Principles of natural justice must be followed in case of any penal action taken against petitioner whether there is any provision under Act or not. Recovery proceedings without issuance of show cause notice or adjudication process is not justified 1
Petitioner is aggrieved by the letter of intimation for payment of interest on delayed payment of GST, whereby the liability has been imposed upon the petitioner, as short paid interest for not depositing the tax within time. Petitioner contendthat the impugned action of the respondent authority is absolutely illegal and is not in line of the Section 73(1) of CGST Act, which requires a show-cause notice to be given to the petitioner before issuing any letter.
The bank account of the petitioner Company was freezed and then upon the payment of amount, the account of the petitioner was defreezed.
Contention of the Petitioner
The petitioner submits that the impugned action of the authority was absolutely illegal and is not in line with Section 73(1) of CGST Act, which requires a show-cause notice to be given to the petitioner before issuing any such letter. No show-cause notice was given to the petitioner prior to issuance of the letter, thusall the subsequent actions are illegal and cannot be sustained in the eyes of law.
Contention of Department
Department submitted that since admitted tax and some interest had been paid by the petitioner, this matter only relates to short payment of interest, and Section 73(1) of the CGST Act shall not be applicable in the present case. Accordingly no show-cause was required to be given to the petitioner before issuance of the demand and the proceedings. .
Judgment of the Hon’ble High Court of Jharkhand
A plain reading of Section 73(1) of the CGSTshows that this provision shall be fully applicable in cases where the tax was not paid for any reason otherthan fraud. In the present case, though it is submitted by Department that since the tax was paid, Section 73 (1) of the Act shallnot be attracted in the case of the petitioner, but the fact remains that the tax was not paid by the petitioner company to the Governmentaccount within the due date, and accordingly it is a case of tax not being paid, within the period prescribed, or when due. In that view of thematter, which makes Hon’ble High Court of Jharkhand unable to accept the contention of Department that no show-cause notice was required to be given in this case.Even otherwise, if any penal action is taken against the petitioner, irrespective of the fact whether there is provision under the Act or not, theminimum requirement is that the principles of natural justice must be followed. In the present case admittedly, prior to the issuance of letter, no show-cause notice or an opportunity of being heard was given to the petitioner and no adjudication order was passed.
The amount of short paid interest has already been realised from thepetitioner, after freezing the bank account of the petitioner, and after the payment of the said amount, the bank account has also beendefreezed.
The letter from department has been treated as SCN in the instant case. In the backdrop of this, the petitioner shall be given an opportunity of being heard by the adjudicating authority,who shall give a chance of proper hearing to the petitioner, whether the petitioner was liable to pay the short paid interest amount or not. Post adjudication, in case it was found that the petitioner was not liable to make the payment of interest short paid, the said amount shall be refunded to thepetitioner with statutory interest thereon.This application is accordingly disposed of with the directions to the adjudicating authority to pass the reasoned order within a period of three months from the date of communication of this order.
1 Godavari Commodities Ltd. –vs – The Union of India before Jharkhand High Court