Garnishee orders u/s79 CGST set aside for skipping S.73 notice and violating natural justice

HC held the garnishee proceedings under S.79 CGST Act invalid for violation of principles of natural justice. Although the petitioner had delayed payment of GST but paid tax with interest as per its own calculation, the authorities, without issuing a notice under S.73(1) and affording an opportunity to contest the quantification of interest, directly issued garnishee orders to the petitioner's bankers. HC ruled that prior demand and show-cause notice are mandatory before invoking garnishee powers for recovery of alleged dues. The impugned garnishee notices were quashed and the petition was allowed, with liberty to the department to proceed afresh in accordance with law.

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Issues Involved:
1. Legality of garnishee proceedings under Section 79 of the CGST Act, 2017.
2. Requirement of issuing notice under Section 73(1) of the CGST Act, 2017 before garnishee proceedings.
3. Calculation and payment of interest on delayed GST payments.

Summary:

Issue 1: Legality of Garnishee Proceedings under Section 79 of the CGST Act, 2017

The petitioner, a Public Limited Company engaged in cement manufacturing, faced garnishee proceedings initiated by the respondent authorities under Section 79(1)(c) of the CGST Act, 2017. The garnishee orders were issued to HDFC Bank and Axis Bank, directing them to debit Rs. 1,28,97,344/- from the petitioner's accounts. The petitioner argued that these proceedings were arbitrary, illegal, and violated fundamental rights as they were issued without prior notice or opportunity for a hearing, contrary to the principles of natural justice.

Issue 2: Requirement of Issuing Notice under Section 73(1) of the CGST Act, 2017

The petitioner contended that the respondent authorities failed to issue a notice under Section 73(1) of the CGST Act, 2017, which mandates providing an opportunity for the assessee to respond before initiating recovery proceedings. Citing various judgments, including Mahadeo Constructions Co vs Assistant Commissioner and Assistant Commissioner of CGST & Central Excise vs Daejung Moparts Pvt. Ltd., the petitioner emphasized that the issuance of a show-cause notice is a prerequisite for recovery actions. The court concurred, stating that the authorities must issue a notice and provide an opportunity for the petitioner to clarify or explain before passing garnishee proceedings.

Issue 3: Calculation and Payment of Interest on Delayed GST Payments

The petitioner admitted to delayed GST payments due to financial crises but claimed to have paid the dues along with interest calculated at 18% per annum as per Section 50 of the CGST Act. The petitioner disputed the interest liability calculated by the respondents, arguing that it should be computed from the due date of filing GSTR 3B Return till the deposit of GST to the Electronic Cash Ledger. The respondent authorities, however, maintained that the petitioner's amounts were still lying in their account and had not been transferred to the government, justifying the garnishee proceedings.

Conclusion:

The court concluded that the respondent authorities failed to follow the due process mandated by Section 73(1) of the CGST Act, 2017, by not issuing a prior notice to the petitioner before initiating garnishee proceedings. Consequently, the garnishee proceedings dated 25.07.2023 and 28.07.2023 were set aside. The authorities were directed to issue a notice under Section 73(1) of the CGST Act, 2017, provide an opportunity for a hearing, and then proceed in accordance with the law. The writ petition was allowed, with no order as to costs.

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