Ratan Industries Limited Vs. State Of U.P. And 2 Others

The present petition has been filed by the petitioner challenging the order dated January 24, 2019, passed by respondent no. 3, whereby a tax demand of Rs. 91,450 and interest thereon has been issued as per GST DRC-07. The petitioner also challenges the order dated July 27, 2020, passed by the Appellate Authority under Section 107 of the GST Act, which dismissed the appeal filed by the petitioner on the grounds of limitation. The petitioner, who is engaged in the business of manufacturing and selling auto parts and is duly registered under the GST Act, claims to purchase raw materials for the manufacturing of goods and asserts eligibility for input tax credit (ITC). The petitioner maintains that all required details were submitted and the tax was duly paid after deducting the ITC. It was only on December 15, 2019, that the petitioner became aware of the orders passed as per DRC-07 dated January 24, 2019, by respondent no. 3, purportedly exercising powers under Rule 142(5) of the GST Rules.

The petitioner’s primary grievance is that prior to the passing of the demand order, no show cause notice was ever served, and no order passed by respondent no. 3 was ever served upon the petitioner. Despite this, the petitioner filed an appeal against the demand notice, which was subsequently dismissed for being beyond the prescribed limitation period under Section 107 of the Act. The petitioner has raised specific contentions regarding the non-service of the show cause notice and the non-furnishing of a reasoned order. In light of these contentions, the Court called for a counter affidavit from the respondents.

In the counter affidavit filed by the respondents, a show cause notice has been annexed as Annexure-4. However, paragraph 9 of the counter affidavit admits that due to clerical inadvertence, the show cause notice was sent to the wrong email address. With respect to the demand notice, only a summary of the order dated January 24, 2019, has been filed as Annexure-5. No detailed order providing the reasoning for the levy of the tax demand has been included in the counter affidavit. The petitioner argues that this failure to serve the show cause notice and provide a reasoned order not only violates the principles of natural justice but also the statutory requirements under the GST Act and Rules.

The petitioner further contends that the actions of respondent no. 3 are arbitrary and without jurisdiction, as no opportunity for a hearing was granted before the issuance of the demand order. The petitioner emphasizes that the lack of proper service of the show cause notice and the absence of a detailed and reasoned order have severely prejudiced the petitioner’s rights. Moreover, the petitioner asserts that the appellate authority’s dismissal of the appeal on the grounds of limitation, without considering the merits of the case or the procedural lapses, adds to the injustice faced by the petitioner.

In summary, the petitioner seeks relief from the Court by challenging both the initial order dated January 24, 2019, and the appellate order dated July 27, 2020. The petitioner requests the quashing of these orders and a direction for proper adjudication after granting the petitioner an opportunity to be heard in compliance with the principles of natural justice and the statutory provisions of the GST Act and Rules. The petitioner argues that such relief is necessary to rectify the procedural irregularities and ensure a fair and just determination of the tax demand.

In view of the stand taken by the respondents in the counter affidavit, it is abundantly clear that the statutory and procedural requirements under the GST Act were not adhered to in this case. Specifically, the show cause notice, which is a fundamental requirement before any tax demand can be made, was never properly served upon the petitioner. The respondents have admitted that the notice was sent to an incorrect email address due to clerical inadvertence. This error, although acknowledged, cannot be deemed a proper service under the Act, as the Act does not contemplate or allow for such mistakes to fulfill the service requirement. This improper service of the show cause notice resulted in the petitioner not having the opportunity to respond or file a reply, which is a significant breach of the principles of natural justice. Furthermore, the reasons for the quantification of the tax demand were never communicated to the petitioner. The failure to serve a copy of the reasoned order that quantifies the demand compounds this error, leaving the petitioner without a clear understanding of the basis for the tax assessment and demand.

The petitioner has approached this Court because the Tribunal, as contemplated under the GST Act, has not yet been constituted. This lack of an appropriate forum has left the petitioner without any effective remedy, compelling him to seek judicial intervention from this Court. Upon a detailed examination of the orders passed and the pleadings exchanged between the parties, it becomes evident that the orders are arbitrary and not in conformity with the procedures mandated by the Act. The absence of a show cause notice and a reasoned order before the issuance of the tax demand order are clear violations of the procedural safeguards designed to protect taxpayers. These safeguards are essential to ensure that taxpayers are given a fair opportunity to contest the claims made by tax authorities and to present their case.

Given these circumstances, it is apparent that the orders passed against the petitioner are in blatant violation of the principles of natural justice. As such, the writ petition is allowed. The order dated January 24, 2019, passed by respondent no. 3, and the appellate order dated July 27, 2020, passed by respondent no. 2, are hereby set aside. Since the show cause notice has now been properly served on the petitioner, as documented in Annexure-4 of the counter affidavit, the petitioner is directed to file his reply to the show cause notice within four weeks from today. The respondents are granted the liberty to pass fresh orders, ensuring that the petitioner is given a full and fair opportunity to be heard, in strict accordance with the law.

This Court’s intervention ensures that the statutory requirements and principles of natural justice are upheld, thereby providing the petitioner a fair chance to contest the demand and present his case comprehensively. A copy of this order downloaded from the official website of this Court shall be treated as a certified copy for all purposes, ensuring that the order is implemented promptly and accurately. This decision underscores the importance of adhering to statutory procedures and upholding the rights of taxpayers, thereby reinforcing the rule of law and the proper administration of justice in tax matters.

Download PDF:

For reference visit:

Read another case law:

GST Case Law: