2025 (3) TMI 609 - HC - GST

Tax Order Invalidated: Procedural Flaws Expose Unfair Assessment Process Under Section 73 of CGST Act

The SC found procedural violations in a tax order under Section 73 of CGST Act. The order was set aside due to lack of proper notice and opportunity to be ... Violation of principles of natural justice - proper service of SCN or not - Seeking to de-freeze the petitioner's Bank Account - HELD THAT:- Since all the notices pertaining to the show cause notice dated 22.05.2024 were sent only on the GST Portal, under the column ''Additional Notice'' tab, the same were unnoticed by the petitioner, however, the petitioner's erstwhile Consultant noticed the same and filed a reply on 20.06.2024 and was expecting for response, however, nearly for three weeks, nothing was updated and hence, the petitioner assumed that the issue was solved and thereafter, the petitioner discontinued the service of the tax consultant. However, the respondents, all of a sudden, passed the impugned order dated 28.08.2024, raising demand for tax/interest/penalty, without even giving an opportunity to the petitioner to putforth their contentions. Added to that, the said impugned order was not served on the petitioner through any physical mode of service but was merely uploaded in the GST Portal, which the petitioner was not aware. Only on 04.01.2025, when the petitioner received a notice dated 02.01.2025 sent by the second respondent, the petitioner came to know that the reply filed by the erstwhile tax consultant was not accepted. Thus, it is clear that the fact that the reply filed by the petitioner's ex-Consultant was not accepted by the respondents was came to the notice of the petitioner only on 04.01.2025, i.e. much later to the passing of the impugned order, hence, the petitioner was not in a position to file any detailed/better reply. However, the first respondent without even providing an opportunity of personal hearing, passed the impugned order, which suffers from violation of principles of natural justice. Conclusion - The principles of natural justice require that parties affected by an order must be given a fair opportunity to present their case, including clear communication of proceedings and orders. The impugned order suffers from violation of principles of natural justice and is liable to be set aside. The matter is remanded to the first respondent for fresh consideration - Petition allowed by way of remand. ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this judgment are:Whether the order passed by the first respondent under Section 73 of the CGST Act, dated 28.08.2024, is valid given the alleged procedural lapses and violation of principles of natural justice.Whether the petitioner's bank account attachment and subsequent recovery of Rs. 3,25,320/- were justified under the circumstances.Whether the petitioner was afforded a fair opportunity to present their case in response to the show cause notice issued by the Department.ISSUE-WISE DETAILED ANALYSIS1. Validity of the Order under Section 73 of the CGST ActRelevant legal framework and precedents: Section 73 of the CGST Act pertains to the determination of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilized for any reason other than fraud or any willful misstatement or suppression of facts. The principles of natural justice require that any order affecting the rights of a party should be passed only after giving them an opportunity to be heard.Court's interpretation and reasoning: The Court noted that the petitioner was not given a fair opportunity to present their case. The show cause notice issued did not specify the date, time, and venue for a personal hearing, and the order was uploaded only on the GST portal without direct communication to the petitioner.Key evidence and findings: The order was passed without considering the petitioner's reply, which was filed by their erstwhile consultant. The petitioner assumed that the matter was resolved due to the lack of communication from the Department.Application of law to facts: The Court found that the order was passed in violation of the principles of natural justice, as the petitioner was not given a proper opportunity to present their case, and the order was not served in a manner that ensured the petitioner was aware of it.Treatment of competing arguments: The respondents did not contest the petitioner's claim that they were not given a fair opportunity. The Government Advocate conceded that 40% of the disputed tax was already recovered and agreed that the petitioner's request could be considered.Conclusions: The impugned order was set aside due to procedural lapses and violation of natural justice principles.2. Attachment and Recovery from the Petitioner's Bank AccountRelevant legal framework and precedents: The attachment of a bank account is a coercive measure that should be employed only after ensuring compliance with legal procedures and principles of natural justice.Court's interpretation and reasoning: The attachment of the petitioner's bank account was based on an order that was set aside due to procedural issues. Therefore, the attachment could not be sustained.Key evidence and findings: The respondents had recovered Rs. 3,25,320/- from the petitioner's account without the petitioner being aware of the proceedings due to the lack of proper communication.Application of law to facts: Since the underlying order was set aside, the attachment and recovery were deemed unjustified.Treatment of competing arguments: The respondents did not provide any substantial argument to justify the continuation of the bank account attachment after the order was set aside.Conclusions: The Court directed the respondents to de-freeze the petitioner's bank account immediately.SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'The impugned order suffers from violation of principles of natural justice and is liable to be set aside.'Core principles established: The principles of natural justice require that parties affected by an order must be given a fair opportunity to present their case, including clear communication of proceedings and orders.Final determinations on each issue: The impugned order dated 28.08.2024 was set aside, and the matter was remanded to the first respondent for fresh consideration. The petitioner was directed to file a detailed reply, and the Department was instructed to provide a personal hearing. The bank attachment order was also set aside, and the respondents were directed to de-freeze the petitioner's bank account.