Facts of the Case

The petitioner, M/s. VJ Enterprises (GSTIN 33AASFV5385P1Z3), a scrap purchaser registered under the Tamil Nadu Goods and Service Tax Act, 2017, had claimed Input Tax Credit for FY 2020-21 based on invoices issued by Golden Traders, Chennai. On surprise inspection, the proprietor of Golden Traders stated that no goods had actually been supplied, though invoices had been issued as claimed by the petitioner. Based on this statement, the Department issued a show cause notice in Form DRC-01 under Section 74(1) of the TNGST Act on 05.01.2023 through the GST Portal. Although an opportunity of personal hearing was notionally provided, the petitioner — described as an illiterate small entrepreneur — failed to appear, and the respondent passed an order on 03.05.2023 demanding Rs.15,26,874 as tax, together with interest and penalty.

Issues Involved

  1. Whether service of a show cause notice solely through the GST web portal, in English, satisfied the requirements of natural justice for an illiterate assessee.
  2. Whether the resultant demand order deserved to be set aside for want of effective notice.

Petitioner's Arguments

  • Action was initiated solely on the statement of the proprietor of Golden Traders, without the petitioner being afforded a real opportunity of personal hearing.
  • The show cause notice was issued only through the GST Portal, which the petitioner — being unfamiliar with such technology — failed to notice, resulting in his non-appearance.

Respondent's Arguments

  • A proper show cause notice under Section 74(1) of the TNGST Act was issued, along with an opportunity of personal hearing under Section 75(4).
  • Since the petitioner failed to avail the opportunity provided, the Department was justified in proceeding on the available materials and passing the impugned order.

Court Order / Findings

  • The Court noted that action had admittedly been initiated for use of fake invoices without actual purchase of goods, but the notice was issued only through the web portal in English, and the petitioner is an illiterate person.
  • Small-scale entrepreneurs unfamiliar with e-mail and portal-based systems cannot be treated as effectively served merely because a notice was uploaded to the GST Portal; the Court observed that many such registrations are created by agents, with traders themselves unaccustomed to handling e-mails.
  • Since the notice was neither issued in the regional language nor sent through registered post, the impugned order dated 03.05.2023 was set aside.
  • The respondents were directed to issue a fresh show cause notice in the regional language, through registered post or SMS, within two weeks, enabling the petitioner to understand and contest the case.

Important Clarification

  • Service of a GST show cause notice exclusively through the web portal, in English, may not satisfy natural justice where the assessee is an illiterate or technologically unfamiliar small trader; the Department should consider issuing notices in regional languages and through SMS/registered post in such cases.
  • Allegations of fake invoices and fraudulent ITC claims under Section 74 do not dispense with the requirement of effective, comprehensible notice before a demand order is passed.

Sections Involved

  • Section 74(1), TNGST Act, 2017 — determination of tax not paid by reason of fraud or wilful misstatement.
  • Section 75(4), TNGST Act, 2017 — requirement of opportunity of hearing before passing an adverse order.

Decision – In Favour of

Assessee. The petition was allowed and the demand order set aside, though only on the ground of defective service — the correctness of the fake-invoice allegation itself remains to be examined afresh.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

Court: Madurai Bench of Madras High Court
Case No.: WP(MD)No.28242 of 2023
Coram: B. Pugalendhi, J.
Decision Date: 30.11.2023
Disposal Nature: Allowed; impugned order set aside

Link to Download the Order

Click here to download the order

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.