The High Court of Karnataka held that show cause notice is a prerequisite condition for quantification of interest or attachment of bank account without which, the proceedings would be null and void.
The challenge was two-fold. Firstly, to the notice of demand by which a demand for interest in accordance with Section 50(1) of Central Goods and Service Tax Act 2017 (CGST Act) was made. On the basis of the said demand, consequential action was taken by the tax authorities by which the account of the respondent-assessee was attached on account of non-payment of interest. This is the second challenge in the writ petition.
The respondent-assessee contended that no notice as contemplated under Section 73 of the GST Act was issued to the respondent-assessee before quantifying interest amount and attaching Bank account of the respondent-assessee.
The single-judge bench while quashing the orders held that issuance of a Show Cause Notice is the sine qua non to proceed with the recovery of interest payable under Section 50 of the GST Act and penalty leviable under the provisions of the GST Act and the Rules. It is further held that interest payable under Section 50 of the GST Act has been determined by the respondent Authority without issuing a Show Cause Notice which is in breach of the principles of natural justice.
The division bench headed by the Chief Justice Abhay S. Oka upheld the decision of the single judge bench and said, “Cause Notice is the sine qua non to proceed with the recovery of interest payable in accordance with subsection (1) of Section 50 of the GST Act.”
“Impugned demand has been set aside only on the ground of the breach of the principles of natural justice by granting liberty to the respondents to initiate action in accordance with law obviously for recovery of interest,” the division bench observed.
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