Demand Order cannot be passed without issuing the Show Cause Notice

The Allahabad High Court has ruled that any demand order for tax issued without first providing a Show Cause Notice (SCN) is legally invalid. In the case of Yash Building Material v. State of Uttar Pradesh, the court found that the tax authority failed to issue an SCN to the petitioner before passing a demand order. Consequently, the court quashed the demand orders, stating they were passed without any legal basis and directed the authorities to follow the proper procedure, including issuing an SCN.

The Hon'ble Allahabad High Court in the case of Yash Building Material v. State of Uttar Pradesh [Writ Tax No. 1435 of 2022 dated January 31, 2024], held that a demand order passed without issuance of a Show Cause Notice ("SCN") are without legal basis and are required to be quashed.

Facts

Yash Building Material ("the Petitioner")were served a Notice dated June 4, 2021 under Section 74(5) of the Central Goods and Services Tax Act, 2017 ("the CGST Act") wherein it was stated that the tax was payable by the Petitioner.

As per the law, upon non-payment of the tax, Section 74(7) of the CGST Act states that the proper officer is required to give a notice under Section 74(1) of the Uttar Pradesh Goods and Services Tax Act, 2017 ("the UPGST Act").

However, the said procedure was not followed. The Assistant Commissioner ("the Respondent") did not serve the SCN to the Petitioner. Instead, an Order dated July 30, 2021 ("the Impugned Order") was passed by the Respondent.

The Petitioner appealed against the Impugned Order on the ground that no notice was issued to the Petitioner under Section 74(1) of the UPGST Act. However, an Order dated August 31, 2022 ("the Impugned Order") was passed by the Additional Commissioner ("the Respondent").

Hence, aggrieved by the Impugned Orders, the Petitioner has filed the present writ petition.

Issue

Whether the demand orders can be passed without issuance of the SCN?

Held

The Hon’ble Allahabad High Court in Writ Tax No. 1435 of 2022 held as under:

• Directed that, the Respondents to proceed in the matter after issuing SCN under Section 74(1) of the UPGST Act.
• Held that, proper SCN was not issued to the Petitioner. Therefore, all the Impugned Orders were baseless and were issued without any basis of law. Hence, the Impugned Orders were quashed and set aside.

Our Comments

Section 74 of the CGST Act talks about "Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any wilful-misstatement or suppression of facts". According to Section 74(1) of the CGST Act, where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under Section 50 of the CGST Act and a penalty equivalent to the tax specified in the notice.

In Pari Materia case of Prity Dokania v. State of Jharkhand [Writ Petition (T) No.s 27, 28, 29, 37, 41,58 of 2021 and Ors. dated September 14, 2022], the Hon’ble High Court of Jharkhand held that summary ofSCN, summary of order and consequential orders issued without issuance of SCN and without offering hearing are required to be quashed. The concerned authority should pass fresh orders after following principles of natural justice.
Therefore, in the current case the demand order should have been issued after the issuance of SCN.