M/S Lucky Batteries Works vs. State Of U.P. And 2 Others

Facts

The petitioner, M/s Lucky Batteries Works, challenged an order dated 03.03.2022 passed by the competent authority, which imposed tax and 100% penalty under section 74(5) of the GST Act. The petitioner contended that no mandatory notice under section 74(1) of the GST Act was served. The respondent State counsel submitted that a notice dated 29.12.2021 was issued under rule 142(1A) of the GST Rules. The petitioner argued this notice was insufficient as it should have been under section 74(1). The State counsel admitted the notice was inadvertently issued under rule 142(1A) but claimed the defect was rectified on the department portal the same day. The petitioner pointed out that the impugned order itself referred to the notice as being under rule 142(1A), not section 74(1).

Held

The Court found substance in the petitioner's contention that an appropriate notice under Section 74(1) of the GST Act had not been served. The reasoning was based on the fact that the notice dated 29.12.2021 was explicitly issued under rule 142(1A) of the GST Rules, and the impugned order dated 03.03.2022 also referred to this notice as being under rule 142(1A), not section 74(1). The Court considered this a significant procedural lapse. The ratio decidendi is that a mandatory statutory notice, as prescribed by Section 74(1), must be issued and served correctly; a notice under a different provision, even if rectified on a portal, does not satisfy this requirement if the original notice and the subsequent order clearly indicate the incorrect provision. The Court quashed the impugned order dated 3rd March, 2022. It granted liberty to the authorities to issue a fresh notice under section 74(1) and proceed further in accordance with the law.

Key Issues

1. Whether the notice dated 29.12.2021, issued under rule 142(1A) of the GST Rules, sufficiently meets the statutory requirement of a notice under section 74(1) of the GST Act, thereby satisfying the mandatory notice requirement before passing an order imposing tax and penalty. Petitioner's Contention: The petitioner argued that the notice issued was specifically under rule 142(1A) and not under section 74(1) of the GST Act, as mandatorily required. This procedural defect rendered the subsequent order arbitrary and illegal. They highlighted that the impugned order itself referenced the notice as being under rule 142(1A), reinforcing their claim of non-compliance. Respondent's Contention: The State counsel conceded that the notice was inadvertently issued under rule 142(1A) but asserted that the defect was rectified on the department portal on the same day the notice was issued. They implicitly argued that the intent and substance of the notice were sufficient, despite the incorrect referencing.