Facts of the Case

The petitioner, a manufacturer of lateral pipes and drippers registered under the CGST Act, regularly filed GST returns in Form GSTR-1 but failed to file corresponding GSTR-3B returns for certain tax periods. Consequently, the GST department initiated best judgment assessment proceedings under Section 62 of the CGST Act and passed an assessment order in Form GSTR ASMT-13 demanding GST, interest, late fee, and penalty.

The petitioner challenged only the penalty portion of the assessment order before the Andhra Pradesh High Court. According to the petitioner, although tax and interest had subsequently been paid, the department illegally imposed penalty under Section 122(2)(a) without issuing any separate show cause notice or following the adjudication procedure prescribed under Sections 73 and 74 of the CGST Act.

The petitioner further contended that the assessment order was passed immediately after issuance of the GSTR-3A notice without granting the statutory period of 15 days contemplated under Section 46.

Issues Involved

  1. Whether penalty under Section 122(2)(a) of the CGST Act can be imposed while passing a best judgment assessment order under Section 62.
  2. Whether the GST department can impose penalty without issuing a separate show cause notice under Sections 73 or 74.
  3. Whether passing the assessment order immediately after issuing Form GSTR-3A violates the statutory procedure prescribed under Section 46.
  4. Whether failure to follow principles of natural justice renders the penalty order invalid.

Petitioner's Arguments

  • The assessment order was passed without granting the mandatory 15-day period after issuance of Form GSTR-3A as required under Section 46.
  • No separate show cause notice proposing penalty under Section 122 was issued.
  • Penalty under Section 122 can be imposed only after following the adjudication mechanism prescribed under Sections 73 or 74.
  • The petitioner had already discharged the tax and interest liability, and therefore only the illegal penalty remained under challenge.
  • Since the mandatory statutory procedure was ignored, the penalty order was arbitrary, illegal and violative of Articles 14 and 265 of the Constitution of India.

Respondent's Arguments

  • The petitioner failed to furnish GSTR-3B returns despite filing GSTR-1, resulting in non-payment of GST collected from customers.
  • Notices in Form GSTR-3A had been issued before passing the assessment order.
  • The assessment order was appealable under Section 107, yet the petitioner did not avail the statutory remedy.
  • Form GSTR ASMT-13 contains a separate column for penalty, indicating that penalty can be imposed while making best judgment assessment.
  • Since statutory tax collected from customers had not been deposited with the Government, levy of penalty was justified.

Court Findings

The Andhra Pradesh High Court observed that although Section 122 prescribes penalties for specified offences, recovery of such penalty cannot be made without following the procedure prescribed under Sections 73 or 74.

The Court held that:

  • Penalty proceedings require issuance of an independent show cause notice.
  • The taxpayer must be provided an adequate opportunity of hearing before levy of penalty.
  • The department issued Form GSTR-3A and passed the assessment order on the very next day without waiting for the statutory period contemplated under Section 46.
  • Such action violated the mandatory statutory procedure and principles of natural justice.

The Court also relied upon its earlier decisions involving identical issues where similar penalty orders had been set aside.

Court Order / Findings

The Andhra Pradesh High Court:

  • Set aside the penalty imposed under Section 122(2)(a).
  • Remanded the matter to the GST authorities.
  • Directed the authorities to follow the statutory procedure prescribed under law.
  • Directed that fresh proceedings be conducted only after providing the petitioner an opportunity of hearing.
  • Left the tax and interest already paid by the petitioner undisturbed, with the dispute confined only to the penalty proceedings.

Important Clarification

This judgment reiterates that:

  • Best judgment assessment under Section 62 does not automatically empower GST authorities to impose penalty under Section 122.
  • Penalty proceedings are independent and require strict compliance with Sections 73 or 74.
  • Issuance of Form GSTR-3A alone cannot substitute a statutory show cause notice for levy of penalty.
  • Violation of mandatory procedural safeguards and principles of natural justice renders the penalty unsustainable.
  • Even where tax and interest are payable, penalty must be imposed only after following due process prescribed under the CGST Act.

Sections Involved

  • Section 46 – Notice to Return Defaulters
  • Section 47 – Late Fee
  • Section 50 – Interest on Delayed Payment
  • Section 62 – Assessment of Non-Filers (Best Judgment Assessment)
  • Section 73 – Determination of Tax Not Paid or Short Paid (Without Fraud)
  • Section 74 – Determination of Tax Not Paid or Short Paid (Fraud Cases)
  • Section 107 – Appeals
  • Section 122(2)(a) – Penalty for Certain Offences
  • Article 14 of the Constitution of India
  • Article 226 of the Constitution of India
  • Article 265 of the Constitution of India

Link to Download the Order-

https://www.mytaxexpert.co.in/uploads/1785319754_2217compressed.pdf

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