Facts of the Case

  • The Petitioner, M/s Cement House, is a proprietorship concern represented by its proprietor, Saurav Kumar, operating from Saharsa, Bihar.
  • The Assistant Commissioner of State Taxes, Saharsa Circle (Respondent No. 6), issued assessment orders dated 06.02.2021 and 06.03.2021 for the Financial Year 2019-20.
  • Consequent to the assessment, a summary of order in Form GST DRC-07 dated 06.02.2021 was served upon the petitioner, creating a total tax, interest, and penalty liability of Rs. 32,00,296/-.
  • The structural breakup of this fast-tracked liability comprised:
    • CGST: Tax of Rs. 7,54,787/-, Interest of Rs. 90,574/-, and an equal Penalty of Rs. 7,54,787/-.
    • SGST: Tax of Rs. 7,54,787/-, Interest of Rs. 90,574/-, and an equal Penalty of Rs. 7,54,787/-.
  • The tax authorities aggressively enforced the demand by freezing the bank accounts of the petitioner and seizing an amount of Rs. 16,90,722/- directly from the petitioner’s cash credit ledger.
  • Aggrieved by the high-handed ex-parte action executed without giving adequate time or considering the annual returns uploaded on the web portal, the petitioner moved a writ application before the High Court.

Issues Involved

  • Whether the availability of an alternative statutory appellate remedy completely bars the High Court from exercising its writ jurisdiction under Article 226 of the Constitution of India when an order is ex-facie bad in law?
  • Whether the ex-parte assessment orders and subsequent DRC-07 demand issued by the revenue authority violated the fundamental principles of natural justice by failing to provide the taxpayer sufficient opportunity to represent their case?
  • Whether an ex-parte assessment order passed by a proper officer can be legally sustained if it does not assign clear, decipherable reasons showing how the tax liability was computed?

Petitioner’s Arguments

  • The learned counsel for the petitioner argued that the impugned assessment orders and the summary of demand in Form GST DRC-07 were passed in a highly arbitrary and ex-parte manner.
  • It was strongly contended that the assessing officer rushed into passing the order without verifying the actual financial transactions or reviewing the supporting materials and GSTR-9 annual returns uploaded on the official GST web portal.
  • The petitioner argued that their right to a fair hearing was completely abridged as they were never given sufficient or reasonable time to present their books of accounts or contest the proposed tax parameters.
  • Furthermore, the high-handed recovery action—whereby Rs. 16,90,722/- was abruptly seized from the petitioner's cash credit ledger and bank accounts were frozen—inflicted severe civil and financial consequences on an active business, rendering it bad in law.

Respondent’s Arguments

  • The Revenue, represented by its standing counsels, initially sought to defend the administrative process by highlighting that the petitioner failed to actively participate within the timeline, which forced the assessing authority to pass an ex-parte order based on available records.
  • However, recognizing the evident gap in structural transparency and the complete lack of speaking reasons within the orders, the learned counsel for the Revenue ultimately conceded.
  • The Revenue stated that it had no objection if the impugned ex-parte assessment orders were set aside and the entire matter was remanded back to the Assessing Authority for a fresh adjudication on merits, provided the interests of the Revenue were safely secured.

Court Order / Findings

  • The Division Bench, comprising Hon'ble Chief Justice Sanjay Karol and Hon'ble Justice Partha Sarthy, categorically held that the existence of a statutory remedy does not preclude the High Court from intervening if an order is ex-facie bad in law due to a gross violation of natural justice.
  • The Court noted that the ex-parte orders were totally unsustainable because they failed to assign any logical, decipherable reasons as to how the officer determined and calculated the tax, interest, and penalty amounts.
  • The High Court set aside and quashed the impugned assessment orders dated 06.02.2021, 06.03.2021, and the DRC-07 demand.
  • To balance equities, the Court disposed of the writ petition under the following mutually agreeable terms:
    1. Pre-deposit: The petitioner must deposit 20% of the total raised demand within 8 weeks, which will be subject to final adjustments or set-offs.
    2. De-freezing of Accounts: The authorities were ordered to immediately de-freeze and de-attach the petitioner’s bank accounts.
    3. Remand & De-Novo Assessment: The matter was remanded back to the Assessing Authority to pass a fresh, speaking order on merits after giving the petitioner a complete opportunity to produce all necessary documents.
    4. No Coercive Action: The Court prohibited the revenue authorities from taking any coercive steps against the petitioner during the pendency of the fresh assessment.

Important Clarification

The landmark takeaway from this judgment is that even when a tax proceeding is being conducted ex-parte, the proper officer cannot escape the duty of passing a detailed "speaking order". The court firmly established that all issues of fact and law must be thoroughly adjudicated and explicitly laid out on record. An ex-parte status does not give an assessing officer the license to issue arbitrary, unreasoned financial demands without displaying the underlying computation mechanics.

Sections Involved

  • Section 73 / Section 74 of the CGST Act, 2017 / Bihar GST Act, 2017: Under which the tax liability, interest, and penalty were computed and raised by the proper officer.
  • Rule 142 of the CGST Rules, 2017: Governing the issuance of the summary of order via Form GST DRC-07.
  • Article 226 of the Constitution of India: INVOKED BY THE PETITIONER TO SEEK A WRIT OF CERTIORARI AND MANDAMUS for the protection of natural justice against arbitrary state action.

Link to download the order - https://mytaxexpert.co.in/uploads/1782982568_299compressed.pdf

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