Facts of the Case

The petitioner, Dharmendra Singh, a registered taxpayer, had availed and utilised Input Tax Credit in respect of transactions with one Balaji Trading Co. between June and November 2019. After Balaji Trading Co.'s registration was cancelled under Section 29(2)(e), proceedings under Section 74 of the WBGST/CGST Act, 2017 were initiated against the petitioner via a DRC-01 notice dated 05.01.2022 and a show cause notice dated 21.03.2022. The petitioner voluntarily made part payment of the demand in Form DRC-03 on 24.03.2022 and 27.05.2022, purporting it to be a payment under Section 73(5). The petitioner did not respond to the SCN or attend the personal hearing fixed for 04.04.2022, and an order dated 17.02.2024 determined the balance tax, interest, and penalty, treating the alleged availment as based on fictitious transactions. The entire outstanding demand was recovered from the petitioner's Electronic Credit Ledger even before the statutory appeal period had expired. The subsequent appeal, filed on 06.01.2024, was rejected as time-barred.

Issues Involved

  1. Whether the Proper Officer ought to have sought an explanation from the petitioner regarding his voluntary Section 73(5) payment before treating the proceedings as effectively uncontested and confirming the balance demand.
  2. Whether recovery from the Electronic Credit Ledger before the statutory appeal period had even expired, coupled with the subsequent delay-barred rejection of the appeal, warranted the Court's intervention.

Petitioner's Arguments

  • The petitioner had voluntarily made part payment of the demand under Section 73(5) of the Act, indicating an intent to cooperate, yet no explanation was sought from him regarding this payment before the demand was confirmed.
  • The appellate tribunal not being constituted, the petitioner had no option but to approach the High Court under Article 226 after the appeal was rejected as time-barred.

Respondent's (State's) Arguments

  • The State's counsel defended the order on the basis that the petitioner had availed and utilised ITC from a supplier later found to have engaged in fictitious transactions, and that the petitioner had failed to respond to the show cause notice or attend the personal hearing.

Court Order / Findings

  • The Court found that although the proceeding was not contested by the petitioner, the Proper Officer had treated the voluntary Section 73(5) payment as compliance with the show cause notice, though the record spoke otherwise, and that, ordinarily, an explanation ought to have been sought from the petitioner regarding this payment.
  • The Court noted that a part of the outstanding demand was recovered on 14.04.2023 and the balance on 16.05.2023 — even before the statutory appeal period had expired — and that the appeal filed on 06.01.2024 was rejected purely on the ground that it was beyond the prescribed period.
  • Given the peculiar facts and that the entire tax had already been recovered from the petitioner, the Court set aside the orders dated 23.02.2024 (appellate) and 17.02.2024 (original), remanding the matter to the Proper Officer for an adjudication on merits, providing the petitioner liberty to respond to the show cause notice within two weeks, failing which the Proper Officer could decide the case without his response.

Important Clarification

  • Where a taxpayer makes a voluntary payment under Section 73(5) in response to a demand raised under Section 74, the Proper Officer should call for an explanation regarding the circumstances of that payment before treating the proceedings as effectively conceded and confirming the balance demand.
  • Recovery of the entire outstanding demand from the Electronic Credit Ledger even before the statutory appeal period has expired is a relevant equitable factor that can justify remand for fresh adjudication, especially where the appellate tribunal remains unconstituted and the statutory appeal itself was rejected on limitation.

Sections Involved

  • Section 74, WBGST/CGST Act, 2017 — determination of tax involving fraud/suppression, under which the original proceedings were initiated.
  • Section 73(5), CGST Act, 2017 — voluntary payment of tax before issuance of notice/statement.
  • Section 107, CGST Act, 2017 — statutory appeal, rejected here as time-barred.

Decision – In Favour of

Assessee. Both the original and appellate orders were set aside and the matter remanded for adjudication on merits after affording the petitioner an opportunity to explain his voluntary payment.

Case Details

Court: High Court at Calcutta
Case No.: WPA 3965 of 2025
Coram: Hon'ble Justice Raja Basu Chowdhury
Date of Order: 14.07.2025

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