2025 (7) TMI 1525 - SC - GST

Payment under Section 129(5) CGST Act doesn't replace need for final, reasoned order under Section 129(3)

M/s ASP TRADERS Versus STATE OF UTTAR PRADESH & ORS.

The SC held that payment of tax and penalty under section 129(5) of the CGST Act does not dispense with the requirement for the proper officer to pass a ... Requirement of proper officer to pass a final order under section 129(3) of CGST Act or deeming fiction under section 129(5) dispenses with such requirement - Though detained goods were released under Form GST MOV-05, final order was not passed - payment of tax and penalty done by the appellant within the time stipulated in the notice u/s 129(3) - HELD THAT:- Evidently, the discharge order merely records that the detained goods and vehicle were released upon payment of the proposed tax and penalty. It makes no mention of any withdrawal of objections or of the conclusion of proceedings initiated under Section 129(3) of the CGST Act, 2017 - It is a well settled principle that every show cause notice must culminate in a final, reasoned order. While Section 129(5) of the CGST Act, 2017 provides that proceedings shall be deemed to be concluded upon payment of tax and penalty, this deeming fiction cannot be interpreted to imply that the assessee has agreed to waive or abandon the right to challenge the levy – a right that is protected by the very enactment itself. The term “conclusion” as used in Section 129(5) merely signifies that no further proceedings for prosecution will be initiated. It does not absolve the responsibility of the proper officer to pass an order concluding the proceedings. Therefore, the proper officer is duty-bound to pass a formal order in Form GST MOV-09 and upload a summary thereof in Form GST DRT 07 as mandated under Rule 142(5) and the Circular dated 13.04.2018, so as to enable the taxpayer to avail the appeal remedy as per law. In the present case, payment was made under protest, and objections had already been filed by the appellant. Once objections are filed, adjudication is not optional, it becomes imperative to pass a speaking order to justify the demand of tax and penalty, to safeguard the right of appeal under Section 107 of the CGST Act, 2017. The language of section 129(3) is categorical in stating that the officer “shall issue a notice… and thereafter, pass an order”. The use of the words “and thereafter” reinforces the mandatory nature of passing a reasoned order, regardless of payment, particularly where protest or dispute is raised. A waiver, as settled, is an abandonment of a right by express terms or by implication. It is an act by which a party elects to abandon his right to pursue a particular remedy with full knowledge of its existence, making the other party to alter his position or legal status. Acquiescence, on the other hand, will imply the conduct of a party, who refrains from taking any action for a long period of time, despite the knowledge of the violation of his right, thereby precluding his future right to agitate the issue, as it would be hit by laches. The principles of natural justice mandate that when a taxpayer submits a response to a show cause notice, the adjudicating authority is required to consider such response and render a reasoned, speaking order. This is not a mere procedural formality, but a substantive safeguard ensuring fairness in quasi- judicial proceedings. The right to appeal under Section 107 of the CGST Act, 2017, is predicated upon the existence of a formal adjudication. An appeal can lie only against an ‘order’, and in the absence of a reasoned order passed under Section 129(3) of the Act, the taxpayer is effectively deprived of the statutory remedy of appeal - Any consequential action including imposition of tax or penalty, would then be unsupported by authority of law, thereby potentially violating Article 265 of the Constitution of India, which prohibits the levy or collection of tax except by authority of law. Thus, taking into account that objections were filed, payment was stated to have been made under protest due to business exigencies, and the appellant seeks to challenge the levy, the proper officer was under a clear statutory obligation to pass a final order under section 129(3) in Form GST MOV-09 and DRC-07. The refusal by the High Court to direct the passing of such an order, has the effect of frustrating the appellant’s statutory right to appeal and is contrary to well established legal principles governing tax adjudication and procedural fairness. The impugned order passed by the High Court is set aside. Respondent No.3 is directed to pass a reasoned final order under section 129(3) of the CGST Act, 2017, in Form GST MOV-09, after granting an opportunity of being heard as mandated under Section 129(4), and upload the summary thereof in Form GST DRC-07 within a period of one month from the date of receipt of a copy of this judgment - Appeal allowed. ISSUES: Whether the proper officer is mandatorily required to pass a final, reasoned order under Section 129(3) of the CGST Act, 2017 after issuing a notice specifying tax and penalty payable, even if the tax and penalty are paid by the person charged within the stipulated time.Whether the deeming provision under Section 129(5) of the CGST Act, 2017, which states that proceedings shall be deemed concluded upon payment of the amounts, dispenses with the requirement of passing a formal adjudicatory order under Section 129(3).Whether payment of tax and penalty via Form GST DRC-03 can be treated as voluntary payment, thereby waiving the right to contest the demand and obviating the need for passing a reasoned order.Whether failure to pass a reasoned order under Section 129(3) after issuance of notice and receipt of objections violates principles of natural justice and the constitutional mandate under Article 265 of the Constitution of India.Whether the appellant's right to appeal under Section 107 of the CGST Act, 2017 is preserved in the absence of a formal order under Section 129(3). RULINGS / HOLDINGS: On the requirement of passing a final order under Section 129(3): The Court held that the proper officer is 'duty-bound to pass a formal order in Form GST MOV-09' after issuing a notice specifying tax and penalty payable, regardless of payment, especially where objections have been filed, to enable the taxpayer to exercise the statutory right of appeal.On the effect of Section 129(5): The Court ruled that the deeming fiction in Section 129(5) that proceedings are concluded upon payment 'does not absolve the responsibility of the proper officer to pass an order concluding the proceedings,' and cannot be interpreted as waiver or abandonment of the right to challenge the levy.On the nature of payment via Form GST DRC-03: The Court found that payment made under business exigencies or protest cannot be treated as voluntary payment; the absence of a mechanism to record protest in Form GST DRC-03 should not prejudice the taxpayer, especially when objections are on record.On violation of natural justice and Article 265: The Court held that failure to pass a reasoned order in response to a show cause notice violates principles of natural justice and Article 265, which mandates that no tax or penalty shall be levied or collected except by authority of law.On the right to appeal under Section 107: The Court emphasized that the right to appeal is predicated on the existence of a formal adjudicatory order; absence of such order renders the right of appeal illusory and deprives the taxpayer of statutory remedies. RATIONALE: The Court applied the statutory framework of Section 129 of the CGST Act, 2017, which mandates that after issuing a notice specifying tax and penalty payable under subsection (3), the proper officer shall 'thereafter, pass an order,' and subsection (4) which requires an opportunity of hearing before determination.Rule 142 of the CGST Rules, 2017, particularly sub-rules (3) and (5), reinforce the procedural requirement that upon payment of tax and penalty, the proper officer shall issue an order in Form GST DRC-05 concluding the proceedings and upload a summary in Form GST DRC-07.The Court relied on Circular No.41/15/2018-GST dated 13.04.2018 issued by the CBIC, which provides binding departmental instructions that a speaking order in Form GST MOV-09 must be passed after objections are filed, even if payment is made, to ensure uniformity and safeguard taxpayer rights.The Court distinguished the deeming provision under Section 129(5) as signifying conclusion of prosecution proceedings but not waiver of adjudication or appeal rights; it held that 'there can be no acquiescence in tax' and that payment under protest or compulsion does not constitute waiver or abandonment of rights.Judicial precedents on waiver, acquiescence, and abandonment were examined, emphasizing that waiver or abandonment must be clear, voluntary, and with full knowledge; mere payment or oral withdrawal of objections without written evidence does not satisfy this standard.The Court emphasized the constitutional mandate under Article 265 that tax or penalty can only be levied or collected by authority of law, which requires passing of a reasoned order to justify the demand.Principles of natural justice and fairness require that quasi-judicial authorities record cogent, clear, and succinct reasons for decisions affecting rights, as supported by Supreme Court jurisprudence emphasizing transparency, accountability, and judicial review.The Court rejected the respondents' reliance on strict literal interpretation of Section 129(5) to avoid adjudication, holding that procedural safeguards and taxpayer rights cannot be circumvented by mechanical application of deeming provisions.