Simplified Explanation of the Judgment
In a recent case, the Patna High Court dealt with a dispute concerning denial of Input Tax Credit (ITC) under the Bihar Goods and Services Tax (BGST) Act. The petitioner, a trader, had purchased goods from a registered supplier and paid the due GST. However, the tax department denied the ITC claim on the grounds that the supplier had not filed monthly returns for the financial year 2017–18. The department not only rejected the ITC claim but also imposed a penalty and interest, and froze the petitioner’s bank accounts to recover dues.
The trader approached the High Court seeking to quash several orders — including the assessment order rejecting ITC, the demand notice under Form DRC-07, and the bank account attachment order under Form DRC-13.
The High Court observed that the assessment order was passed ex parte (without hearing the petitioner) and without giving adequate opportunity to present documents or arguments. It also lacked any detailed reasoning on how the tax demand was calculated. Such actions, the Court ruled, violated principles of natural justice.
Acknowledging the consent of the State’s counsel, the Court set aside all impugned orders and directed the tax authorities to conduct a fresh assessment. It also ordered immediate defreezing of the trader’s bank accounts and instructed the Assessing Officer to ensure fair hearing and reasoned decision-making.
However, the trader must deposit 20% of the disputed amount within four weeks — either afresh or adjusting any previous payments. The assessing officer must complete reassessment within two months and ensure that the taxpayer’s rights are protected throughout.
Significance or Implication of the Judgment
This judgment reinforces the fundamental legal principle that no one should be penalized without a fair hearing. Even in cases involving tax compliance, authorities must give proper notice, consider relevant facts, and explain their reasoning.
It is especially significant for small traders and businesses in Bihar who may face technical GST issues due to supplier defaults or filing delays. The ruling ensures that purchasers who have paid GST in good faith are not automatically penalized for lapses by their vendors.
The decision also emphasizes the need for tax officers to pass speaking (well-reasoned) orders and to act fairly in enforcement, such as account attachment. The judgment encourages use of digital hearings to promote transparency and speed.
Legal Issue(s) Decided and the Court’s Decision
- Whether ITC can be denied due to supplier’s non-filing of returns:
➤ Court held that ITC denial without hearing the purchaser violates natural justice. - Whether the assessment and penalty order passed without hearing is valid:
➤ Court held such an order is bad in law and quashed it. - Whether bank account attachment without prior notice is legal:
➤ Court held attachment without hearing and reasoning is invalid. - Remedy granted:
➤ All impugned orders quashed; case remanded for fresh decision; coercive steps stayed.
Case Title
M/S Sandeep Traders vs. The State of Bihar & Others
Case Number
Civil Writ Jurisdiction Case No. 17286 of 2022
Citation(s)- 2023 (1) PLJR 674
Coram and Names of Judges
Hon’ble the Chief Justice Sanjay Karol
Hon’ble Mr. Justice Partha Sarthy
Names of Advocates and Who They Appeared For
Mr. Anurag Saurav, Advocate — for the Petitioner
Mr. Vivek Prasad (GP7) — for the Respondents
Link to Judgment
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