Goods & Services Tax (GST) in IndiaDemand Order cannot be passed without issuing Show Cause Notice

The Hon’ble Allahabad High Court, in the case of Yash Building Material v. State of Uttar Pradesh [Writ Tax No. 1435 of 2022] decided 31.01.2024, held that the demand order cannot be passed without issuing the Show Cause Notice (hereinafter referred to as “SCN”) under Section 74(1) of the Central Goods and Services tax Act, 2017 (hereinafter referred to as “CGST Act”).

FACTS

An Notice dated 06.04.2021 was issued against the Yash Building Material (hereinafter referred to as “the Petitioner”),  under Section 74(5) of the Uttar Pradesh Goods and Services Tax Act, 2017 (hereinafter referred to as “SGST Act”).

Nevertheless, due to non-payment of the tax, the Order dated 30.07.2021 (referred to as the “Impugned Order“) was issued against the Petitioner without adhering to the prescribed procedure for serving notice as outlined in section 74(1) of the CGST Act, 2017.

Subsequently, the Order in Appeal dated 31.08.2022 (hereinafter referred to be “Impugned OIA”) was passed. Being aggrieved and dissatisfied by the Impugned Order and the illegal and arbitrary actions of the department, the Petitioner approached the Hon’ble High Court of Allahabad.

ISSUES BEFORE THE HON’BLE ALLAHABAD HIGH COURT 

Whether a GST demand order can be issued without complying with section 74(1) of the CGST Act is a matter of concern?

CONTENTIONS OF PARTIES

The Petitioner contended that the demand order was illegal as it in violation  to the basic principles of natural justice and due process.

The Petitioner further contended that not issuing a Show Cause Notice has deprived the Petitioner of the opportunity for a personal hearing and hence the Impugned Oder was passed ex-parte without considering the submissions of the Petitioner.

DECISIONS AND FINDING

The Hon’ble Allahabad High Court held that the demand order cannot be passed without serving the Show Cause Notice under section 74(1) of the CGST Act.

Further, it was held that since the Department has failed to follow the due procedure of law, the demand order is unsustainable, and passed without application of mind and is illegal and hence required to be set aside.

AMLEGALS REMARKS

Section 74 of the CGST Act is comprehensive in itself and sets out the process for issuance of a demand for unpaid or short-paid tax, ensuring that taxpayers are given adequate notice and an opportunity to be heard before any demand order is issued. It also provides for assessment proceedings in case of non-compliance or unsatisfactory responses from the taxpayer. The section emphasizes procedural fairness and compliance with legal principles in tax recovery actions under the GST regime.

Considering the issues in the present case, the Hon’ble Court has rightly addressed that the show cause notice was not issued to the Petitioner and which according to the laws of the land was violative of the principles of natural justice. It was held that a demand order cannot be passed without following the due procedure under section 74(1) of the CGST which is itself bad in law.

– Team AMLEGALS