P.R. Hardwares vs. The State Tax Officer(Fac)

Held

The Court held that while the five-year period under Section 74(10) is an outer limit for passing an order, the respondent ought to have passed the order within a reasonable time. The Court found that the period of two months from the initial notice to the passing of the summary order was not reasonable and constituted a violation of the principles of natural justice, as it denied the petitioner adequate opportunity. Furthermore, the Court observed that by passing the order prematurely, the respondent denied the petitioner the valuable right to avail the concessionary penalty under Section 74. Since the petitioner had already paid the entire tax liability and interest, the Court directed the respondent to collect only 15% of the penalty. The petitioner was ordered to pay this 15% penalty within four weeks, upon which the proceedings would be concluded as per Section 74. The Court expressly found a violation of natural justice due to the haste in passing the order and the denial of concessionary penalty.

Facts

The petitioner, P.R. Hardwares, an assessee under GST, challenged an order dated 07.03.2023 passed by the State Tax Officer, Tiruchendur. The respondent had issued notices on 01.12.2022 and 03.01.2023 regarding discrepancies in returns. The petitioner, unable to reply due to illness, faced a summary order demanding tax of Rs. 1,57,934.00, penalty of Rs. 1,57,934.00, and interest of Rs. 21,288.00. The petitioner claimed to have paid Rs. 1,57,934.00 on 24.06.2023, which was more than 10% of the pre-deposit required for an appeal under Section 107. The respondent's assessment was based on the petitioner claiming Input Tax Credit (ITC) from a non-existent taxpayer, Tvl. Mahaa Agency, using Invoice No. 112.

Key Issues

1. Whether the summary order dated 07.03.2023 was passed in violation of the principles of natural justice, specifically concerning the opportunity to be heard and the reasonableness of the time taken to pass the order, as contemplated under Section 74(9) and Section 74(10) of the Central Goods and Services Tax Act, 2017? 2. Whether the petitioner is entitled to the concessionary penalty under Section 74 of the CGST Act, 2017, given the payment of the entire tax and interest demand, despite the payment being made after the stipulated period for availing such concession? Petitioner's Arguments: The petitioner contended that the summary order was passed in violation of the principles of natural justice and was based on assumptions. They argued that the respondent failed to grant adequate opportunity as required under Section 74(9) and 74(10) by passing the order within two months of the initial notice, which they deemed unreasonable, despite the five-year outer limit. They also argued that having paid the entire tax demand and interest, they are entitled to the benefits under Section 74 regarding penalty reduction. Respondent's Arguments: The respondent argued that the time limit of five years under Section 74(10) is an outer limit and does not prevent them from passing orders earlier. They also contended that the petitioner paid the tax and interest beyond the period of one month from the date of the order, thus disentitling them to the concessionary penalty under Section 74.