CGST Act

Adjudicating Officer Bound to Consider Assessee’s Defence: Calcutta High Court

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In a recent decision[1], a Division Bench of the Calcutta High Court has held that the adjudicating officer should consider the assessee’s explanation or defence before passing the adjudicating order that imposes penalty under Section 129, CGST Act, 2019. If an adjudicating order is passed in complete ignorance of such explanation, then it would amount to violation of principles of natural justice and the order is liable to be set aside.   

Facts 

The assessee was transporting electrical switches manufactured as per the requirements of the Government of Arunachal Pradesh. The assessee generated e-way bill for the vehicle on which the electrical switches were originally transported. However, the vehicle in question developed a mechanical failure and the goods were shifted to another vehicle. The latter vehicle was detained, and the proper officer levied a penalty on the assessee for violation of Section 129 since the e-way bill in question specified the former vehicle while the goods were found in the latter vehicle bearing a different registration number. The assessee contended before the Calcutta High Court that the breakdown of the vehicle was unanticipated and there was sufficient cause for non-compliance with the statutory provisions. The assessee further argued that the e-way bill issued with the registration number of the first vehicle was valid when the second vehicle was intercepted. And that there was no intention to evade tax.  

The Revenue Department, on the other hand, contended that under Section 129, it is not required to determine the existence of mens rea. And correctly so. The Revenue Department further argued that any of the three parties: consignor, consignee or the transporter should have re-validated the e-way bill after the first vehicle broke down. And in the absence of revalidation of e-way bill after change in vehicle, the imposition of penalty under Section 129 was justifiable.  

Calcutta High Court Decides 

The Calcutta High Court focused on one factual aspect: it noted that the assessee was issued a notice under Section 129, CGST Act, 2017 and the assessee had responded to the said notice. However, the adjudicating authority did not allude to the response of the assessee, did not apply its mind, and proceeded to mechanically levy a penalty on the assessee. The High Court observed that Section 129(3) prescribed the requirement of issuance of notice while Section 129(4) mandated that an adjudication order cannot be passed without providing the assessee an opportunity of being heard. However, the High Court stressed that complying with principles of natural justice cannot be an empty formality and that the adjudicating officer needs to evaluate the defence and its merits offered by the assessee. 

The Calcutta High Court observed that: 

However, absence of requirement to establish mens rea by the department cannot be equated with an automatic imposition of penalty under the scheme of Section 129 of the Act of 2017 in view of the provisions of Section 129 (3) and (4) thereof. A delinquent alleged to have violated a tax regime inviting imposition of penalty, nonetheless may have potential defences which would require consideration by the Adjudicating Authority. (para 37)

Accordingly, the Calcutta High Court set aside the impugned order imposing a penalty under Section 129, CGST Act, 2017 on the ground that it violated the principles of natural justice since it did not speak on the defence offered by the assessee.

Conclusion 

The Calcutta High Court’s decision in the impugned case is a welcome development since it clarifies, in no uncertain terms, the obligation on the officers is to comply with principles of natural justice in a substantive manner and not merely as a formality. The defence or explanation offered by the assessee in response to issuance of notice needs to be engaged with in a more substantive manner and the adjudicating order under Section 129 needs to reflect that the explanation was considered. The imposition of penalties under Section 129 should not be automatic. Further, it is important to bear in mind that the order can still result in imposition of penalty, the High Court has only mandated that the explanation be considered and the penalty not be levied in a mechanical or a pre-determined manner.    

[1] Asian Switchgear Private Limited v State Tax Officer, Bureau of Investigation, North Bengal TS-668-HCCAL-2023-GST. 

Provisional Attachment under GST: Bombay HC Clarifies Scope of Section 83 

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Introduction 

In a judgment[1] pronounced on 30.06.2023, a Division Bench of the Bombay High Court interpreted the law on provisional attachment under GST. While the law on provisional attachment has been sufficiently elaborated by the Supreme Court in Radha Krishan case[2], High Courts have had to consistently interpret the relevant provisions to remind the Revenue of the limits of its powers of provisional attachment. In the impugned case, the Bombay High Court clarified an obvious point, i.e., the order of provisional attachment expires after one year as stated in Section 83(2), CGST Act, 2017. And a new order needs to be issued after one year to legally continue the provisional attachment. The High Court also clarified scope of the Revenue’s power of provisional attachment, i.e., persons whose property can be attached under Section 83.   

To begin with, the Revenue argued that the petitioner cannot file a writ petition against an order dismissing its objections against provisional attachment. The petitioner, in the impugned case, filed objections against provisional attachment but the same were disposed by an order under Rule 159(5), CGST Rules, 2017. Relying on Radha Krishan case, the Bombay High Court agreed with the petitioner that the order dismissing the petitioner’s objections was not an appealable order and the only remedy available to the petitioner was to invoke writ jurisdiction of the High Court under Article 226 of the Constitution. It therefore admitted the petition dismissing the Revenue’s objections against its maintainability. As regards the merits, there were two issues that the High Court elaborated on, which I discuss below.    

Issue I: Expiry after One Year 

Section 83(2), CGST Act, 2017 provides that an order of provisional attachment passed under Section 83(1) expires after a period of one year. In the impugned case, the order for provisional attachment was passed on 21.04.2022 and ceased to have effect on 21.04.2023. The Revenue issued a letter to the bank on 19.04.2022, with a copy marked to the petitioner informing them about the continuance of the provisional attachment effectuated on 21.04.2022. The Revenue contended that a copy of the order sheet reflected that a fresh order was passed on 21.04.2023, making the provisional attachment valid. The Bombay High Court’s dismissed the Revenue’s contention.

The Bombay High Court observed that the order sheet recorded the date of noting as 21.04.2022 and formed the basis of the first provisional attachment order. There was no fresh order passed by the Revenue on 19.04.2023, which was merely a letter by way of communication to the bank to continue provisional attachment of the bank account. The High Court observed that mere notings in the file cannot constitute a formal order and the latter is a requirement under the law.    

Since no fresh order was passed to provisionally attach the petitioner’s bank account, the Bombay High Court rightly held that there was no provisional attachment of the petitioner’s bank account after 21.04.2023, from any angle. The extension of provisional attachment via communication letter dated 19.04.2023, was quashed.  

Issue II: Attaching Bank Account of Any Other Person  

In a similar writ petition, which was decided alongside the previous petition, the petitioner objected to provisional attachment of their bank account on jurisdictional grounds. The petitioner argued that they were a resident of Chennai and their bank account was also in Chennai and the Maharashtra GST authorities did not have jurisdiction to order provisional attachment of their bank account. The Bombay High Court disagreed with the petitioner and correctly interpreted Section 83. Section 83(1), CGST Act, 2017 states as follows:

Where, after the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV, the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue it is necessary so to do, he may, by order in writing, attach provisionally, any property, including bank account, belonging to the taxable person or any person specified in sub-section (1-A) of section 122, in such manner as may be prescribed. (emphasis added)

Elaborating on the scope of Section 83(1), the Bombay High Court observed that it contemplated two persons: taxable and any person specified in Section 122(1-A). The High Court observed that Section 122(1-A) provides that any person who is the beneficiary of certain specified transactions shall be liable to penalty of sum equivalent to tax evaded or ITC availed or passed on. The High Court held that Maharashtra GST authorities can exercise their powers under Section 83(1) in respect of person who may not be within their territorial jurisdiction and stated two reasons: 

First, it would lead to a situation where a person who is beneficiary of a transaction involving tax evasion is in a different State other than the one where the transaction occurred, will not be examined by the latter State since he is not a resident there and will not be examined by the State where he is resident since the transaction did not happen in that State. It emphasised on the term ‘any person’ used in Section 122-A and held that the provision does not contemplate that the person should be in the State where the transaction occurred. 

Second, the Bombay High Court held that the ‘context of the legislation’ is vital too. The High Court held that Section 1(2), CGST Act, 2017 states that it shall be operational throughout the country and the Commissioner as defined under Section 2(24) should be understood in light of the said provision. The High Court held that the power of Commissioner under Section 83(1) extends to ‘any person’ and concluded that: 

There cannot be any other reading of the legislative scheme flowing through a conjoint reading of Section 83(2) read with Section 122(1-A) and Section 2(24) of the Act, moreover, a contrary reading of the said provisions would defeat the legislative intention. (para 6) 

Thus, the petitioner’s objection to provisional attachment on grounds of jurisdiction was rejected since the Bombay High Court correctly interpreted the scope of Section 83 read with Section 122(1-A) of CGST Act, 2017.  

Conclusion

While the Bombay High Court’s findings on Issue II were rendered moot because it quashed the communication letter dated 19.04.2023 and 21.04.2023, its observations provide an important insight into the Revenue’s territorial jurisdiction qua provisional attachment. The High Court was not incorrect in referring to GST as a nationwide levy operational throughout the country but the said fact on its own did not offer enough legal force to support an expansive jurisdiction of the Commissioner qua provisional attachment. Similarly, the reliance on legislative mandate and intent was not incorrect and but at the same time was key to provide support to the High Court’s observations about the expansive scope of Section 83. It will be interesting to observe, if the High Court’s observations have any observable effect on the Revenue’s approach towards provisional attachment; a power that the Revenue tends to interpret liberally and invoke more frequently than required.   

[1] Bharat Parihar v State of Maharashtra 2023 (6) TR 7547. 

[2] Radha Krishan Industries v State of Himachal Pradesh (2021) 6 SCC 771.  

Time Period for Filing Appeals under GST: Kerala HC Adopts Strict Interpretation

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Short Note

In a concise judgment[1], the Kerala High Court dismissed writ petition of a taxable person and held that an appeal under CGST Act, 2017 must be filed before the appellate authority in a time bound manner. The High Court held that the time prescribed for appeal under CGST Act, 2017 must be interpreted strictly. 

Introduction 

The petitioner/taxable person did not file its GST returns in a time bound manner due to COVID-19. The proper officer exercised the power under Section 29(2)(c), CGST Act, 2017 wherein the registration of a taxable person can be cancelled if returns are not filed for a continuous period of six months. The petitioner filed an appeal against the order of cancellation of registration, but after the time prescribed under CGST Act, 2017. Section 107(4), CGST Act, 2017 states as follows: 

“The Appellate Authority may, if he is satisfied that the appellant was prevented by sufficient cause from presenting the appeal within the aforesaid period of three months or six months, as the case may be, allow it to be presented within a further period of one month.” 

Thus, the appellate authority has, in certain cases, the power to extend the time of appeal only by one month after the expiry of initial 3/6 months, whichever is applicable. The taxpayer had filed an appeal even after the additional one month had expired. 

High Court Denies the Claim of Petitioner 

The Kerala High Court relied on a couple of precedents[2] where the Supreme Court while interpreting similar provisions under the Central Excise Act, 1944 had held that the provisions prescribing an outer time limit for filing appeals operated to the exclusion of Limitation Act, 1963. The High Court observed that Section 107(4), CGST Act, 2017 was analogous to the provisions of Central Excise Act, 1944 and concluded that: 

            The Central Goods and Services Tax Act is a special statute and a self-contained code by itself. Section 107 is an inbuilt mechanism and has impliedly excluded the application of the Limitation Act. It is trite, that the Limitation Act will apply only if it is extended to the special statute. It is also rudimentary that the provisions of a fiscal statute have to be strictly construed and interpreted. (para 10)

Accordingly, the High Court dismissed the petitioner’s argument that the Revenue dismissing its appeal against cancellation of registration was arbitrary. 

Conclusion 

The Kerala High Court’s judgment establishes with clarity that the taxpayer is bound to obey the time limit prescribed under CGST Act, 2017 and cannot rely on extraneous factors to extend the time period prescribed for filing appeals before the appellate authorities. In this case, the petitioner was indirectly invoking COVID-19 as an excuse, which was not accepted by the High Court. Further, the High Court, in accordance with the well-established precedents in pre-GST regime held that the Limitation Act cannot come to the rescue of petitioners in extending the time period for filing appeals. CGST Act, 2017, the High Court clarified, operates like a self-contained code for the purpose of time period for filing appeals. Though it would be interesting to observe if the Courts interpret any exceptions to the outer time period if the taxpayer has a genuine hardship and is able to establish it convincingly before Courts.    

[1] Penuel Nexus Pvt Ltd v The Additional Commissioner Headquarters (Appeals) 2023 LiveLaw (Ker) 280. 

[2] Singh Enterprises v Commissioner of Central Excise, Jamshedpur and Others (2008) 3 SCC 70; CCE & Customs v Hongo India (P) Ltd (2009) 5 SCC 791. 

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