Facts of the Case

  • The petitioner, M/s Balram Singh Patori, is a proprietorship firm located in Saharsa, Bihar, engaged in business operations under GSTIN-10AJIPS2522A3ZW.
  • The Assistant Commissioner of State Tax, Saharsa Circle (Respondent No. 6), initiated assessment proceedings against the petitioner for the period from October 2019 to March 2020 of the Financial Year 2019-20.
  • Without affording sufficient time or a fair opportunity for a personal hearing to the petitioner, the Assessing Authority passed impugned ex-parte assessment orders dated 22.01.2021.
  • Consequent to the assessment orders, a summary of demand was issued in Form GST DRC-07 on 22.01.2021 (Reference No. ZD1001210196073), creating an aggregate tax liability of Rs. 56,17,860/-.
  • The total liability breakup comprised:
    • CGST: Rs. 13,07,900/- along with Interest of Rs. 1,93,130/- and Penalty of Rs. 13,07,900/-.
    • SGST: Rs. 13,07,900/- along with Interest of Rs. 1,93,130/- and Penalty of Rs. 13,07,900/-.
  • Aggrieved by the ex-parte orders and the sudden recovery actions (whereby approx. Rs. 20,000,000/- or available balances were seized/attached from the cash credit ledger/bank accounts), the petitioner filed a writ petition under Article 226 of the Constitution of India before the Patna High Court.

Issues Involved

  1. Whether the statutory alternative remedy precludes the High Court from exercising its writ jurisdiction under Article 226 when there is an ex-facie violation of the principles of natural justice?
  2. Whether an ex-parte GST assessment order lacking a reasoned breakdown or an explanation of how the tax liability was quantified can be sustained in the eyes of law?
  3. Whether the impugned assessment orders and the consequential Form GST DRC-07 demand notice are liable to be quashed due to procedural infirmities and violations of natural justice.

Petitioner’s Arguments

  • The learned counsel for the petitioner argued that the impugned assessment orders were passed in a most illegal, hasty, and ex-parte manner by Respondent No. 6.
  • It was submitted that the authorities finalized the assessment before the deadline for submitting GSTR-9 and GSTR-9C (Annual Returns) had even elapsed, completely disregarding the statutory framework.
  • The petitioner contended that the dynamic records, data, and supporting materials already uploaded by the taxpayer on the official GST web portal were completely ignored and unexamined by the Assessing Officer.
  • The petitioner strongly emphasized that no sufficient time or dynamic opportunity was provided to represent the case, leading to civil consequences and severe financial hardship through the arbitrary freezing of bank accounts.

Respondent’s Arguments

  • The learned counsel representing the Revenue/State did not contest the material facts regarding the lack of a proper hearing.
  • The Revenue stated that they had no objection if the entire matter was remanded back to the Assessing Authority for deciding the case afresh on its merits.
  • They prayed that the petitioner should be directed to cooperate with the de-novo assessment proceedings and that the interests of the Revenue should be reasonably protected during the interim period.

Court Order / Findings

  • The Division Bench of the Hon’ble Patna High Court, comprising Chief Justice Sanjay Karol and Justice Partha Sarthy, observed that the presence of an alternative statutory remedy does not preclude the High Court from interfering if an order is ex-facie bad in law.
  • The Court highlighted two critical fatal flaws in the impugned order:
    1. Violation of Natural Justice: No sufficient time or fair opportunity of being heard was afforded to the petitioner.
    2. Lack of Reasons: The ex-parte order failed to assign any logical reasons or clear computations decipherable from the record as to how the officer determined the outstanding tax liability.
  • The Court ruled that even if proceedings are executed ex-parte, authorities are strictly legally bound to adjudicate the matter based on attending facts and circumstances, dealing explicitly with all issues of fact and law.
  • Consequently, the High Court quashed and set aside the assessment orders and the summary demand in Form GST DRC-07.
  • The matter was remanded back to the Assessing Authority to pass a fresh, reasoned speaking order on merits under the following mutually agreeable conditions:
    • The petitioner must deposit 20% of the raised demand within 8 weeks (subject to set-off if any amount was already recovered/deposited).
    • The respondents were directed to immediately de-freeze/de-attach the bank accounts of the petitioner.
    • The petitioner was directed to appear before the authority on 23.12.2022 to fast-track the disposal within 2 months.

Important Clarification

Key Legal Principle: The ruling clarifies that an ex-parte order is not a license to write an unreasoned order. Even when a taxpayer fails to appear, the GST Assessing Authority must explicitly write a speaking order demonstrating how the liability was quantified using the material on record. Furthermore, alternative statutory remedies cannot bar writ interventions when natural justice is visibly compromised.

Section Involved

  • Sections Covered: Section 73 / Section 74 of the Central Goods and Services Tax (CGST) Act, 2017 and Bihar Goods and Services Tax (BGST) Act, 2017.
  • Rules Covered: Central Goods and Services Tax / Bihar Goods and Services Tax Rules, 2017 (specifically involving the issuance of Summary of Order in Form GST DRC-07).

Link to download the order - https://mytaxexpert.co.in/uploads/1782980250_289compressed.pdf

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