Tax authority's failure to issue mandatory three-month notice under Section 73(2) CGST Act invalidates penalty orders

Kerala HC allowed the appeal challenging orders under Section 73(9) of CGST Act, 2017. The court held that the tax authority failed to comply with mandatory procedural requirements under Section 73(2), which requires issuing notice three months prior to limitation period to enable assessee to pay tax with interest and avoid penalty. The order dated 3/11/2023 was passed without following proper procedure under Section 73(5) and (8). Since the limitation period for passing orders under Section 73(9) expired on 31/12/2023, the defect could not be cured by passing fresh orders.

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Issues:
The issues involved in this case are the challenge to orders passed under Section 73(9) of the Central Goods and Services Tax Act, 2017 (CGST Act) mainly on the ground of limitation and violation of principles of natural justice.

Issue 1: Challenge to Orders under Section 73(9) of the CGST Act

The appellant, a registered dealer under the CGST/SGST Act, 2017, challenged orders passed by the 1st respondent under Section 73(9) of the CGST Act concerning discrepancies in returns for the financial year 2017-18. The appellant contended that the orders were not properly communicated as they were only uploaded on his GST web portal. The 1st respondent issued a show cause notice under Section 73(1) alleging input tax discrepancies and subsequently passed assessment orders (Exts. P5 and P6) demanding tax, interest, and penalty for the year 2017-2018. The appellant challenged these orders on grounds of limitation and violation of natural justice. The learned Single Judge found that the appellant was not given sufficient time to reply to the notice, thereby violating principles of natural justice. The Single Judge set aside the orders and remitted the matter back to the 1st respondent for a fresh order after providing adequate opportunity for the appellant to respond and be heard.

Issue 2: Compliance with Statutory Provisions

The scrutiny of the appellant's return under Section 61 of the CGST Act began with a notice issued on 29/9/2023, requiring the appellant to respond within a statutory period. However, a show cause notice under Section 73(1) was issued on 30/9/2023, potentially bypassing the statutory time limit. The statutory provision mandates that notice under Section 73(2) should be issued three months before the limitation period prescribed under Section 73(10). The appellant was not given the opportunity to pay tax with interest within thirty days of the show cause notice as required under Section 73(5) and (8). The order under Section 73(9) was passed on 3/11/2023, before the deadline of 31/12/2023. The learned Judges found that the non-compliance with the mandatory procedure under the statute could not be rectified by extending the time limit for passing the order. Consequently, the judgment of the Single Judge was set aside, and the writ petition was allowed by quashing the assessment orders (Exts. P5 and P6).

This summary highlights the challenge to orders under Section 73(9) of the CGST Act based on limitation and natural justice violations, as well as the importance of complying with statutory provisions in tax assessments.

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