The Kerala High Court quashed the assessment order under the Goods and Service Tax Act, 2017 (GST Act) for not following procedure for compounding scheme.
The petitioner is the registered dealer under the provisions of CGST/KSGST Rules, 2017. The petitioner had opted for composition scheme during the tax period 2017-18. As per Section 10(2)(a) of the CGST/SGST Act, 2017 : the registered person is eligible under the composition scheme provided he is not engaged in supply of service and he is not engaged in works contract.
The proper officer having found that the petitioner was engaged in works contract and therefore, he was not eligible for composition scheme issued show cause notice dated 29.09.2023 rejecting the application of the composition scheme as well as notice under Section 61(3) to determine the tax and other dues under Section 73(1). In the show cause notice, the petitioner was granted time to respond but the petitioner did not respond to the notice. Accordingly, the notice for rejection of the compounding application has been issued.
The counsel for the petitioner submits that without determining the eligibility of the petitioner for compounding show cause notice for determining liability under Section 73 has been issued to the petitioner. It was submitted that at the first instance, the petitioner’s application for compounding should have been considered, and after passing an order rejecting the application, the notice for hearing the petitioner for determining the tax liability under Section 61(3) of the Act should have been issued. No such procedure has been followed in the present case.
A Single Bench of Justice Dinesh Kumar Singh observed that “Without there being an order rejecting the application of the petitioner, notice under Section 73 has been issued. This is a complete violation of the Scheme of the Act and therefore, I am of the considered opinion that the impugned order is unsustainable and it is hereby set aside. The matter is remitted back to the second respondent, first to determine the eligibility of the petitioner to the compounding scheme. The petitioner is directed to file reply to the show cause notice for rejection of the application under the composition scheme within a period of ten days from today.”
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