Two-month timeframe for tax proceedings violates natural justice despite five-year statutory limit, penalty reduced from 100% to 15%

The HC found violation of natural justice principles in a case involving fraudulent credit availment through invoices issued without goods supply. While respondents were empowered to pass orders within five years, they issued notice in December 2022/January 2023 and passed summary order by March 2023, giving only two months to the assessee. The court held this timeframe unreasonable despite the five-year outer limit. The 100% penalty was reduced to 15% as the petitioner had already paid tax liability and interest. The rushed proceedings denied the petitioner's right to avail concessions under section 74. Petition allowed.

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Issues:
The issues involved in this case are violation of principles of natural justice before passing the summary order, imposition of tax on fraudulent claim of Input Tax Credit (ITC), and determination of penalty under section 74 of the Central Goods and Services Tax Act, 2017.

Violation of Principles of Natural Justice:
The petitioner contended that there was a violation of principles of natural justice before passing the summary order. The petitioner argued that the order was based on assumption and not justifiable. The petitioner claimed that adequate opportunity was not granted by the respondents as the entire process was completed within two months, which the petitioner deemed unreasonable. The Court agreed with the petitioner, stating that sufficient opportunity should have been provided, even though the outer time limit for passing orders is five years.

Imposition of Tax on Fraudulent ITC Claim:
The respondents passed an assessment order determining that the petitioner had claimed Input Tax Credit (ITC) based on an invoice from a non-existent taxpayer. The petitioner had relied on an invoice issued by a supplier with a non-existent GSTIN number, leading to the fraudulent claim of ITC. As a result, the respondents imposed CGST and SGST tax along with penalties and interest on the petitioner. The Court acknowledged the fraudulent claim and upheld the tax determination by the respondents.

Determination of Penalty under Section 74:
Regarding the determination of penalty under section 74 of the Act, the petitioner argued that since they had paid the entire tax demand before the order date, they were entitled to a concession on penalty. However, the respondents imposed a 100% penalty, stating that the petitioner paid the tax beyond the specified period. The Court found that the respondents completed the proceedings within two months, violating principles of natural justice. The Court directed the petitioner to pay 15% of the penalty within four weeks, considering the early conclusion of proceedings by the respondents.

In conclusion, the High Court of Madras allowed the writ petition, noting the violation of principles of natural justice and directing the petitioner to pay 15% of the penalty within a specified time frame. No costs were awarded in this matter.

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