Facts of the Case

The petitioner, M/s Gardenia Newtech Developers LLP, approached the Patna High Court challenging the assessment orders dated 05.02.2021 and 06.02.2021 passed for Financial Year 2019-20. The assessment proceedings culminated in an ex parte determination of total liability amounting to ₹23,43,634, comprising CGST and SGST components together with interest and penalty.

The liability, as challenged by the petitioner, consisted of:

  • CGST: ₹9,48,840
  • Interest on CGST: ₹1,28,093
  • Penalty under CGST: ₹94,884
  • SGST: ₹9,48,840
  • Interest on SGST: ₹1,28,093
  • Penalty under SGST: ₹94,884

A consequential demand was raised in Form GST DRC-07 through the order dated 06.02.2021 for FY 2019-20. The petitioner stated that the demand order had been issued under Rules 100(1), 100(2), 100(3) and 142(5) of the CGST/BGST Rules, 2017.

The petitioner preferred an appeal against the assessment orders. However, the appellate authority, namely the Additional Commissioner, State Tax (Appeals), Patna West Division, rejected the appeal through the appellate order dated 18.09.2021, with APL-02 dated 21.09.2021, on the ground of non-receipt of certified copies.

The petitioner thereafter invoked the writ jurisdiction of the Patna High Court, challenging both the original assessment proceedings and the appellate order.

A significant part of the dispute concerned the petitioner’s claim that the authorities had failed to properly examine the GST records and supporting materials available on the portal, including the figures reflected in GSTR-3B and GSTR-2A.

According to the petitioner, the ITC claimed for FY 2019-20 on the basis of actual GSTR-3B filings was ₹77,72,075.54, whereas the impugned order allegedly proceeded on the figure of ₹81,30,577. The petitioner further stated that the auto-populated GSTR-2A reflected ITC of ₹75,79,962.39.

The petitioner contended that these discrepancies required proper examination and reassessment rather than an ex parte determination.

 

Issues Involved

The principal issues before the High Court were:

  1. Whether the ex parte GST assessment orders dated 05.02.2021 and 06.02.2021 were sustainable when sufficient opportunity of hearing had allegedly not been granted to the petitioner.
  2. Whether the consequential demand of ₹23,43,634 raised through Form GST DRC-07 could survive when the underlying assessment was alleged to have been passed in violation of principles of natural justice.
  3. Whether an ex parte assessment order having civil consequences must contain sufficient and discernible reasons explaining how the tax liability was determined.
  4. Whether the Assessing Authority was required to examine all relevant factual and legal issues even where proceedings were conducted ex parte.
  5. Whether the rejection of the statutory appeal on the ground of non-receipt of certified copies could be sustained in the facts and circumstances of the case.
  6. Whether the High Court could exercise writ jurisdiction notwithstanding the existence of a statutory remedy where the impugned orders were ex facie bad in law and suffered from violation of natural justice.
  7. Whether the alleged mismatch between GSTR-3B and GSTR-2A and the petitioner’s ITC claim had been properly examined before raising the disputed demand.
  8. Whether the alleged ITC difference could be treated as wrongly availed input tax credit under Sections 73/74 of the GST enactments in the circumstances pleaded by the petitioner.

 

Petitioner’s Arguments

The petitioner challenged the impugned proceedings substantially on the following grounds:

1. Ex Parte Assessment Without Adequate Opportunity

The petitioner contended that the assessment orders had been passed ex parte without providing a fair and sufficient opportunity to properly represent its case.

2. Violation of Principles of Natural Justice

It was argued that the impugned proceedings were legally unsustainable because the petitioner had not been afforded an effective opportunity of hearing before determination of substantial tax, interest and penalty liability.

3. Failure to Examine GST Portal Records

The petitioner alleged that the assessment and appellate authorities had failed to properly examine the records and supporting materials uploaded on the GST portal.

4. Incorrect ITC Figures

The petitioner specifically contended that, according to actual GSTR-3B filings, the ITC claimed for FY 2019-20 was ₹77,72,075.54, whereas the impugned assessment allegedly referred to ₹81,30,577.

5. GSTR-2A Position Not Properly Considered

The petitioner stated that the auto-populated GSTR-2A reflected ₹75,79,962.39, and therefore the actual tax position required proper verification and reconciliation.

6. Dispute Concerning Allegedly Wrongly Availed ITC

The petitioner questioned the rejection of ITC and levy of interest and penalty in relation to the alleged ITC difference of ₹18,97,680.84. It was pleaded that excess credit was available in the credit ledger and, therefore, the amount could not automatically be treated as wrongly availed input tax credit under Sections 73/74 of the GST Act, 2017.

7. Challenge to Appellate Rejection

The petitioner also challenged the appellate order by which its appeal had been rejected on the ground of non-receipt of certified copies.

8. Request for Fresh Assessment

The petitioner sought a fresh assessment for FY 2019-20 after considering relevant invoices and the mapping/reconciliation of GSTR-3B and GSTR-2A so that the actual tax liability, if any, could be properly determined.

9. Pre-Deposit

The petitioner stated that ₹1,89,768, representing 10% of the disputed tax amount, had been deposited as the statutory pre-deposit contemplated under Section 107(6)(b) for filing the appeal.

 

Respondent’s Arguments / Revenue’s Stand

Learned counsel for the Revenue stated before the High Court that there was no objection to remanding the matter to the Assessing Authority for a fresh decision.

The Revenue further stated that:

  • limitation would not be permitted to obstruct fresh adjudication;
  • the matter would be decided on merits; and
  • during the pendency of the proceedings, no coercive steps would be taken against the petitioner.

The High Court accepted and took this statement on record.

 

Court’s Findings

The Patna High Court held that the existence of a statutory remedy did not preclude the Court from interfering where, ex facie, the impugned order was found to be bad in law.

The Court identified serious deficiencies in the proceedings.

1. Violation of Natural Justice

The Court found that there had been a violation of the principles of natural justice, particularly the requirement of a fair opportunity of hearing.

The Court specifically observed that sufficient time had not been afforded to the petitioner to represent its case.

2. Ex Parte Order Lacked Sufficient Reasons

The Court found that the ex parte order did not assign sufficient reasons, even discernible from the record, explaining how the officer had determined the amount allegedly due and payable by the assessee.

3. Civil Consequences Required Fair Procedure

The Court recognised that the ex parte order entailed civil consequences. Therefore, compliance with principles of natural justice was essential.

4. Failure to Adjudicate Facts and Law

The Court further found that the authorities had not adjudicated the matter on the attending facts and circumstances.

Importantly, the Court clarified that all issues of fact and law ought to have been dealt with even if the proceedings were ex parte in nature.

 

Court Order / Final Directions

The High Court disposed of the writ petition on mutually agreeable terms and issued the following substantive directions:

A. Assessment Orders Quashed

The assessment orders dated 05.02.2021 and 06.02.2021 passed by the Assistant Commissioner of State Tax, Patna South Circle, were quashed and set aside.

B. DRC-07 Demand Quashed

The consequential demand of ₹23,43,634, including interest and penalty, raised in Form GST DRC-07 for FY 2019-20 was also quashed and set aside.

C. Appellate Order Quashed

The appellate order dated 18.09.2021, together with the relevant APL-02 dated 21.09.2021, was quashed and set aside.

D. Existing 10% Deposit Recognised

The Court accepted the petitioner’s statement that 10% of the total amount, being the prerequisite condition for hearing of the appeal, had already been deposited. If the amount had not been deposited for any reason, the same was required to be deposited before the next date.

E. Additional 10% Deposit Directed

The petitioner undertook to additionally deposit 10% of the demand raised before the Assessing Officer within four weeks.

F. Deposit Without Prejudice

The additional deposit was directed to remain without prejudice to the respective rights and contentions of the parties and subject to the final order of the Assessing Officer.

G. Refund of Excess Deposit

If the petitioner’s deposit was ultimately found to be in excess, the excess amount was directed to be refunded within two months from the date of passing of the order.

H. Bank Accounts to be De-Frozen / De-Attached

The Court directed immediate de-freezing/de-attachment of the petitioner’s bank account(s), if attached in connection with the proceedings forming the subject matter of the writ petition.

I. Appearance Before Assessing Authority

The petitioner undertook to appear before the Assessing Authority on 30 November 2022 at 10:30 A.M., if possible through digital mode.

J. Fresh Decision on Merits

The Assessing Authority was directed to decide the case afresh on merits after complying with principles of natural justice.

K. Opportunity to Submit Documents

The parties were to be afforded an opportunity of hearing and permitted to place on record all essential documents and materials, if required and desired.

L. No Coercive Action During Pendency

The Court directed that no coercive steps be taken against the petitioner during pendency of the fresh proceedings.

M. Adequate Opportunity Before Fresh Order

The Assessing Authority was directed to pass a fresh order only after affording adequate opportunity to all concerned, including the writ petitioner.

N. Petitioner to Cooperate

The petitioner undertook to fully cooperate with the fresh proceedings and not seek unnecessary adjournments.

O. Time-Bound Fresh Adjudication

The Assessing Authority was directed to decide the case expeditiously, preferably within two months from the date of appearance of the petitioner.

P. Speaking Order Mandatory

The Assessing Authority was specifically directed to pass a speaking order assigning reasons, and a copy thereof was to be supplied to the parties.

Q. Liberty to Challenge Fresh Order

The petitioner was granted liberty to challenge the fresh order, if required and desired.

R. Other Legal Remedies Preserved

The parties were also granted liberty to take recourse to such other remedies as may be available in accordance with law.

S. No Opinion on Merits

The High Court expressly clarified that it had not expressed any opinion on the merits of the dispute, and all issues were left open.

 

Important Clarification

The judgment contains several important legal clarifications:

1. Alternative Remedy Does Not Create an Absolute Bar to Writ Jurisdiction

The High Court clarified that notwithstanding the existence of a statutory remedy, writ jurisdiction may still be exercised where the impugned order is ex facie bad in law, particularly because of violation of natural justice.

2. Ex Parte Proceedings Do Not Permit Unreasoned Orders

An order does not become legally sustainable merely because proceedings are ex parte. The authority must still disclose sufficient reasons explaining the basis on which tax liability has been determined.

3. All Factual and Legal Issues Must Be Considered

The Court made it clear that all issues of fact and law ought to be dealt with even in ex parte proceedings.

4. Fair Opportunity Is Essential Where Civil Consequences Follow

Where tax, interest and penalty are imposed and the order carries serious civil consequences, a fair and adequate opportunity of hearing assumes fundamental importance.

5. Fresh Adjudication Must Be Through a Speaking Order

The Assessing Authority must reconsider the matter on merits, provide adequate opportunity, examine the relevant documents and materials, and pass a reasoned speaking order.

6. High Court Did Not Decide the ITC Mismatch Dispute on Merits

Although the petitioner raised detailed contentions concerning GSTR-3B, GSTR-2A, ITC figures and the alleged wrongly availed credit under Sections 73/74, the High Court did not finally adjudicate those substantive tax issues. All issues were expressly left open for fresh determination.

 

Sections and Rules Involved

Section 73 of the CGST/BGST Act, 2017

Relevant to determination of tax not paid or short paid, tax erroneously refunded, or input tax credit wrongly availed or utilised for reasons other than fraud, wilful misstatement or suppression of facts. The petitioner referred to Section 73 while disputing the treatment of the alleged ITC difference.

Section 74 of the CGST/BGST Act, 2017

Relevant to determination involving allegations of fraud, wilful misstatement or suppression of facts. The petitioner contended that the disputed ITC difference could not be treated as wrongly availed input tax credit in the manner alleged under Sections 73/74.

Section 107(6)(b) of the CGST Act, 2017

Relevant to statutory pre-deposit requirements for maintaining an appeal. The petitioner referred to a deposit of ₹1,89,768 as 10% of the disputed tax amount.

Rule 100(1) of the CGST/BGST Rules, 2017

Cited in relation to the assessment and demand proceedings challenged by the petitioner.

Rule 100(2) of the CGST/BGST Rules, 2017

Cited as one of the provisions under which the impugned ex parte demand proceedings were stated to have been undertaken.

Rule 100(3) of the CGST/BGST Rules, 2017

Also referred to in connection with the challenged assessment and demand process.

Rule 142(5) of the CGST/BGST Rules, 2017

Referred to in relation to the issuance of the demand order and summary in Form GST DRC-07.

 

Key Legal Takeaway

An ex parte GST assessment resulting in substantial tax, interest and penalty liability cannot be sustained where sufficient opportunity of hearing is denied, reasons for quantification of liability are not adequately disclosed, and relevant factual and legal issues remain unexamined. Even in ex parte proceedings, the adjudicating authority must consider the material on record, address issues of fact and law, comply with principles of natural justice and pass a reasoned speaking order.

Link to download the order

https://www.mytaxexpert.co.in/uploads/1783321960_1212compressed.pdf

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