2023 (10) TMI 793 - HC - GST

Transitional input tax credit claim under TRAN-1 challenged over missing s.73 show cause notice and extra JVAT forms; adjudication set aside

Proceedings denying transitional input tax credit were held vitiated because only a summary in Form DRC-01 was served and no proper show cause notice ... Transition of input tax credit under Section 140(1) and 140(3) framework - service of a statutory show cause notice and compliance with Section 74(1)/Section 73 requirements - possession of invoices versus statutory JVAT 410/411 under Section 140(3)(iii) - limits of verification under TRAN-1 versus reopening assessments under the repealed JVAT Act - provisional recovery/attachment of bank account and powers under Section 79/Section 83Service of a statutory show cause notice and compliance with Section 74(1)/Section 73 requirements - Validity of adjudication proceedings where only a summary of the show cause notice in Form DRC-01 was served and no proper show cause notice was produced - HELD THAT: - The Court found that the proceedings were founded on a material irregularity because the petitioner was served only with a summary of the show cause notice (Form DRC-01) and the Respondents did not place any proper show cause notice on record. Reliance was placed on this Court's earlier decisions which held that a summary cannot substitute the statutory show cause notice required by the Act and that such infirmity vitiates subsequent steps in the adjudicatory process. The Court observed that a challenge to such irregularity can be raised even at this stage and that proceedings which originate from an invalid show cause notice must be set aside. [Paras 7, 10]Proceedings vitiated by service of only a summary show cause notice are bad in law and not sustainable; the impugned proceedings are set aside on this ground.Transition of input tax credit under Section 140(1) and 140(3) framework - Validity of summary of order in Form DRC-07 being served without a detailed adjudication order under Section 73(9) and without stating the basis of decision under Section 75(6) - HELD THAT: - The Court recorded that the petitioner was served only with a DRC-07 summary dated 16.1.2019 and that no detailed order under Section 73(9) nor a statement of reasons as required by Section 75(6) was placed on record. The order sheet did not reference any detailed adjudication order. In consequence the summary DRC-07 could not be treated as a substitute for the statutory adjudication order required by the Act. [Paras 8]Service of only DRC-07 without the detailed adjudication order and reasons is impermissible; the summary order cannot stand in place of the required adjudication.Possession of invoices versus statutory JVAT 410/411 under Section 140(3)(iii) - Whether transitional credit under Section 140(3)(iii) can be denied for want of Form JVAT 410/411 when tax invoices or other supporting documents are in possession - HELD THAT: - The Court held that Section 140(3)(iii) requires possession of 'invoices or other supporting documents' and does not mandate production of Form JVAT 410/411 as a precondition. The judgment observed that Form 410/411 is issued under JVAT Rules as an additional document but the statutory requirement under Section 140(3)(iii) is satisfied by invoices or other supporting documents. Earlier judicial precedent treating similar statutory forms as directory and not mandatory was followed. [Paras 9]Transitional credit cannot be disallowed merely for non-production of JVAT 410/411 if tax invoices or other supporting documents are in possession; the requirement of Form 410/411 is not mandatory under Section 140(3)(iii).Limits of verification under TRAN-1 versus reopening assessments under the repealed JVAT Act - Permissible scope of the JGST authorities in verifying TRAN-1 claims and whether they may conduct assessments of JVAT returns under the guise of disallowing transitional credit - HELD THAT: - The Court reiterated that the assessing officer under the JGST Act is confined to verifying the figures specified in TRAN-1 and whether the conditions for transition under Section 140(3) are satisfied. Disallowance based on matters that are essentially the subject of assessment under the JVAT Act (i.e., reopening or re-assessing JVAT returns) is beyond the proper scope of transition proceedings. The Court cited precedent that proceedings under the GST statute cannot be used to determine admissibility of credit as per the erstwhile law where such determinations belong to authorities under the repealed statute, and noted the saving provisions which preserve existing assessment proceedings. [Paras 10, 11]Revenue cannot use transition proceedings to conduct assessments falling under the JVAT Act; the scope of verification in TRAN-1 is limited and does not permit re-opening JVAT assessments.Provisional recovery/attachment of bank account and powers under Section 79/Section 83 - Legality of the respondent-Bank putting the petitioner's bank account on hold pursuant to recovery notices and whether such attachment was authorised - HELD THAT: - The Court found that there was no provision authorising the Bank to place the petitioner's account on hold to the extent done and observed that even if provisional attachment powers under the Act are invoked, attachment exceeding a year should be released. The Court also noted that the revenue's interest is protected by statutory provisions allowing recovery of sums found recoverable under assessments under the previous law as arrears under the JGST Act, and therefore the bank's prolonged hold was invalid. [Paras 13]The bank's action of holding the petitioner's account to the impugned extent is invalid and such attachment must be released.Final Conclusion: The writ petition is allowed: proceedings founded on service of only summary show cause notices and summary adjudication (DRC-07) without the statutory detailed orders are quashed; transitional credit cannot be denied for non-production of JVAT 410/411 where invoices/supporting documents exist; Revenue cannot re-open JVAT assessments in TRAN-1 proceedings; and the bank's hold on the petitioner's account is invalid and must be released. No costs. Issues Involved:1. Denial of transitional credit.2. Validity of show cause notices.3. Validity of summary orders.4. Legality of notice under Section 79.5. Release of bank account held by the State Bank of India.Summary:1. Denial of Transitional Credit:The petitioner, primarily dealing in medicine and medicinal products, transitioned credit amounting to Rs. 87,34,107/- under Sections 140(1) and 140(3) of the JGST Act. The appellate authority partially rejected the claim under Section 140(3), disallowing Rs. 23,86,069.85/- and raising a demand of Rs. 31,97,333.59/- including interest and penalty. The court found that the appellate order was perverse as Section 140(3)(iii) stipulates that an Assessee must be in possession of invoices or other supporting documents, and the invoices suffice the requirement. The requirement of Form JVAT 410/411 was deemed unnecessary.2. Validity of Show Cause Notices:The court found the initiation of proceedings invalid as only a summary of the show cause notice in Form DRC-01 was served, not the proper show cause notice under Section 73 of the JGST Act. This was a violation of principles of natural justice, as established in Juhi Industries (P) Ltd. versus State of Jharkhand.3. Validity of Summary Orders:The petitioner was only served with a summary order in Form DRC-07 dated 16.1.2019, not the actual adjudication order. The court held that the detailed order as per Section 73(9) of the JGST Act was not served, and the basis of the decision was not stated as required under Section 75(6).4. Legality of Notice under Section 79:The court observed that the notice for recovery under Section 79 of the JGST Act was based on an erroneous order. The appellate order was found to be perverse as it contradicted the assessment order for the same year, which found no discrepancy in the figures of purchases disclosed by the petitioner.5. Release of Bank Account:The court held that the actions of the Respondent Bank in holding the petitioner's bank account were invalid. There is no provision in the JGST Act allowing the bank to hold the account for such a substantial sum. Even if traced to Section 83 of the JGST Act, the attachment exceeded the permissible period and needed to be released.Conclusion:The writ application was allowed, and the impugned show cause notice, adjudication order, and appellate order were quashed and set aside. The court directed the release of the petitioner's bank account held by the State Bank of India.