Facts of the Case

The petitioner, M/s. VJ Enterprises, a scrap purchaser registered under the Tamil Nadu Goods and Services Tax Act, 2017 under GSTIN 33AASFV5385P1Z3, challenged an order dated 03.05.2023 passed by the State Tax Officer (second respondent) demanding Rs. 5,93,118/- as tax together with interest and penalty for the financial year 2021-2022, on the ground of fraudulent claim of Input Tax Credit. The petitioner had claimed ITC based on invoices issued by Golden Traders, Chennai. On a surprise inspection at Golden Traders, its proprietor stated that invoices had been issued in the petitioner's name without any actual supply of goods. Based on this, an enquiry was conducted and a show cause notice in Form DRC-01 was issued under Section 74(1) of the Tamil Nadu GST Act, 2017 on 05.01.2023, solely through the GST Portal. Although an opportunity of personal hearing was stated to have been provided, the petitioner did not appear, and the impugned demand order followed on 03.05.2023.

Issues Involved

  1. Whether a show cause notice issued only through the GST Portal, in English and not in the regional language, satisfies the requirements of natural justice for a trader unfamiliar with online procedures.
  2. Whether the impugned demand order dated 03.05.2023, passed pursuant to such a notice, was liable to be set aside.
  3. Whether the outcome should follow the Court's own recent ruling on an identical issue in the petitioner's connected proceedings for an earlier tax period.

Petitioner's Arguments

  • The petitioner did not dispute the factual allegation regarding the invoices from Golden Traders, but contended that the show cause notice was uploaded only on the GST Portal, in English, without being served by registered post or SMS.
  • It was submitted that the petitioner, being unfamiliar with portal-based procedures, had no real opportunity to know of the proceedings or to respond, resulting in an ex parte demand.
  • Counsel relied on the Court's own recent decision in the petitioner's connected matter for the year 2020-2021, where an identical mode of service was held to violate natural justice on nearly identical facts.

Respondent's Arguments

  • The respondents maintained that the show cause notice in Form DRC-01 had been duly issued under Section 74(1) of the TNGST Act through the GST Portal, and that an opportunity of personal hearing had been afforded to the petitioner before passing the impugned order.
  • The demand of Rs. 5,93,118/- with interest and penalty was defended as flowing directly from the finding that the invoices relied upon by the petitioner were fake, having been issued by Golden Traders without actual supply of goods.

Court Order/Findings

  • The Court noted that in the petitioner's connected writ petition concerning the earlier tax period 2020-2021, it had already set aside a similarly-worded order on identical facts, holding that a show cause notice issued only through the portal, without registered post or SMS, and only in English rather than the regional language, does not meet the standard of natural justice for traders unfamiliar with online systems.
  • Applying the same reasoning, the Court held that since the notice had not been issued to the petitioner through registered post and was not in the regional language, the principles of natural justice stood violated, and the impugned order dated 03.05.2023 was liable to be set aside.
  • The impugned order was accordingly set aside, and the respondents were directed to issue a fresh show cause notice in the regional language, through registered post or SMS, enabling the petitioner to understand and contest the proceedings.
  • The writ petition, along with the connected miscellaneous petitions, was disposed of in these terms, without costs.

Important Clarification

  • A show cause notice under Section 74(1) of the GST Act issued to a small trader solely through the GST Portal, in English, without also serving it by registered post or SMS, does not satisfy the principles of natural justice where the trader is not conversant with online/portal procedures.
  • Tax officers dealing with unrepresented or portal-unfamiliar traders should ensure notices are additionally served in a regional language and through a mode reasonably likely to reach the party (registered post/SMS), not merely uploaded to the portal.
  • Setting aside an order for this defect does not extinguish the department's substantive case on fraudulent ITC; it only requires the department to reissue a compliant notice and give the taxpayer a genuine opportunity to respond before any fresh order is passed.

Sections Involved

  • Section 74(1), Tamil Nadu GST Act, 2017 — governs determination of tax not paid or ITC wrongly availed by reason of fraud, wilful misstatement or suppression of facts, and the show cause notice procedure attached to it.
  • Form GST DRC-01 — the prescribed form for intimation/summary of the show cause notice under Section 74.

Decision – In Favour of

Decided in favour of the Assessee on the procedural ground of natural justice — the demand order was set aside for defective service of the show cause notice, with the department directed to reissue a compliant notice and proceed afresh; the substantive fraud allegation remains to be adjudicated.

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.: W.P.(MD) No.28471 of 2023
  • CNR: Not available on record
  • Coram: Hon'ble Mr. Justice B. Pugalendhi
  • Decision Date: 04 December 2023
  • Disposal Nature: Disposed of; fresh show-cause notice in regional language directed

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