2023 (9) TMI 43 - HC - GST

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

P.R. Hardwares, Represented by its Proprietrix Mrs. Ranjitham Versus The State Tax Officer

The HC found violation of natural justice principles in a case involving fraudulent credit availment through invoices issued without goods supply. While ... Violation of principles of natural justice - availment of fraudulent credit - invoice issued without supply of goods - Order passed based on assumptions - levy of 100% penalty - HELD THAT:- The respondents are empowered to pass order within a period of five years - this Court is of the considered opinion that, if it is considered as outer time limit prescribed for the respondents to pass orders, then the respondents may be empowered to pass orders. But the assessee must be given sufficient opportunity. In the present case the notice was issued on 01.12.2022 and 03.01.2023 and Summary Order was passed on 07.03.2023, i.e. within two months the respondents have passed an order. Even though the provisions prescribe five years as outer limit but the provisions do not prescribe minimum time from passing order, in such circumstances the respondents ought to have passed order within reasonable time. Two months period definitely is not reasonable time and the petitioner is right in stating that adequate opportunity was not granted to the petitioner. Levy of 100% penalty - HELD THAT:- The respondents have completed the entire proceedings within two months and there is violation of principles natural justice. Also, this Court has held that the respondents ought to have concluded the proceedings within reasonable time even though the outer time limit is five years. By passing the orders early, the respondent have denied the valuable right of the petitioner to avail the concession granted under section 74. The petitioner has already paid the entire tax liability and the interest. Therefore, this Court is directing the respondents to collect the 15% of the penalty alone and the petitioner shall pay the 15% penalty within four weeks from the date of receipt of the order. On such payment the respondents shall conclude the proceedings in respect of the notice as stated in section 74. Petition allowed. 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.