06.09.2022: Attaching Bank Account Without Issuance Of An Order In Form DRC – 07 And Proper Opportunity Of Hearing Not Sustainable – Jharkhand High Court

The Hon’ble High Court of Jharkhand vide its order dated 18.08.2022 in the matter of M/s Om Prakash Store Vs. The State of Jharkhand and Others in W.P. (T) No. 1526 of 2022 & W.P. (T) No. 1527 of 2022, set aside the adjudication orders, considering that the orders were passed without even mention of issuance of DRC-07 as well as without providing the proper opportunity of hearing, and thereafter, a notice directing to attach the bank account of the petitioner, are not sustainable being not in accordance with the procedure prescribed in law and against the principles of natural justice.

The Petitioner filed the writ applications before the Hon’ble High Court challenging the adjudication orders both dated 12.09.2019, on the ground not following the provisions prescribed in JGST Act and the principles of natural justice by the respondents.  That Writ petition no. 1526 of 2022 relates to the financial year 2017-18; whereas Writ Petition no. 1527 of 2022 relates to the period from April 2018 to June, 2019.  It was also prayed to declare the said adjudication orders are wholly illegal, arbitrary and in utter violation of provisions contained in Section 73 and Section 75 of the JGST Act.

Facts of the Case: –

  • That the petitioner is a registered dealer and is primarily engaged in the business of trading of Jaggary, Mahua and Krana Goods. An inspection was carried on the premises of the petitioner and it was found that there were certain discrepancies in GSTR -3B and auto populated GSTR – 2A.
  • That based on the inspection report, the respondent authorities directed the petitioner in exercise of powers under Section 70(1) of the JGST Act, to appear and produce relevant books of accounts on 05.10.2018. The representative of the petitioner duly appeared and participated in the enquiry proceeding by producing relevant documents.
  • Thereafter, summons was issued to the petitioner under Section 70, to appear on 3rd April, 2019 along with documents mentioned in the summons, which was duly complied with by the petitioner.
  • Subsequently, summary of show cause notice dated 15.05.2019 [in W.P.(T) No. 1527 of 2022)] & dated 16.05.2019 [in W.P(T) No. 1526 of 2022)] was issued to the petitioner in Form GST DRC-01, and without issuing any show cause notice and providing personal hearing, adjudication order under Section 73(1) was passed against the petitioner.
  • That no show cause notice, summary of show cause notice, adjudication order and summary of order was ever served to the petitioner, however, all of a sudden, bank attachment notice in FORM GST DRC-13 under Section 79(1) (c) dated 08.09.2021 was issued to the banker of the petitioner to attach the bank account of the petitioner with Bank of India, Branch Mango, Dimna Road.
  • However, the petitioner came to know about the adjudication proceedings and the order passed by the respondent authorities, only after issuance of GST DRC -13 to the bank of the petitioner.
  • The petitioner vide its letter dated 22.10.2021 requested the respondent authorities to the recall the notice dated 08.09.2021 in FORM GST DRC – 13, to which no reply was given by the Stat Tax Department. The Petitioner also applied for certified copy of adjudication order and the same was supplied to it on 06.01.2022.  Similarly, petitioner also applied for certified copy of summary of show cause notice (DRC-01) and certified copy of summary of order (DRC-07) on 23.11.2021 which was supplied to petitioner on 06.01.2022 along with the certified copies of the show cause notice.
  • That during the pendency of the writ application, the copy of complete order-sheet including show cause notice, which was nothing but reiteration of the provisions of Section 73 of the JGST Act, was furnished on the behalf of the respondents.

Petitioner’s Submissions: –

  • It was submitted on the behalf of the petitioner that the impugned orders have been passed without serving the copy of show cause notice and without providing opportunity of personal hearing to the petitioner, thereafter, to confirm the huge liability of tax, interest and penalty, summary of order in FORM GST DRC – 07 was issued. The petitioner came to know about the adjudication order when his bank account was attached, and that too even without serving the copy of DRC – 07 to the petitioner.
  • That the impugned assessment order is non-speaking and without application of judicial mind by respondent authorities as it was passed without serving the copy of show cause notice and without providing the opportunity of hearing, only DRC-01 was issued to the petitioner.
  • Further it was submitted that provisions of Section 16(2) of the GST Act nowhere provides that a dealer would not be entitled to claim ITC in its GSTR-3B return of an amount to the extent which has not been reflected in GSTR-2A statement. It is an admitted fact that till date no notification has been issued prescribing the due date of GSTR-2 and GSTR-3 and, thus, filing of GSTR-2 and GSTR-3 remains suspended. Later, with the amendment in Rule 61 to the CGST Rules, 2017 vide Notification 17/2017 dated 27.07.2017, GSTR – 3B was made the statutory return for all tax periods till time limit of implementing GSTR – 2 & GSTR – 3 remains extended.
  • That through the press release dated 18.10.2018 issued by the GST council it has been specifically clarified that, “the furnishing of outward details in Form GSTR-1 by the corresponding supplier(s) and the facility to view the same in Form GSTR-2A by the recipient is in the nature of taxpayer facilitation and does not impact the ability of the taxpayer to avail ITC on self-assessment basis in consonance with the provisions of section 16 of the Act.
  • It was also contended that the adjudicated authority failed to appreciate that no proceedings for denial of ITC can be initiated merely because there is difference of the amount of ITC as claimed in GSTR-3B vis-à-vis GSTR-2A statement.
  • With the above submissions, it was prayed to set aside and quash the impugned adjudication orders, and to refund or adjust the amount with the liability, 10% of the alleged tax dues deposited by the petitioner in pursuance of the Hon’ble Court order dated 28.04.2022.

Respondents’ Submissions: –

  • It was submitted on the behalf of the respondents that writ petition is not maintainable as the alternative remedy under Section 107 of the JGST Act, for filing an appeal is available with the petitioner.
  • The opportunity of hearing as per the provisions prescribed under the JGST Act, was provided to the petitioner, however, the petitioner did not appear and thus, the impugned orders were passed.
  • It was also submitted that petitioner appeared before the adjudicating authority to furnish the documents and only thereafter, the impugned orders were passed in both the writ applications.

Held: –

  • The Hon’ble Court after considering the submissions made, facts of the case and law applicable, observed that an inspection was carried out in the premises of the petitioner and pursuant to that an inspection report was prepared as certain discrepancies were found in GSTR – 3B and auto populated GSTR 2A.
  • The petitioner was directed by the respondent authorities to appear with relevant documents on 05.10.2018, which was duly complied with by the petitioner. However, in terms of Section 70, summons was issued to the petitioner to appear on 03.04.2019, along with the documents indicated in the summons.  Thereafter, on 16.05.2019 summary of show cause notice in Form GST DRC-01 was issued to the petitioner.
  • It was found that in the show cause notice under Section 73, ‘NA’ was mentioned in the column of date, time and venue of personal hearing, which clearly shows the negligence on the part of respondent authorities while issuing the said show cause notice in FORM DRC – 01 and straightway after issuance of DRC – 01, adjudication orders with summary of order dated 18.09.2019 were issued.
  • That it is the specific case of the petitioner that after issuance of DRC 01 on 16.05.2019, the petitioner was not aware of any order passed, which came to knowledge of the petitioner when its bank account was attached. Moreover, the perusal of the entire order sheet shows that after issuance of DRC 01 there was no mention of issuance of DRC – 07, rather there was a direction in FORM GST DRC -13 dated 08.09.2021. It clearly highlights that there is a serious discrepancy in the assessment proceedings as there is no whisper of issuing DRC – 07.  Thus, it clearly shows that proper show cause notice under Section 73(1) and proper opportunity of hearing was not provided to the petitioner before the passing of the adjudication order.
  • It was found by the Hon’ble Court that issue involved in the present matter is covered by the Judgment in the case of M/s NKAS Services Private Limited Versus The State of Jharkhand & Ors. in W.P.(T) No. 2444 of 2021, wherein the similar issue was dealt with and the show cause notice along with summary of show cause notice were set aside.
  • Thereafter, the Hon’ble Court referring to the ratio laid down in the aforementioned decision, found that it clearly shows that statutory requirements as prescribed under Section 73 and 75 of the JGST Act has not been followed and also the principles of natural justice has not been followed and thus, both these writ applications are maintainable. Thus, both the adjudication orders are not in accordance with procedure prescribed under law and deserves to be set aside and quashed.

The Hon’ble Court with the above findings allowed the writ applications and set aside and quashed the adjudication orders, both dated 12.09.2019 and consequential notice of demand in FORM GST DRC-07 dated 18.09.2019.  Further the matter was remanded back to the adjudicating authority to issue fresh show cause notice and after providing the opportunity of hearing, pass a fresh order.  For the 10% deposit of tax, the petitioner may file for refund if the fresh adjudication order is not against it or the said amount may be adjusted towards its future liability.

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