No Demand Of GST, Interest And Penalty Can Be Made In Form DRC-01A Without Issuance of Section 74(1) Notice: Madras High Court

The single bench of Justice M.Nirmal Kumar has observed that the department/respondent has not followed the procedure. After the issuance of notice on Form DRC-01A, the department issued Form GST DRC-01A. If the petitioner has any objections and has not paid the tax as determined, a show cause notice must be issued under Section 74(1) of the TNGST Act. After receiving objections and giving an opportunity of personal hearing, the assessment order ought to have been finalised.

The court noted that following the order, the respondent, vide Form GST DRC-09, issued a communication, directing the Branch Manager, Axis Bank, to recover the amount due from the petitioner under Section 79 of the TNGST Act, 2017, which was not proper.

The petitioner was engaged in the trading of textiles and garments, and they also had showrooms in Kumbakonam and Thanjavur. The partnership firms were dissolved and the petitioner company was formed in September 2019. The new entity continued with the same trading activities from the three showrooms of the separate partnership firms in Ramanathapuram, Kumbakonam, and Thanjavur.

The officers from the State Tax Department conducted inspections under Section 67 of the TNGST Act in the three showrooms from 14.09.2021 to 16.09.2021. During the course of the surprise inspection, the inspection team found certain irregularities in the transactions of the dealers, and a revision of the assessment was made based on the inspection report. On the strength of that, a show cause notice was issued to the dealers to explain the issue with documentary evidence.

According to the petitioner, the respondent issued communication on Form DRC-01A in accordance with Rule 142(1A) of the TNGST Rules, 2017, pointing out the deficiencies involving tax liabilities and non-maintenance of accounts.The petitioner requested 30 days' time to submit their response to the communication. The respondent directed the petitioner to appear for a personal hearing. The petitioner replied in Part-B of Form DRC-01A stating that the liability to tax as stated in the subject intimation as well as the quantification were not agreeable as it was not correct on facts and law.

The petitioner contended that the inspection and investigation had been conducted by different officers in a wrong manner, resulting in misinterpretation of provisions and misapplication of tariff and exemption notifications. The proceedings carried out were completely perverse. The information and statements collected with intimation, an inducement of dropping of proceedings, were in complete violation of principles of natural justice. The demand made in Form DRC-01A has to be rejected.

The department submitted that the petitioner's principal place of business and additional places of business and godowns were inspected by the Intelligence Wing Officials from 14.09.2021 to 16.09.2021. During the inspections, certain defects were pointed out based on the business transactions, and hence, a notice was issued to the dealers. The dealers requested time to file objections after receiving the notice; however, the dealers were given the opportunity for a personal hearing and were asked to appear in person with documentary proof in support of their claims.The petitioner's authorised representative appeared, made objections. Since their objections were not convincing and not acceptable, there is no other option to confirm the proposals already made in the notice dated 06.12.2021 and orders were passed on 31.01.2022, levying tax, interest, and penalty.

The department contended that the order was a detailed one, giving sequence and also giving reasons for levying tax, interest and penalty. Under Section 107(1) of the TNGST Act, 2017, the petitioner has three months from the date of receipt of the order to submit an appeal with the Deputy Commissioner (GST-Appeal), Madurai.

The court quashed the assessment order and consequential recovery notice, which were issued to the branch manager of the bank.

Case Title: M/s.Anantham Retail Private Limited Versus State Tax Officer

Case No: Writ Petition (MD) Nos.11376, 11384 and 11410 of 2022 & W.M.P.(MD)Nos.8094, 8098 and 8113 of 2022

Dated: 20.06.2022

Citation: 2022 LiveLaw (Mad) 283

Counsel For Petitioner: Advocate L.S.Karthikeyan

Counsel For Respondent: Special Government Pleader P.Subbaraj

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