Dept Erred in Treating Voluntary GST Payment u/s 73(5) as Response to S. 74 SCN: Calcutta HC Remands Matter [Read Order]

In a recent ruling, the Calcutta High Court held that the Goods and Services Tax (GST) department was not justified in treating a voluntary tax payment made under Section 73(5) of the CGST Act as a response to a show cause notice issued under Section 74, without seeking clarification from the taxpayer.

Dharmendra Singh filed a writ petition challenging an order dated 23 February 2024 passed by the appellate authority rejecting his appeal on the ground of delay. He also challenged the original adjudication order dated 17 February 2023, which had held him liable for wrongly availing input tax credit (ITC) based on transactions with a deregistered supplier.

The petitioner’s counsel argued that he had made payments voluntarily using form DRC-03 in March and May 2022 under Section 73(5) of the CGST Act, and that these payments were not in response to the show cause notice under Section 74 of the CGST Act.

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The counsel further argued that the department wrongfully assumed these payments were admissions of liability and proceeded to recover the entire demand from the petitioner’s electronic credit ledger before the appeal period had even expired.

The GST department’s counsel argued that the petitioner had failed to respond to the show cause notice and had also not appeared for the personal hearing despite receiving an opportunity.

The counsel argued that partial payments made using form DRC-03 reflected partial compliance and that the department proceeded to pass the final order only after giving the petitioner sufficient notice. They also submitted that the appeal was rightly rejected as it was filed beyond the permissible time limit under Section 107 of the CGST Act.

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The single-judge bench comprising Justice Raja Basu Chowdhury observed that the department had not made any effort to confirm the petitioner’s intention behind the voluntary payment before treating it as compliance with the show cause notice under Section 74.

The court found that the petitioner had made part payments before the adjudication but had not clearly indicated that he accepted liability. It was further observed that recovery of the entire disputed amount before the expiry of the statutory appeal period was not proper, especially when the petitioner had no opportunity to contest the demand.

The court found that in the absence of a functioning appellate tribunal, the petitioner had no effective remedy and so the writ petition was maintainable. The court held that the department erred in law by treating the voluntary payment under Section 73(5) as a response to the Section 74 notice without seeking clarification.

The court set aside both the adjudication and appellate orders and remanded the matter back to the proper officer for a fresh decision. The petitioner was directed to file a reply to the show cause notice within two weeks. The proper officer was directed to pass a fresh order after giving the petitioner an opportunity to be heard. The writ petition was disposed of.

Dept Erred in Treating Voluntary GST Payment u/s 73(5) as Response to S. 74 SCN: Calcutta HC Remands Matter

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