ORDER

Heard learned counsel for the parties.

2. Petitioner, a Company engaged in construction work got itself registered under the GST Act in December 2017. According to it, during the period under consideration i.e. December 2017 to March 2018, it had not undertaken any work. However, a project loan was taken by it in December 2017 for business purposes from Dewan Housing Finance Corporation Limited (DHFL), for which, DHFL charged ₹ 16.00 crores as loan processing fees along with GST @ 18% i.e. ₹ 2.88 crores and issued two invoices dated 30.12.2017 and 28.03.2018 (Annexure-2 series). Petitioner even furnished the details of inward supplies of services received under Sub Section (2) of Section 38 of Jharkhand Goods and Services Tax Act, 2017 (in short ‘JGST Act, 2017’) showing taxable value of inward supply of ₹ 16.00 crores and claims to have paid Input tax to the tune of ₹ 2.88 crores. According to the petitioner, since no work was being undertaken in the month of December 2017, nor any sale or purchase was done, nor any payment was received, nor any supply of goods or services was done, petitioner did not file its return for the period due to ignorance of law within the time limit prescribed under Section 39 of JGST Act, 2017. According to the petitioner, it received Summary of Order under DRC-07 on 01.10.2018 uploaded in its portal, which indicated that an assessment order was passed on 28.09.2018 under section 62 of JGST Act, 2017 for the period July 2017 to March 2018 raising a total demand of ₹ 3,30,76,800/-, wherein ITC to the tune of ₹ 2.88 crores was denied and an equal amount has been levied as tax and further interest and penalty was charged vide Annexure-3.

3. Petitioner has made a categorical statement that though DRC-07, a Summary of the Order, mentioned an order dated 28.09.2018, but no such order was uploaded in its electronic portal. Petitioner applied for the certified copy of the entire order sheet and also filed its GSTR-01 and GSTR-3B for the period December 2017 on 17.10.2018 within thirty days from the date of receipt of DRC-07, as per Section 62 of JGST Act, 2017 showing nil return and therefore, claiming ITC to the tune of ₹ 2.88 crores against the tax paid @ 18% on taking project loan from DHFL. Petitioner further filed its return being GSTR- 01 and GSTR-3B showing nil return for the month of January, February and March 2018 on 26.10.2018. All those returns were accompanied with interest and late fee, as per Annexure-4 series. Petitioner also made a request to the Commercial Tax Officer, South Circle, Ranchi through letter dated 25.10.2018 to revise the order in terms of return filed by it. It claimed that since it had not made outward supply of service, they are not liable to pay GST. However, petitioner was surprised to receive certified copy of the entire proceeding under section 62 of the JGST Act, 2017, from where he came to know that the assessment order dated 02.08.2018 has been passed. Respondent authorities verbally claimed that order has been mailed on that date itself. However, no such mail containing the assessment order has been received by the petitioner, nor such notice or assessment order was ever issued or served upon the petitioner.

4. Being aggrieved, petitioner preferred an appeal under section 107 of JGST Act, 2017 being Appeal Case No. AD200719000100Z after making payment of ₹ 28,80,000/- i.e. 10% of the disputed amount, as per Section 107(6) (b) of JGST Act, 2017. However, according to the petitioner, the Appellate Authority without appreciating the facts on record, dismissed the appeal on 25.01.2020 observing that the petitioner has filed GSTR-3B beyond the period of thirty days stipulated under Section 62(2) of JGST Act, 2017 and a demand notice contained in Form GST APL-04 to the tune of ₹ 3,30,76,800/- was issued (Annexure-9 and 10). The Department has blocked ITC amount to the tune of ₹ 2.88 crores and adjusted the same against the disputed tax liability in question.

5. Petitioner being aggrieved therefrom, has approached this Court in the present writ petition, inter-alia praying for the following relief (s):

a. For setting aside the appellate order dated 25.01.2020 (Annexure-9) passed by the Joint Commissioner of State Tax (Appeal), Ranchi Division, Ranchi.

b. for quashing of the assessment order dated 02.08.2018 passed under section 62 of JGST Act, 2017 by the Deputy Commissioner of State Tax South Circle, Ranchi (Respondent No. 2) (Annexure-6) and DRC-07, a Summary of the Order dated 01.10.2018 (Annexure-3).

c. Petitioner has also prayed that it may be allowed to avail and utilize its ITC amounting to ₹ 2.88 crores which has been blocked and adjusted against the disputed amount.

Based on these facts, learned counsel for the petitioner has made the following submissions:

i. No notice under section 46 of JGST Act, 2017 was served before passing of the assessment order under Section 62 of the JGST Act, 2017, though it is mandatory condition. It is submitted that Section 62 provides that only after service of notice under Section 46 of the Act, proper officer may proceed to assess the tax liability of the said person to the best of his judgment taking into account all relevant material which is available or which he has gathered. According to the petitioner, assessment order can be passed within a period of five years from the date specified under Section 44 for furnishing of the annual return for the financial year to which tax not paid relates. It is submitted that Section 62(2) further provides that if valid return has been furnished by the registered person within thirty days of service of the assessment order under Sub Section (1), the said assessment order shall be deemed to have been withdrawn but the liability for payment of interest under Sub-Section (1) of Section 50 or for payment of late fee under Section 47 shall continue. It is submitted that issuance of notice under section 46 is a mandatory condition and no assessment under section 62 could be made without issuing notice under section 46 of the Act. Non-issuance of notice is not a mere procedural irregularity which can be cured. In this regard, reliance is placed upon the decision of the Apex Court in the case of Assistant Commissioner of Income Tax Versus Hotel Blue Moon [(2010) 3 SCC 259] in a case arising out of block assessment proceeding under section 143 of the Income Tax Act.

ii. Petitioner contends that assessment order dated 02.08.2018 had not been served upon the petitioner through mail, as per categorical statement made at para-17 of the writ petition. For the first time on 01.10.2018, on receipt of Summary of the Order contained in DRC-07, uploaded in its electronic portal, petitioner came to know about such proceeding and immediately filed its return within thirty days of receipt of Summary Order. As such, the assessment order ought to have been withdrawn.

iii. Learned counsel for the petitioner has referred to the assessment order dated 02.08.2018 (Annexure-6) and tried to demonstrate that it is a nonreasoned order passed in GST ASMT-13 format without any application of mind. No reason at all have been stated as how non-filing of the return attracts tax liability under the provisions of the Act as admittedly, no sale or purchase has been made by the petitioner during the period December 2017 to March 2018. Merely on the basis of GSTR-2A showing ITC amounting to ₹ 2.88 crores lying in the electronic ledger of the petitioner, the Respondent Department has ascertained the tax of an equivalent amount. No findings have been recorded to show that the petitioner is involved in tax evasion.

iv. Learned counsel for the petitioner submits that in terms of Section 50 of the Act, interest is to be levied upon a person who is liable to pay tax but fails to pay it or any part thereof within the time prescribed. Without arriving at specific finding as to any tax due for the said period, interest has been charged upon it.

v. Learned counsel for the petitioner has also submitted that penalty under section 73(9) amounting to ₹ 3,88,800/- ought not to have been levied since there was no liability for payment of any tax, nor any question of tax paid or short paid for the period in question arises, neither has the petitioner wrongly availed or utilized any ITC. ITC of the petitioner was merely lying in its electronic credit ledger which has been blocked by the Respondent.

vi. It is contended that as per Section 16(4) of the Act, a registered person is entitled to take ITC till 20th October of following financial year. However, due to the action of the Respondent Department, ITC has been blocked even before expiry of the said period. Petitioner is unable to utilize ITC for discharge of its tax liability for subsequent periods.

Learned counsel for the petitioner has summarized her submissions and prayed that the impugned assessment order dated 02.08.2018 (Annexure-6) as well as DRC-07, a Summary of the Order dated 01.10.2018 (Annexure-3) and appellate order dated 25.01.2020 (Annexure-9) be set aside. Petitioner may also be allowed to avail of Input Tax Credit amounting to ₹ 2.88 crores as shown in its GSTR-2A.

6. Respondents have filed a counter affidavit taking a plea that the writ petition is not maintainable in the light of an alternative remedy. Learned counsel for the Respondent Mr. P.A.S. Pati has however, submitted that DRC- 07 was issued only due to non-filing of the return by the petitioner on the basis of best judgment assessment provided under section 62 of the Act. Petitioner did not file its return within thirty days of passing of the assessment order in terms of section 62 (2) of the Act which could have led to withdrawal of the assessment order. Petitioner had filed its return in the month of October 2018 whereas ASMT-13 was passed and e-mailed to the petitioner on 02.08.2018 itself. No categorical statement has been made with supporting documents that notice under section 46 was served upon the petitioner before carrying out assessment order under section 62 of the Act.

7. Petitioner in his rejoinder affidavit has referred to the Standard Operating Procedure framed by the Central Board of Indirect Taxes and Customs vide Circular No. 129/48/2019-GST dated 24.12.2019 for ensuring uniformity in the implementation of provisions of law. Relevant extracts of the SOP are quoted hereunder:

“4. (iii) Five days after the due date of furnishing the return, a notice in FORM GSTR-3A (under section 46 of the CGST Act read with rule 68 of the CGST Rules) shall be issued electronically to such registered person who fails to furnish return under Section 39, requiring him to furnish such return within fifteen days.

iv. In case the said return is still not filed by the defaulter within 15 days of the said notice, the proper office may proceed to assess the tax liability of the said person under section 62 of CGST Act, to the best of his judgment taking into account all the relevant material which is available or which he has gathered and would issue order under rule 100 of the CGST Rules in FORM GST ASMT-13. The proper officer would then be required to upload the summary thereof in FORM GST DRC-07”

It has been submitted by the learned counsel for the petitioner that service of notice under section 46 of the JGST Act read with rule 68 of the JGST Rules has been held to be a mandatory requirement before the proper officer proceeds to assess the tax liability of the said person under section 62 of the JGST Act to the best of his judgment.

8. A reply to the rejoinder affidavit has also been filed wherein averment made in the counter affidavit have been reiterated. On being specifically asked, learned counsel for the Respondent has not been able to show from the records or dispute the contention of the petitioner that no notice under section 46 of the Act of 2017 was issued prior to passing of the assessment order under section 62 of the Act by the proper officer.

9. We have considered the submissions of learned counsel for the parties and taken note of the materials on record relied upon by the rival parties. The relevant provisions of JGST Act, 2017 as are necessary to appreciate the issue at hand, are being quoted hereunder:

CHAPTER-V

Input Tax Credit

“16. Eligibility and conditions for taking input tax credit. – (1)

Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless, –

(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;

(b) he has received the goods or services or both.

Explanation. – For the purposes of this clause, it shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;

(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and

(d) he has furnished the return under section 39:

Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment:

Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed:

Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.

(3) Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961, [43 of 1961], the input tax credit on the said tax component shall not be allowed.

(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.”

CHAPTER-IX

Returns

46. Notice to return defaulters. – Where a registered person fails to furnish a return under section 39 or section 44 or section 45, a notice shall be issued requiring him to furnish such return within fifteen days in such form and manner as may be prescribed.

47. Levy of late fee. – (1) Any registered person who fails to furnish the details of outward or inward supplies required under section 37 or section 38 or returns required under section 39 or section 45 by the due date shall pay a late fee of one hundred rupees for every day during which such failure continues subject to a maximum amount of five thousand rupees.

(2) Any registered person who fails to furnish the return required under section 44 by the due date shall be liable to pay a late fee of one hundred rupees for every day during which such failure continues subject to a maximum of an amount calculated at a quarter per cent of his turnover in the State.

CHAPTER-X

Payment of Tax

50. Interest on delayed payment of tax. – (1) Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent., as may be notified by the Government on the recommendations of the Council.

Provided that the interest on tax payable in respect of suppliers made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be levied on that portion of the tax that is paid by debiting the electronic cash ledger.

(2) The interest under sub-section (1) shall be calculated, in such manner as may be prescribed, from the day succeeding the day on which such tax was due to be paid.

(3) A taxable person who makes an undue or excess claim of input tax credit under sub-section (10) of section 42 or undue or excess reduction in output tax liability under sub-section (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding twenty-four per cent., as may be notified by the Government on the recommendations of the Council.

CHAPTER-XII

Assessment

62. Assessment of non-filers of returns. – (1) Notwithstanding anything to the contrary contained in section 73 or section 74, where a registered person fails to furnish the return under section 39 or section 45, even after the service of a notice under section 46, the proper officer may proceed to assess the tax liability of the said person to the best of his judgement taking into account all the relevant material which is available or which he has gathered and issue an assessment order within a period of five years from the date specified under section 44 for furnishing of the annual return for the financial year to which the tax not paid relates.

(2) Where the registered person furnishes a valid return within thirty days of the service of the assessment order under subsection (1), the said assessment order shall be deemed to have been withdrawn but the liability for payment of interest under sub-section (1) of section 50 or for payment of late fee under section 47 shall continue.

JGST RULES, 2017

CHAPTER-VIII

Returns

68. Notice to non-filers of returns.- A notice in FORM GSTR-3A shall be issued, electronically, to a registered person who fails to furnish return under Section 39 or Section 44 or Section 45 or Section 52.

10. A perusal of the aforesaid provisions in the scheme of the Act indicates that the Legislature has provided a mechanism for issuance of prior notice to return defaulter under section 46 of the Act if a registered person fails to furnish return under section 39 or section 44 or 45. The notice is to be furnished in the prescribed format i.e. GSTR-3A. Section 62 makes it all the more clear that if a registered person fails to furnish the return under section 39 or section 45 of the Act even after service of notice under section 46, proper officer may proceed to assess the tax liability of the said person as per his best judgment taking into account all the relevant materials which are available or which he has gathered. Such an assessment order has to be issued within a period of five years from the date specified under section 44 for furnishing of the annual return for the financial year to which the tax not paid relates. Sub-section (2) further provides that if a registered person furnishes a valid return within thirty days of service of the assessment order under sub-section (1), the said assessment order shall be deemed to have been withdrawn but the liability for payment of interest under sub section (1) of section 50 or for payment of late fee under section 47 shall continue. Requirement of notice before proceeding to pass assessment order under section 62 has been consciously laid down by the Legislature in the scheme of GST regime, so that defaulter may have an opportunity to file return with late fee in case return has not been filed within the time prescribed so that penal consequences arising therefrom can be avoided. There is a salutary purpose for service of notice under section 46 before the proper officer proceeds to pass assessment order under section 62 of the Act. Even the CBIC Circular dated 24.12.2019 quoted at the preceding paragraph prescribes an SOP for service of notice under Section 46 before the proper officer proceeds to assess the tax liability of a return defaulter under Section 62 of the Act. Moreover, sub-section (2) of section 62 further provides that if within thirty days valid return has been filed, assessment order shall be deemed to have been withdrawn, the reason being that in case the return has not been filed even after proper service of notice under section 46 of the Act, the penal consequences flows out of such an order passed under section 62 of the Act.

11. Such has been the case in the present matter since the petitioner has been imposed with the liability of ₹ 3,30,76,800/- which includes taxes to the tune of ₹ 2.88 crores, interest @ 18%, of ₹ 38,88,000 and penalty under section 73(9) of ₹ 3,88,800/-. Learned counsel for the petitioner has tried to show serious infirmities in the assessment order passed under section 62 by the Deputy Commissioner of State Tax, South Circle, Ranchi (Annexure-6) and establish that the order is in a format without even referring to the introduction of the facts of the case submitted by the Assessee, if any, and there is no discussion or findings and conclusion as to how and why determination of the tax liability together with interest and penalty has been made. But, since the impugned assessment order fails to comply the mandatory requirement of notice under section 46 of the Act, we do not deem it necessary to make comments thereupon. Material facts leading up to issuance of DRC-07 have been referred to in the earlier part of the order. Respondent had not brought on record any document to show that the assessment order (Annexure-6) was served upon the petitioner before issuance of DRC-07 on 1.10.2018 or that a notice under Section 46 was served upon the petitioner before passing the assessment order under Section 62 of the Act. Petitioner has therefore rightly contended that it did not get an opportunity to file its return within thirty days of passing of the assessment order. Had that been the case, the assessment order could have been deemed to have been withdrawn. Learned counsel for the petitioner has also taken a plea that filing of GSTR-01 and GSTR-3B was extended from time to time till 31.08.2021, of course with late fee, as required under section 47 of the Act. However, we need not to comment upon those issues.

12. The impugned assessment order passed under section 62 of the Act by the Respondent No. 2 suffers from a serious lacuna due to non-issuance of notice under section 46 of the Act. The action of the Respondent had led to blocking of ITC to the tune of ₹ 2.88 crores which has been adjusted against the disputed tax liability of ₹ 3,30,76,800/- imposed under the impugned assessment order. From perusal of the appellate order at Annexure-9, it appears that the Appellate Authority has only taken into consideration that the petitioner had failed to file its return within thirty days of the assessment order in terms of section 62(2) of the Act and therefore, the assessment order passed by the proper officer to the best of his judgment did not require any interference. Learned Appellate Authority has however failed to take note that the assessment order itself suffers from serious infirmities for non-compliance of principles of natural justice and procedural requirement prescribed under the Act in the absence of proper notice upon the petitioner. The impugned action has led to serious penal consequences which cannot be sustained in view of serious infirmities in the procedure adopted by the Assessing Officer. This Court is, therefore, of the view that the impugned assessment order dated 02.08.2018 passed by the Respondent No. 2 (Annexure-6)as also the Summary of the Order contained in DRC-07 dated 01.10.2018 issued by the Respondent No. 3 deserves to be set aside. Accordingly, they are set aside. For the reasons recorded hereinabove, the appellate order dated 25.01.2020 (Annexure-9) passed by the Joint Commissioner of State Tax (Appeal), Ranchi Division, Ranchi also cannot be sustained in the eye of law. Accordingly, it is set aside. Consequently, ITC of the petitioner amounting to ₹ 2.88 crores lying blocked shall be unblocked.

12. As also admitted by the Respondent, petitioner has filed its return for the period in question. It is open for the Respondent to accept the return or undertake proper scrutiny thereof as per law. Learned counsel for the petitioner submits that pre-deposit made before the Appellate Authority may be directed to be released. It is up to the petitioner to approach the Appellate Authority with proper request, which shall be considered in accordance with law.

13. Writ petition is allowed in the manner and to the extent indicated hereinabove.