed that the recovery notice (Form GST DRC-09) addressed to the Branch Manager, Axis Bank, Ramanathapuram, stemmed from the impugned assessments which were tainted by procedural infirmity. Since the assessments were quashed for not following the prescribed show cause/adjudicatory process, the consequential recovery action could not stand and was quashed as well. [Paras 13]The recovery communication dated 10.06.2022 issued to the bank is quashed.Show cause notice under Section 74(1) of the TNGST Act - personal hearing - surprise inspection under Section 67 - Procedure to be followed on remand for fresh adjudication after quashing of the impugned orders. - HELD THAT: - The Court directed that the respondent shall, in accordance with law, issue the appropriate notice (including show cause notice as required), afford opportunity to file objections and personal hearing, and thereafter pass fresh orders on merits. The Court emphasised that the fresh process must follow the statutory scheme applicable to assessments arising from inspection and be completed expeditiously without delay. [Paras 13]Matter remitted to respondent for fresh adjudication following the prescribed procedure; respondent directed to complete the process expeditiously.Final Conclusion: Writ petitions allowed; assessment orders dated 31.01.2022 for the years 2019-2020, 2020-2021 and 2021-2022 and the consequential recovery communication are quashed; respondent to issue proper notice, afford opportunity of objections and personal hearing, and pass fresh orders on merits expeditiously. Issues:Challenging assessment orders for multiple assessment years based on surprise inspection findings.Analysis:The petitioner, engaged in trading textiles and garments, challenged assessment orders for various years following surprise inspections at showrooms. The inspection revealed irregularities leading to revision of assessments and issuance of show cause notices. The petitioner disputed tax liabilities and procedural flaws, alleging misinterpretation of provisions and violation of natural justice principles.The petitioner objected to inspection procedures and findings, requesting time to respond to communications pointing out defects and tax liabilities. Despite objections and requests for personal hearings, the respondent proceeded to confirm proposed tax, penalty, and interest amounts without issuing proper show cause notices as mandated by the law.The petitioner argued that the assessment order violated principles of natural justice, citing circulars and legal precedents to support their case. The respondent contended that the notices and assessments were in accordance with the law, placing the burden of proof on the dealers to demonstrate tax compliance and address issues raised in the show cause notices.The Court noted discrepancies in the assessment process, highlighting the failure to follow proper procedures post-inspection and the issuance of recovery notices without due process. Consequently, the Court quashed the assessment orders and directed the respondent to adhere to prescribed procedures, issue show cause notices, and pass orders in compliance with the law promptly.In conclusion, the Court allowed the writ petitions, quashed the assessment orders and recovery notices, and instructed the respondent to conduct the assessment process following legal requirements without delay.