15.07.2022: Protective demand notice premature when the matter is at the appellate stage – Delhi High Court

The Hon’ble High Court of Delhi vide its order dated 6th July 2022 in the matter of Abhishek Gumber, Proprietor of M/s AG Enterprises Vs. Commissioner of GST, New Delhi in W.P.(C) 9629/2022 & CM No. 28733/2022, held that when the appeal has already been filed against the adjudication order, issuance of protective demand notice for the amount which is already in dispute in appeal and pending for disposal, is a premature show cause notice.  Thus, the same is set aside.

The Petitioner filed the present writ petition praying for setting aside the Demand Notice dated 14.06.2022 [Form GST DRC – 01A] – Reference Number: ZD070622007441U, (“impugned Demand Notice”) issued by the Respondent (Sales Tax Officer Class II, AVATO, Ward No. 80, Delhi State Government of NCT of Delhi, Department of Trade and Taxes), wherein demand has been raised on Petitioner to deposit tax amounting to Rs. 12,56,640.00/- along with interest amounting of Rs. 4,52,390/- and penalty amounting to Rs. 12,56,640/- thereby totally amounting to Rs. 29,65,670/-.

Petitioner’s Plea: –

  • It was submitted on the behalf of the petitioner that a show cause notice (SCN dated 08.02.2021) has already been adjudicated by the concerned authority vide order dated 12.05.2022 and the refund filed by the petitioner was rejected observing being filed on forged Input Tax Credit.
  • Further the appeal has already been filed against the said adjudication order rejecting the refund claim, on 26.05.2022. 

Respondent’s Plea: –

  • That the aforesaid position, that the adjudication order has been passed and the appeal has been filed by the petitioner, was admitted on the behalf of the respondent.
  • Further it was submitted that the impugned notice dated 14.06.2022 has been issued to protect the interest of revenue.
  • It was submitted that the impugned notice has been issued in consonance with the provisions of sub section (4) of Section 75 of the Act.

Held: –

  • The Hon’ble Court after considering the submissions from the both sides and the facts of the case observed that the order dated 12.05.2022 has already been passed for SCN dated 08.02.2021, which was issued referring to Section 73/74 of the CGST Act, 2017 and rule 92(3) of the CGST Rules, 2017. Further the impugned notice refers to Section 73(5) and rule 142(1A) of the Rules.
  • The Hon’ble Court found that it is clear that if the adjudication order sustains, the petitioner would be liable to pay tax, interest and perhaps also penalty for rejection of refund claim on the ground that it was claimed on forged ITC.
  • Thereafter, the Hon'ble Court observing as above, held that the impugned notice is premature as the appeal has been preferred by the petitioner, which is pending for disposal and if the appeal is dismissed, then it would be open to revenue to take recourse to Section 75 of the Act and the relevant rules. 

The Hon’ble Court with the above findings disposed of the Writ Petition and set aside the impugned notice dated 14.06.2022 with a liberty to the respondent to start the process of Section 75 depending upon the outcome of the appeal filed by the petitioner.

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