2025 (1) TMI 1197 - HC - GST

Court Overturns Orders for Procedural Violations Under GST Act; Allows Final Contest with Payment Condition.

The court set aside the impugned orders dated 24.08.2024 and 30.08.2024, finding procedural violations under the GST Act, including breaches of natural ... Challenge to impugned order on the premise that the same are made in gross violation of procedure contemplated under the GST Act and violation of principles of natural justice - mismatch between GSTR 1 and GSTR 3B - discrepancy in discharge of the tax liability - HELD THAT:- The impugned orders dated 24.08.2024 and 30.08.2024 are set aside. The petitioner shall deposit 10% of the disputed taxes i.e. Rs. 9,00,166/- as admitted by the learned counsel for the petitioner and the respondents, within a period of four weeks from the date of receipt of a copy of this order. Petition disposed off. 1. ISSUES PRESENTED and CONSIDERED Whether the impugned orders dated 24.08.2024 and 30.08.2024 were passed in violation of the procedural requirements under the GST Act. Whether the impugned orders violated the principles of natural justice. Whether the demand amount in the impugned orders exceeded the amount specified in the respective show cause notices, thus contravening Section 75(7) of the GST Act. Whether the subject matter of both proceedings being the same is barred by the limitation/restriction under Section 6(2) of the GST Act. Whether non-participation by the petitioner in the proceedings disentitles it from challenging the impugned orders. Whether the petitioner is entitled to a final opportunity to submit objections before the adjudicating authority after partial payment of disputed tax. The procedural mechanism and conditions for interim relief including payment of a portion of disputed tax and subsequent adjudication. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Procedural Compliance and Violation of Principles of Natural Justice Legal framework and precedents: The GST Act mandates adherence to prescribed procedures for issuance of notices, show cause notices, and passing of assessment orders. Principles of natural justice require that a person affected by an order be given adequate opportunity to be heard before adverse orders are passed. Court's interpretation and reasoning: The Court noted that the impugned orders were challenged on grounds of gross violation of procedure and principles of natural justice. The petitioner contended that the orders went beyond the scope of the show cause notices and were passed without proper opportunity to present objections. Key evidence and findings: The petitioner submitted that multiple notices (ASMT-10, DRC-01A, DRC-01) were issued with differing demands and that the impugned orders confirmed or enhanced demands without proper procedural adherence. Application of law to facts: The Court observed that the impugned orders were set aside by consent, and the petitioner was granted an opportunity to submit objections after depositing 10% of the disputed tax. This indicated recognition of the necessity to comply with procedural safeguards and natural justice. Treatment of competing arguments: The respondent contended that the petitioner's failure to participate in proceedings precluded challenge. However, the Court balanced this against the petitioner's right to be heard and allowed a final opportunity post partial payment. Conclusions: The impugned orders were set aside due to procedural infirmities and violation of natural justice principles. The petitioner was afforded a chance to be heard afresh. Issue 2: Validity of Demand Exceeding Show Cause Notice - Section 75(7) of the GST Act Legal framework and precedents: Section 75(7) of the GST Act restricts the amount of tax, interest, and penalty demanded in an order to not exceed the amount specified in the show cause notice. Court's interpretation and reasoning: The Court analyzed the demands in the notices and impugned orders. The show cause notice dated 22.05.2024 proposed a demand of Rs. 17,42,622/-, and the corresponding impugned order confirmed the same amount. The show cause notice dated 31.05.2024 proposed a demand of Rs. 8,36,366/-, but the impugned order dated 30.08.2024 enhanced the demand to Rs. 33,24,832/-. Key evidence and findings: The discrepancy between the proposed demand in the second show cause notice and the enhanced demand in the impugned order was highlighted as a violation of Section 75(7). Application of law to facts: The Court found that the impugned order dated 30.08.2024 exceeded the amount specified in the show cause notice, thereby contravening Section 75(7) of the GST Act. Treatment of competing arguments: The respondents did not directly contest this point but focused on non-participation and readiness to accept partial payment. Conclusions: The enhancement of demand beyond the show cause notice was impermissible, rendering the impugned order liable to be set aside on this ground. Issue 3: Bar on Proceedings under Section 6(2) of the GST Act Due to Same Subject Matter Legal framework and precedents: Section 6(2) of the GST Act provides limitation/restriction on proceedings where the subject matter is identical, to avoid multiplicity and conflicting orders. Court's interpretation and reasoning: The Court noted that both proceedings related to the same financial year and involved the same subject matter of tax liability mismatch. Key evidence and findings: The petitioner argued that the proceedings should be consolidated or barred under Section 6(2) to prevent duplication and inconsistent demands. Application of law to facts: The Court directed the respondents to consolidate the proposals and pass one consolidated order for the relevant period, allowing the petitioner to raise all issues including jurisdictional challenges. Treatment of competing arguments: The respondents accepted consolidation and did not oppose this direction. Conclusions: The Court recognized the bar on multiplicity of proceedings and ordered consolidation to ensure proper adjudication. Issue 4: Effect of Non-Participation by the Petitioner in Proceedings Legal framework and precedents: Generally, non-participation may limit a party's ability to challenge orders, but principles of natural justice and statutory safeguards may permit relief in appropriate cases. Court's interpretation and reasoning: The respondents contended that the petitioner's failure to participate precluded challenge. However, the Court balanced this against the petitioner's right to be heard and the statutory scheme permitting reconsideration. Key evidence and findings: The petitioner was willing to comply with partial payment and submit objections. Application of law to facts: The Court allowed the petitioner a final opportunity to file objections after depositing 10% of disputed tax, thus mitigating the effect of prior non-participation. Treatment of competing arguments: The Court rejected the absolute bar on challenge due to non-participation, emphasizing fairness and opportunity. Conclusions: Non-participation did not bar the petitioner from challenging the orders once procedural safeguards were complied with. Issue 5: Interim Relief and Conditions for Further Adjudication Legal framework and precedents: Courts may grant interim relief subject to conditions such as partial payment of disputed tax and submission of objections to ensure compliance and protect revenue interests. Court's interpretation and reasoning: By mutual consent, the Court set aside the impugned orders and directed the petitioner to deposit 10% of the disputed tax within four weeks. Key evidence and findings: The petitioner admitted the 10% amount and was ready to comply. The respondents agreed to grant a final opportunity to submit objections. Application of law to facts: The Court laid down a detailed schedule for payment, verification, submission of objections, and passing of fresh orders after hearing. Treatment of competing arguments: Both parties agreed to the terms, which balanced the petitioner's right to be heard with the revenue's interest. Conclusions: The Court's order provided a structured mechanism for interim relief and fresh adjudication, conditional on compliance by the petitioner. Issue 6: Consolidation of Proceedings and Jurisdictional Challenges Legal framework and precedents: Consolidation of proceedings involving the same subject matter is a recognized practice to avoid multiplicity and conflicting orders. Parties retain the right to raise jurisdictional and other substantive issues in consolidated proceedings. Court's interpretation and reasoning: The Court directed consolidation of proposals and passing of a single order for the relevant financial year. Key evidence and findings: The petitioner was permitted to raise all issues including jurisdictional objections in the consolidated proceedings. Application of law to facts: This approach ensures comprehensive adjudication and judicial economy. Treatment of competing arguments: No objection was raised by respondents to consolidation or raising of jurisdictional issues. Conclusions: Consolidation was ordered with liberty to the petitioner to raise all relevant issues.