Diamond Steel vs State of UP

1. Both the said writ petitions arise out of the similar proceedings against the petitioner, although in respect of the different financial years.

2. For the sake of brevity, the facts of Writ Tax No.4 of 2022 are being recorded.

3. By means of the said writ petition, the petitioner challenges the order dated 03.06.2021 passed by the respondent no.3 as well as the order in appeal dated 13.07.2021 preferred against the order dated 03.06.2021.

4. The facts in brief are that the petitioner is a partnership concern and is duly registered with the GST Department. The petitioner claims that all the inwards and outwards supply was duly reflected on the portal
of the department and the petitioner uploaded the supply made by him in GSTR-1 and after claiming the Input Tax Credit as reflected in GSTR-2A, filed his return in the form of GSTR-3B claiming the benefit of Input Tax Credit. It is argued that the returns filed were accepted and were never questioned and no proceedings were initiated in the case of the petitioner. 

5. It is argued that an inspection was carried out on the business premises of the petitioner on 31.10.2019 and a Panchanama was drawn wherein the stock present in the business premises was recorded and certain papers were seized in exercise of powers under Section 67 of the GST Act. 

6. The contention of the Counsel for the petitioner is that the search and seizure memo was not in accordance with law, however, the said issue is not agitated before this Court and no relief to that extent has been sought. It is stated that search and seizure was carried out by the SIB Authorities. The petitioner objecting to the manner in which the search and seizure was carried out, moved an application along with an affidavit on 18.12.2019 and thereafter nothing transpired. On 08.01.2021, the respondent no.3 issued a notice under Section 74 of the UPGST Act for the period July, 2017 to March, 2018 (Annexure-7 to the writ petition). It is argued that in the said notice, the date for filing the reply was mentioned as 22.01.2021 and, the date and the time for personal hearing was also mentioned as 22.01.2021 but the venue of personal hearing was not disclosed as is clear from the perusal of the notice (Annexure-7). Alongwith the said show cause notice, the petitioner was also supplied with the summary of show cause notice dated 08.01.2021 in the form of GST DRC-01 (Annexure-8). 

7. It is argued that in the show cause notice, in the column indicating the brief fact of the case “Adverse material found in SIB” was mentioned and in the column of grounds for issuance of the show cause notice, it was again mentioned that “Adverse material found in SIB”. The petitioner further argues that yet another notice was issued calling upon the petitioner to submit reply by 24.12.2020. In the said notice also, the report of the SIB was mentioned. It is argued that in all the notices, there is a reference to the SIB report, which was the foundation for issuance of the notice under Section 74, however, the said report was never supplied to the petitioner. Despite that, the petitioner submitted his reply on 08.01.2021. It is specifically alleged that neither at the time of issuance of show cause notice nor on the date of hearing any evidence whatsoever was adduced against the petitioner, even the SIB reply was never produced, however, an order came to be passed on 03.06.2021 under Section 74 of the UPGST Act wherein the demand of tax and penalty was quantified against the petitioner at Rs.14,84,099.82/-. He draws my attention to the order
passed under Section 74, wherein on the basis of the SIB report and the documents referred therein as well as some ex-parte submission by the department wherein it had claimed that 20% profit should be deemed to be appropriate, as against which, the Assessing Authority was of the view that even under the Income Tax Act, 1961, 8% profit would be an appropriate estimate and on the said basis quantified the demand and penalty against the petitioner. The petitioner preferred an appeal against the said order on various grounds. The appellate authority decided the appeal and partly allowed the same. While allowing the appeal held that on the basis of the provisions of the Income Tax Act, the manner of assessment done by the adjudicating
authority cannot be justified, however, without disclosing any basis, whatsoever, quantified the tax and penalty at Rs.9,30,969.60/-. The said order is under challenge before this Court as the Appellate Tribunal has not yet been constituted.

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M/S Daimond Steel

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Allahabad High Court

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