2025 (8) TMI 983 - HC - GST

Writ petition dismissed: interest demand under s.50(3) upheld after admission of wrongful input tax credit for 2017-18

M/s Shivam Enterprise Versus The State of Bihar through The Principal Secretary, State Tax, (Department of State Tax) Bihar, Patna, The Principal Secretary Cum Commissioner, Department of State Taxes, Government of Bihar, Patna, Joint Commissioner of State Tax, (Department of State Taxes), Assistant Commissioner of State Tax, (Department of State Taxes), The Union of India, The Government of India

HC dismissed the challenge to the impugned order, holding that the Proper Officer's demand for interest under s.50(3) was justified as the petitioner had ... Violation of principles of natural justice - unreasoned order - unsigned order - violation of Rule 26(3) and Rule 142(1) of BGST/CGST Act and Rule, 2017 - HELD THAT:- The order passed by the respondent authorities/Proper Officer is based on the acceptance of fact by the petitioner that they had wrongly availed and utilised the input tax credit during the year 2017-18, this Court need not go into the issue of service of notice in the present case for a simple reason that the petitioner has already submitted its reply before the Proper Officer which has been taken into consideration while passing the impugned order. So far as the grievance of the petitioner that a mandatory personal hearing under sub-section (4) of Section 75 of the GST Act, 2017 was required to be given to the petitioner if any adverse order was contemplated against him, this Court finds that the plea of the petitioner is completely unfounded and not based on the foundations laid down in the writ application. There is no denial of the fact that pursuant to the show cause notice, the petitioner had submitted a reply through its representative wherein they had accepted availment of input tax credit wrongly. The order passed by the Proper Officer is based on the admission of the Petitioner as to wrong availment of the input tax credit. What has been done by the Proper Officer is to raise a demand on account of interest on the amount which was wrongly availed as input tax credit by the petitioner. This is in terms of Sub-Section (3) of Section 50 of the BGST Act, 2017 only. No penalty has been imposed. There is no reason to exercise our power of judicial review in the facts of the present case - application dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the show cause notice and its summary uploaded in the 'Additional Notices' column without initial digital signature and later system-generated demand in Form DRC-07 (summary) are invalid for non-compliance with Rule 26(3) and Rule 142(1) of BGST/CGST Rules, 2017. 2. Whether fixation of the personal hearing date on the same day as the last date for filing written submissions (and similarly fixing hearing on the date fixed for submission in a reminder) violated Section 75(4) BGST/CGST Act, 2017 and principles of natural justice. 3. Whether issuance of demand without prior issuance of Form GST ASMT-10 in accordance with Section 61 read with Rule 99 (and related provisions) rendered the proceedings invalid. 4. Whether the impugned order is a non-reasoned order contrary to statutory requirements and whether penalty/interest was validly imposed (scope of Section 50(3) and distinction between interest and penalty). 5. Whether the writ court should exercise judicial review given the facts that the petitioner submitted online admissions in response to the notices. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of notices and summary/orders lacking initial digital signature (Rule 26(3), Rule 142(1)) Legal framework: Rule 26(3) and Rule 142(1) of BGST/CGST Rules, 2017 require authentication/digital signing of electronically issued notices and orders; system-generated Form DRC-07 is contemplated by Rule 142(5). Precedent treatment: No prior judicial authority was treated as binding or overruled in the judgment; the Court relied on statutory scheme and portal process as reflected in the record. Interpretation and reasoning: The Court observed that although initial uploads of summary/notice on the portal lacked a digital signature in the 'Additional Notices' column, the Assessing Officer passed an online order under Section 73(9) through the common GST portal on 19.08.2019 and thereafter affixed the digital signature; a system-generated summary in Form DRC-07 was issued electronically. The Court treated the moment of final digitally-signed order/summary as operative. Ratio vs. Obiter: Ratio - an electronically issued and subsequently digitally-signed order/summary generated through the common GST portal, reflecting the Assessing Officer's decision, satisfies the authentication requirements so as not to vitiate proceedings where the substantive acceptance or admission by the assessee exists. (This flows from the Court's reliance on the signed system-generated order as operative.) Conclusion: Non-appearance of a digital signature at the instant of initial upload to an 'Additional Notices' column did not invalidate the proceedings where the final online order was digitally signed and the petitioner had already engaged with the proceedings (including making admissions). Issue 2 - Adequacy of personal hearing opportunity under Section 75(4) Legal framework: Section 75(4) BGST/CGST Act, 2017 provides for personal hearing opportunity before passing certain adverse orders; principles of natural justice require meaningful opportunity where adverse action is contemplated. Precedent treatment: No precedent cited or relied upon to alter statutory interpretation. Interpretation and reasoning: The Court noted that the petitioner submitted a written response on portal and, crucially, accepted the wrong availment of transitional input tax credit in that response. Because the order ultimately rested on the petitioner's admission, the Court held that the contention of denial of meaningful personal hearing was unfounded. The Court also found that the petitioner did not initially raise in the writ application that the representative had erred in lodging the admission; this contention was raised belatedly in rejoinder and was not factually substantiated. Ratio vs. Obiter: Ratio - where an assessee furnishes substantive response/admission to the show cause notice which is considered by the authority, mere timing of a fixed personal hearing date (even if coinciding with last date for written reply) does not automatically vitiate proceedings; absence of a successful, fact-specific challenge to the adequacy of hearing precludes relief. (Core holding applied to facts.) Conclusion: No violation of Section 75(4) or principles of natural justice where the authority acted on the assessee's admission submitted in response and the petitioner accepted the factual basis of demand. Issue 3 - Requirement of prior issuance of Form GST ASMT-10 (Section 61 & Rule 99) Legal framework: Section 61 read with Rule 99 contemplates issuance of certain notices/assessment steps in specified circumstances (assessment and enquiry procedures under the GST regime). Precedent treatment: Not invoked; Court proceeded on record of replies and admissions. Interpretation and reasoning: The petitioner alleged absence of ASMT-10 prior to show cause. The Court declined to engage in detailed analysis of notice sequencing once the petitioner had engaged with the show cause process and accepted wrong availment in a substantive reply; the authorities had considered the petitioner's submissions before passing the order. The Court treated the absence of a specific preliminary form as immaterial where parties engaged and the decision was founded on an admission. Ratio vs. Obiter: Obiter (to the extent of general treatment) - the Court did not lay down a categorical rule excusing breach of procedural formality in all cases; rather, it resolved the factual dispute by treating the acceptance and consideration of response as decisive on these facts. Conclusion: On the facts, the alleged non-issuance of ASMT-10 did not render the proceedings invalid, since the petitioner had submitted material in response and the order was based on that admission. Issue 4 - Whether order is reasoned and whether penalty or only interest was imposed (application of Section 50(3)) Legal framework: Section 50(3) BGST/CGST Act, 2017 provides for interest on delayed payment/non-repayment in respect of wrongly availed input tax credit; statutory distinction exists between interest (Section 50) and penalty provisions. Precedent treatment: None cited or treated as controlling in the judgment. Interpretation and reasoning: The Court examined the impugned demand and found the Proper Officer had imposed interest of Rs.1,08,713/- for wrongly availed input tax credit and had not imposed penalty. The Court accepted that the demand related to interest under Section 50(3) and that the demand flowed from the petitioner's admission. Regarding 'reasoned order' contention, the Court concluded that since the order was founded on the assessee's acceptance of wrong availment, absence of extended reasoning did not call for interference in exercise of writ jurisdiction on these facts. Ratio vs. Obiter: Ratio - where a demand is founded on an assessee's express admission of wrong availment of input tax credit, imposition of interest under Section 50(3) is permissible and such a demand does not amount to penalty; absence of elaborate reasoning in that scenario is not a ground for invalidating the order by judicial review. Conclusion: Only interest under Section 50(3) was imposed; no penalty was levied. The order is sustain-able on the factual foundation of petitioner's admission and does not warrant quashing on grounds of being non-reasoned in the circumstances. Issue 5 - Appropriateness of judicial review given the petitioner's admissions and conduct Legal framework: Writ jurisdiction for interference in quasi-administrative tax proceedings is discretionary and exercised where jurisdictional errors, mala fides, denial of natural justice or other substantial legal infirmities exist. Precedent treatment: Not invoked; Court applied established principles of discretionary review. Interpretation and reasoning: The Court emphasized that the impugned order resulted from the petitioner's admitted acceptance of wrong availment and that the petitioner had engaged with the proceedings and submitted replies which were considered. The belated and unsupported assertion in rejoinder that the representative erred was insufficient to impeach the proceedings. Consequently, no jurisdictional error or denial of natural justice was shown that would justify exercise of extraordinary writ power. Ratio vs. Obiter: Ratio - dismissal of writ relief is appropriate where the tax demand is based on the assessee's own admission, responses were considered, and the petitioner fails to establish a substantive procedural or jurisdictional infirmity necessitating judicial interference. Conclusion: The Court declined to exercise judicial review; the writ petition was dismissed as lacking merit.