Recovery can only be initiated once the Amount of Excess Credit has been quantified in an Assessment: Madras HC [Read Order]

The High Court of Madras in the case of M/s Jayachandran Alloys (P.) Ltd. v The Superintendent of GST and Central Excise holding in favour of the petitioner ruled that power to punish would stand triggered only once it is established that an assessee has ‘committed’ an offence.

The petitioner is an assessee against whom an investigation was initiated by the respondents in the premises of the petitioner after which the petitioner was called upon to furnish various records.

The issues which emerge in the present case are the determination of whether the petitioner is entitled to a writ of mandamus as prayed for in regard to supply of the documents and statements sought by it in the light of the provisions of the Act; On whether the interim protection sought to prevent the respondents from invoking the powers under Section 69 r/w 132 is liable to be granted; and whether the petitioner’s request to direct the respondents to complete the adjudication and make an assessment after following the due process of law is liable to be accepted.

The petitioner has contended that the Managing Director of the was threatened that he would be arrested in the light of the provisions of Section 69. Further that the powers of arrest and prosecution with the Department would only arise if the Department is in possession of evidence to prove that the Assessee had indulged in fraud or intended to defraud the Revenue.

The Department, on the other hand, has submitted that the petitioner has availed an ITC in excess of what it was entitled to, to an extent of Rs. 18.99 crores, which is supported by incriminating records impounded during the investigation proceedings and is an offence punishable under Section 132(i)(c), if availed without actually supplying such goods and services.

The Bench constituting of Justice Dr. Anita Sumanth held that Department’s contention that the handing over copies of documents seized may be prejudicial to its interest does not hold good. The Hon’ble Court hence holding in favour of the petitioner with respect to the first issue ruled that the copies of the documents sought will be furnished within a period of 2 weeks from this order.

With respect to the issue concerning arrest, the Court referred to Sections 73 and 74 dealing with assessments and observed that such recovery can only be initiated once the amount of excess credit has been quantified and determined in an assessment. The Hon’ble Court hence is of the considered view that the power to punish set out in Section 132 of the Act would stand triggered only once it is established that an assessee has ‘committed’ an offence that has to necessarily be post-determination of the demand due from an assessee, that itself has to necessarily follow the process of an assessment.

Issue 2 is hence answered in favour of the Petitioner. Issue 3 is allowed, directing the respondents to conclude the process of adjudication within a period of twelve weeks from order, after issuing show cause notice to the petitioner setting out the proposals for assessment, affording full opportunity to the petitioner to respond to the same and advance submissions in person, and pass a reasoned and speaking order, in accordance with law.