Show Cause Notice mandatory to quantify Interest on GST and attachment of Bank Account

Petitioner: M/s LC Infra Projects Pvt Ltd

Respondents: Union of India, Department of Finance, Karnataka & Superintendent of CGST, Karnataka

Authority: Karnataka High Court

Date: 22nd July 2019

Case: Some of the suppliers of the Petitioner didn’t upload their Invoices and filed their returns resulting in mismatch in ITC. The Respondent contended that there was an excess availment of ITC. The petitioner was levied tax on the unpaid tax without issuing Show Cause Notice (SCN) and therefore Demand Notice was issued for the tax and interest. The Respondent, thereafter, attached Bank Account.

Core Issue: Can the Respondent quantify interest and attach bank account before issuing SCN u/s 73?

Court’s Observation:

1. Section 73 states that where it appears to the proper officer that tax has not been paid or short paid or erroneously refunded, or where ITC has been wrongly availed or utilized for any reason, other than by reason of fraud, etc; the officer shall serve notice requiring him to show cause as to why he should not pay the amount along with interest u/s 50 and penalty.

2. Issue of SCN is sine qua non (i.e., mandatory) to proceed with the recovery of interest and penalty.

3. Determination of interest payable without issuing SCN is in breach of principles of natural justice.

4. There is a lapse on the part of the Respondents by not issuing notice before attaching Bank Account.

5. The notion of the Respondent that Section 75(12) of the Act empowers the authorities to proceed with recovery without issuing SCN is misconceived. Section 75(12) is applicable only to the self-assessment made by the assessee and not to quantification or determination made by the Authority.

Judgement:

1. The Court had quashed the impugned Order.

2. The action of the respondent is perverse and illegal and the same deserves to be set aside.