2024 (7) TMI 1158 - HC - GST

Failure to issue ASMT-10 notice in GST scrutiny u/ss73/74 undermines assessments; orders set aside and remanded

Whether failure to issue statutory notice in Form ASMT-10 vitiates adjudication under GST Sections 73/74: HC held the twin preconditions to trigger ... Mandatory issuance of Form GST ASMT-10 upon selection of return and discovery of discrepancies - scrutiny of returns as a remedial, non-adjudicatory process - vitiation of scrutiny conclusions if ASMT-10 is not issued - adjudication under Section 73 not dependent on prior scrutiny under Section 61 - opportunity to be heard and remand for fresh adjudicationMandatory issuance of Form GST ASMT-10 upon selection of return and discovery of discrepancies - scrutiny of returns as a remedial, non-adjudicatory process - vitiation of scrutiny conclusions if ASMT-10 is not issued - Obligation to issue notice in Form GST ASMT-10 when a return is selected for scrutiny and discrepancies are discovered and consequences of non-issuance - HELD THAT: - The Court examined Section 61(1) and Rule 99(1). While Section 61 employs the permissive 'may' for scrutiny, the obligation to issue Form GST ASMT-10 arises when two conditions are fulfilled: (a) the return is selected for scrutiny and (b) discrepancies are discovered on such scrutiny. Rule 99(1)'s wording that the proper officer 'shall' issue ASMT-10 upon any discrepancy, read with the statutory structure that separates scrutiny from determination of tax, indicates that the ASMT-10 notice is mandatory once those two conditions are satisfied. Scrutiny under Section 61 is a process to verify returns and elicit explanation or acceptance of discrepancies and does not itself effect determination of tax; accordingly, failure to issue ASMT-10 vitiates the scrutiny process and any quantification arising therefrom, and scrutiny conclusions so reached cannot be relied upon for adjudication. [Paras 10, 11, 12, 13, 14]Where returns are selected for scrutiny and discrepancies are found, issuance of Form GST ASMT-10 is mandatory; non-issuance vitiates the scrutiny findings and any quantification made therein and those findings cannot be used as the basis for adjudication.Adjudication under Section 73 not dependent on prior scrutiny under Section 61 - adjudication may be initiated on other credible information - Whether adjudication under Section 73 can be initiated only after scrutiny under Section 61 and issuance of ASMT-10 - HELD THAT: - A close reading of Section 73 shows it commences with 'Where it appears to the proper officer', which contemplates initiation of adjudication on the basis of scrutiny, audit, inspection or other credible information. There is no textual indication in Sections 61 or 73 that scrutiny and issuance of ASMT-10 are pre-conditions to exercise adjudicatory power under Section 73. Thus, while ASMT-10 is mandatory if scrutiny yields discrepancies, adjudication under Section 73 is not rendered impermissible merely because scrutiny was not undertaken or ASMT-10 was not issued in cases where adjudication is founded on other information. [Paras 16, 17]Adjudication under Section 73 is not conditionally dependent upon prior scrutiny under Section 61 or issuance of ASMT-10; adjudication may be initiated on other credible information and is not automatically barred for lack of prior scrutiny.Opportunity to be heard and remand for fresh adjudication - conditioning of relief on interim payment - Relief and directions in the two writ petitions where ASMT-10 issuance or consideration of the taxpayer's reply was defective - HELD THAT: - In W.P.No.15307 of 2024 the Court could not conclusively find that scrutiny under Section 61 was the foundation for adjudication; however the assessment order was passed ex parte and the petitioner alleged non-receipt of communication. In the interest of justice the impugned order was set aside on condition that the petitioner remit 10% of the disputed tax demand within fifteen days and may submit a reply; upon receipt and satisfaction of the interim payment the authority must provide a reasonable opportunity including personal hearing and pass a fresh order within three months from receipt of the reply. In W.P.No.15330 of 2024 the record showed that returns were selected for scrutiny and discrepancies were noticed but ASMT-10 was not issued and the petitioner's reply (uploaded in DRC-06) was not considered; the matter was remanded for reconsideration, petitioner permitted to file additional reply within fifteen days, and authority directed to provide hearing and pass a fresh order within three months. [Paras 15, 18, 19, 20]W.P.No.15307/2024: impugned assessment order set aside conditional on payment of 10% of disputed tax and with directions for fresh adjudication after giving opportunity to be heard. W.P.No.15330/2024: impugned order set aside and matter remanded for reconsideration with opportunity to file/add to reply and for personal hearing; fresh order within three months.Final Conclusion: The Court held that issuance of Form GST ASMT-10 is mandatory where a return selected for scrutiny discloses discrepancies, and failure to issue ASMT-10 vitiates the scrutiny findings and renders them unusable as the basis for adjudication; however, adjudication under Section 73 is not, as a matter of law, strictly contingent upon prior scrutiny. On the facts, one assessment was set aside on conditions including interim payment and a fresh adjudication with hearing; the other matter was remanded for reconsideration after permitting the taxpayer's reply, with directions to conclude fresh orders within three months. Issues Involved:1. Non-issuance of notice in Form GST ASMT-10.2. Scrutiny of returns under Section 61 of GST enactments.3. Adjudication under Section 73 of GST enactments.4. Procedural compliance and its impact on adjudication.5. Opportunity for the petitioner to contest the tax demand on merits.Detailed Analysis:1. Non-issuance of Notice in Form GST ASMT-10:The petitioner in W.P.No.15307 of 2024 argued that the show cause notice was not communicated through any mode other than being uploaded on the GST portal, leading to their unawareness of the proceedings. The petitioner in W.P.No.15330 of 2024 contended that the non-issuance of Form GST ASMT-10 notice vitiated the adjudication process. The court concluded that the ASMT-10 notice is mandatory if discrepancies are discovered during the scrutiny of returns under Section 61 and Rule 99.2. Scrutiny of Returns under Section 61 of GST Enactments:The court examined Section 61, which allows the proper officer to scrutinize returns and inform the registered person of any discrepancies. It was noted that scrutiny is optional and not mandatory, but once discrepancies are found, issuing a notice in Form GST ASMT-10 becomes mandatory. The court emphasized that scrutiny under Section 61 does not constitute reassessment or adjudication but is a preparatory step for potential actions under Sections 65, 66, 67, 73, or 74.3. Adjudication under Section 73 of GST Enactments:The adjudications in both writ petitions were under Section 73. The court clarified that adjudication under Sections 73 or 74 can be initiated based on scrutiny, audit, or other credible information. It was concluded that scrutiny under Section 61 is not a mandatory pre-requisite for adjudication under Sections 73 or 74. The court distinguished the present case from Vadivel Pyrotech, where a notice in Form ASMT-10 was issued and replied to before adjudication.4. Procedural Compliance and its Impact on Adjudication:The court discussed the procedural requirements under Section 61 and Rule 99, concluding that non-issuance of ASMT-10 notice vitiates the scrutiny process but does not necessarily invalidate subsequent adjudication under Sections 73 or 74. The court emphasized that procedural defects that do not cause prejudice to the taxpayer are saved by Section 160 of applicable GST statutes.5. Opportunity for the Petitioner to Contest the Tax Demand on Merits:The court provided the petitioner in W.P.No.15307 of 2024 an opportunity to contest the tax demand by remitting 10% of the disputed tax demand and submitting a reply to the show cause notice. For the petitioner in W.P.No.15330 of 2024, the court remanded the matter for reconsideration, allowing the petitioner to submit an additional reply with supporting documents.Conclusion:The court set aside the impugned assessment orders in both writ petitions, providing directions for reconsideration and ensuring that the petitioners are given a reasonable opportunity to contest the tax demands. The court emphasized the importance of procedural compliance while also recognizing the need to balance it with substantive justice.