Facts of the Case

The petitioner, M/s Eastmen Auto and Power Limited, challenged multiple actions initiated by the State Tax authorities relating to the rejection of its TRAN-1 transitional input tax credit claim and the consequential assessment proceedings.

The petitioner sought:

  • Quashing of the ex parte order dated 24.05.2019 rejecting its application under Section 140 read with Rule 117 concerning TRAN-1 transitional credit.
  • Quashing of the assessment order dated 20.08.2019 passed under Section 74 of the BGST Act imposing tax, interest and penalty.
  • Quashing of GST DRC-07 issued pursuant to the assessment order.
  • Quashing of DRC-13 attachment proceedings initiated against its bank account.

The principal grievance before the High Court was that the statutory requirement of granting 30 days' time before passing an order under Section 74 had not been followed by the department.

 Issues Involved

  1. Whether an assessment order passed under Section 74 of the CGST/BGST Act is sustainable when the mandatory statutory period of 30 days is not granted to the taxpayer.
  2. Whether an ex parte assessment passed before expiry of the prescribed statutory period violates the provisions of the GST law.
  3. Whether consequential proceedings such as GST DRC-07 can survive once the assessment order itself is found to be illegal.

 Petitioner's Arguments

The petitioner submitted that:

  • The notice dated 01.06.2019 required submission of reply on 10.06.2019, thereby allowing substantially less than the mandatory statutory period of 30 days.
  • The assessing authority proceeded ex parte without complying with the mandatory requirement prescribed under Section 74.
  • Since the mandatory statutory safeguard was violated, the assessment order, GST DRC-07 and all consequential recovery proceedings deserved to be quashed.
  • The petitioner also undertook to fully cooperate in any fresh proceedings conducted in accordance with law.

 Respondents' Arguments

The respondents defended the assessment proceedings and the consequential recovery actions taken under the GST law.

However, the respondents could not dispute the factual position that the petitioner had not been afforded the minimum statutory period of 30 days contemplated under Section 74 before the assessment order was passed.

 Court Order / Findings

The Patna High Court observed that the statutory scheme under Section 74 mandates that a taxpayer must be granted a minimum period of 30 days before adverse proceedings culminate into an assessment order.

The Court noted that:

  • The notice dated 01.06.2019 directed the petitioner to appear and file a reply on 10.06.2019.
  • The petitioner was therefore denied the mandatory statutory period of 30 days.
  • The assessing authority proceeded to pass the assessment order without complying with this statutory requirement.
  • Such violation of the mandatory procedure rendered the assessment proceedings legally unsustainable.

Accordingly, the High Court:

  • Quashed the notice dated 01.06.2019.
  • Quashed the assessment order dated 20.08.2019 passed by the Joint Commissioner of State Tax.
  • Quashed GST DRC-07 issued pursuant to the assessment order.
  • Directed the assessing authority to issue a fresh notice strictly in accordance with the statutory provisions.
  • Directed that fresh proceedings be completed in accordance with law after granting adequate opportunity.
  • Recorded the petitioner's undertaking to fully cooperate with the fresh proceedings.

The writ petition was accordingly allowed.

 Important Clarification

This judgment reiterates the fundamental principle that:

  • The statutory period prescribed under Section 74 is mandatory.
  • Authorities cannot curtail the minimum period available to the taxpayer for responding to the show cause notice.
  • Orders passed in violation of mandatory procedural safeguards are liable to be quashed irrespective of the merits of the tax demand.
  • Consequential recovery proceedings including GST DRC-07 cannot survive once the assessment order itself is declared invalid.
  • Fresh proceedings may be initiated only after complying with the statutory requirements and principles of natural justice.

 Sections Involved

  • Section 74 of the Central Goods and Services Tax Act, 2017
  • Section 74 of the Bihar Goods and Services Tax Act, 2017
  • Section 140 of the CGST/BGST Act (Transitional Credit)
  • Rule 117 of the Bihar Goods and Services Tax Rules
  • GST DRC-07
  • GST DRC-13

 Link to download the order-https://mytaxexpert.co.in/uploads/1783923034_4013compressed.pdf

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