Facts of the Case

The petitioner, M/s Vinman Constructions Limited, a construction company acting through its Director Sri Manoranjan Das, was registered under the Jharkhand Goods and Services Tax Act, 2017 (JGST Act) in December 2017. It contended that no work was undertaken between December 2017 and March 2018, though it had taken a project loan of Rs.16 crore from Dewan Housing Finance Corporation Limited (DHFL), which charged Rs.2.88 crore as GST at 18% on loan-processing fees, on which the petitioner claimed input tax credit (ITC) of Rs.2.88 crore. Since no supply or payment occurred, it did not file returns within time under Section 39. On 01.10.2018 it received a Summary of Order in Form GST DRC-07, revealing that a best-judgment assessment order had been passed under Section 62 of the JGST Act for July 2017 to March 2018, raising a total demand of Rs.3,30,76,800, denying the entire ITC and levying an equal tax with interest and penalty. The petitioner claimed the assessment order was never served on it; it filed nil returns for December 2017 on 17.10.2018 and for January to March 2018 on 26.10.2018, both with interest and late fee. Its first appeal, filed after depositing 10% of the disputed amount under Section 107(6)(b), was dismissed on 25.01.2020 solely on the ground that returns were filed beyond thirty days of the assessment order under Section 62(2), and the ITC of Rs.2.88 crore was blocked and adjusted against the disputed liability. The petitioner then approached the Jharkhand High Court.

Issues Involved

  1. Whether service of notice under Section 46 of the JGST Act (read with Rule 68) is a mandatory precondition before a best-judgment assessment can be passed under Section 62.
  2. Whether non-issuance of such notice is a curable procedural irregularity or a fatal defect vitiating the assessment.
  3. Whether the assessment order and consequential blocking of Rs.2.88 crore of ITC could be sustained, and whether the appellate authority erred in confining itself only to the delay in filing returns.

Petitioner's Arguments

  • No notice under Section 46 was served before the assessment order under Section 62 — a mandatory condition, relying on the Supreme Court's ruling in Assistant Commissioner of Income Tax vs Hotel Blue Moon [(2010) 3 SCC 259] that such a notice requirement is not a curable procedural irregularity.
  • The assessment order dated 02.08.2018 was never served by mail or otherwise; the petitioner learnt of it only on 01.10.2018 upon receipt of the DRC-07 summary and immediately filed its return within thirty days, which should have led to the order being deemed withdrawn under Section 62(2).
  • The assessment order (Form GST ASMT-13) was a non-reasoned, mechanical order denying ITC reflected in GSTR-2A without any finding of tax evasion, and interest/penalty could not be levied absent a specific finding of tax due; blocking of ITC before expiry of the Section 16(4) time limit was also impermissible.

Respondent's Arguments

  • The writ petition was not maintainable given the availability of an alternative statutory remedy.
  • DRC-07 was issued only because the petitioner failed to file returns, warranting best-judgment assessment under Section 62; the return was filed only in October 2018, after the assessment order (said to have been e-mailed on 02.08.2018), so it could not be deemed withdrawn.
  • No categorical, document-backed denial was offered regarding service of the Section 46 notice.

Court Order / Findings

  • The Court held that service of a prior notice under Section 46 of the JGST Act (Form GSTR-3A) is a mandatory precondition — consciously built into the scheme of the Act and reinforced by the CBIC's SOP Circular No.129/48/2019-GST dated 24.12.2019 — before a proper officer can proceed to best-judgment assessment under Section 62.
  • The Respondents were unable to show from the record that either the assessment order was served before issuance of DRC-07, or that notice under Section 46 was ever served before the assessment order was passed.
  • The appellate authority erred in confining its consideration only to whether GSTR-3B was filed within thirty days under Section 62(2), without addressing the non-service of the Section 46 notice.
  • Set aside the assessment order dated 02.08.2018, the DRC-07 dated 01.10.2018, and the appellate order dated 25.01.2020; directed that the ITC of Rs.2.88 crore be unblocked, leaving it open to the Respondents to scrutinise the returns already filed and to the petitioner to seek release of its pre-deposit.

Important Clarification

  • Issuance of notice under Section 46 (Form GSTR-3A) before a best-judgment assessment under Section 62 is a mandatory statutory safeguard, not a mere procedural formality — its non-compliance vitiates the assessment regardless of the merits of the tax determination itself.
  • The protection under Section 62(2), by which an assessment is deemed withdrawn on filing a valid return within thirty days, is meaningless unless the assessee is first properly served with the assessment order.

Sections Involved

  • Section 62, Jharkhand Goods and Services Tax Act, 2017 — best-judgment assessment of non-filers of returns.
  • Section 46, Jharkhand Goods and Services Tax Act, 2017 (with Rule 68) — mandates notice to a return defaulter before assessment.
  • Section 16, Jharkhand Goods and Services Tax Act, 2017 — eligibility, conditions and time-limit for availing input tax credit.
  • Section 107(6)(b), Jharkhand Goods and Services Tax Act, 2017 — 10% pre-deposit for maintaining a first appeal.

Decision – In Favour of

In favour of the Assessee. The Jharkhand High Court set aside the assessment order, the DRC-07 summary and the appellate order, and directed unblocking of the Rs.2.88 crore ITC, for want of the mandatory notice under Section 46 before best-judgment assessment under Section 62.

Case Details

  • Court: High Court of Jharkhand at Ranchi
  • Case No.: W.P.(T) No. 786 of 2021
  • CNR: Not available on record
  • Coram: Hon'ble Mr. Justice Aparesh Kumar Singh and Hon'ble Mr. Justice Deepak Roshan
  • Decision Date: 22.02.2022
  • Disposal Nature: Allowed – impugned assessment, DRC-07 and appellate orders set aside; ITC directed to be unblocked

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